Ozer v Australian Liquor Marketers Pty Ltd

REASONS FOR JUDGMENT 1 I have before me an application for the annulment of a bankruptcy. (The application, as filed, also sought relief under O 35, r 7, of the Federal Court Rules, but any claim for such relief was abandoned at the outset of the hearing of the application.) 2 It is convenient to begin my reasons for judgment with respect to the application by summarising some of the basic facts relevant to it. 3 On 26 October 1998, Australian Liquor Marketers Pty Limited ("the creditor") served on Ms Nazile Ozer ("the debtor") a creditor's petition under the Bankruptcy Act 1966 (Cth) ("the Act"). The act of bankruptcy on which the creditor relied in its petition was the debtor's non-compliance, by 6 August 1998, with a bankruptcy notice which had been issued on 10 July 1998 and served on the debtor on 16 July 1998. 4 The judgment which had been relied on in the bankruptcy notice had been a default judgment in the sum of $10,734.80 which had been obtained by the creditor against the debtor in a New South Wales Local Court on 26 February 1998. The debtor had been served with the Local Court originating process on or about 22 August 1997. 5 The creditor's claim in the Local Court had been for an alleged breach of a written guarantee of payment for goods supplied, given to the creditor by the debtor on 3 January 1997 in respect of Possam Holdings Pty Limited, a company of which the debtor was then a director. 6 The creditor's petition was before this Court on at least four occasions after its service on the debtor on 26 October 1998, but before 12 April 1999. Then, on 12 April 1999, this Court made a sequestration order against the estate of the debtor. Although having had notice in advance of each of the five occasions (at least) on which the petition was to be before this Court, the debtor did not appear on any of them. 7 By 14 April 1999, at the latest, the debtor was aware that a sequestration order had just been made against her estate, having been contacted on that day on behalf of Mr Scott Pascoe ("the trustee"), who had been appointed trustee of her bankrupt estate, and having been asked to attend the trustee's office to discuss her bankruptcy. (I interpolate here that the debtor did attend the trustee's office, but not until 12 May 1999, having earlier refused twice to do so, once on 14 April 1999 and once again on 28 April 1999.) 8 On 16 April 1999, the trustee wrote to the debtor by registered post at her correct address, confirming his appointment and requiring her to complete and return an enclosed statement of affairs form within fourteen days of receipt of his letter. He also enclosed with his letter a so-called warning notice, the terms of which were not in evidence before me. 9 On 3 May 1999, by which time she already had a solicitor acting for her in connection with a proposed application for annulment of the sequestration order and had also, it appears, conferred with a barrister about the matter, the debtor delivered to the trustee a statement of affairs. That statement was, however, incomplete in significant respects. 10 On 5 May 1999, the Insolvency and Trustee Service Australia wrote to the debtor, advising her of the Official Receiver's inability to accept her incomplete statement of affairs for filing (the trustee having forwarded the statement to the Official Receiver) and requesting a properly completed statement for filing. 11 On 12 May 1999, the Official Receiver ultimately accepted for filing a statement which had been properly completed by the debtor. 12 On 19 May 1999, the debtor applied to this Court for an order annulling her bankruptcy. The debtor claimed in her application that the sequestration order made against her estate on 12 April 1999 ought not to have been made, because she had not been indebted to the creditor at the time at which it had obtained its default judgment against her in the Local Court and because she proposed to apply to the Local Court to have that judgment set aside. (I interpolate here that the debtor did afterwards make such an application to the Local Court, but the hearing of that application has apparently been postponed, pending the determination of the present application to this Court.) 13 The debtor's annulment application first came before a Registrar on 22 June 1999 and was then referred to me for directions on 7 July 1999, at which time I fixed the application for hearing on 18 August 1999. 14 Finally, on 12 July 1999, the debtor sought to borrow $20,000 from the St George Bank Limited, but without disclosing to it that she was an undischarged bankrupt. Her attempt failed, however, when the bank, in the course of processing her loan application, conducted a search revealing that she had that status. 15 My summary of some of the basic facts relevant to the debtor's annulment application now complete, I mention some of the basic law relevant to that application. 16 The application was made under s 153B of the Act, which provides relevantly, "If the Court is satisfied that a sequestration order ought not to have been made …, the Court may make an order annulling the bankruptcy." 17 In an application under s 153B of the Act (so far as I have just quoted that section), the first fundamental question for this Court is obviously whether it is satisfied that it ought not to have made the sequestration order which it has earlier made. There is, however, a second fundamental question as well; if satisfied that it ought not to have made that sequestration order, should this Court now exercise the power conferred on it by the section to annul the bankruptcy? As is apparent from the existence of that second fundamental question, s 153B of the Act confers a true discretion on this Court. It would now be far too late to contend that it does not do so, given that predecessor sections dealing with annulment of bankruptcy have for many years been so construed by, in particular, the High Court of Australia: see Delph Sing v Wood (1918) 25 CLR 497, dealing with the Bankruptcy Act 1898 (NSW), s 37, and Marek v Tregenza (1963) 109 CLR 1, dealing with the Bankruptcy Act 1924 (Cth), s 124. 18 On the question of whether I am satisfied that this Court ought not to have made the sequestration order against her estate on 12 April 1999, it was the debtor's clear evidence before me that the written guarantee to which I have referred above had not (contrary to appearances) been signed by her. Further, as I understood her evidence, it was to the effect that her brother, Mr Hakan Ozer, had forged her signature to the written guarantee. 19 Nonetheless though it chose neither to cross-examine the debtor on her evidence to which I have just referred nor to attempt to contradict that evidence otherwise, the creditor submitted to me that I would not be satisfied, for the purpose of the present application, that the debtor had not signed the guarantee. 20 In light of the creditor's inaction in the relevant respect, however, I am not prepared, for the purpose of this application, to reject the debtor's evidence that she did not sign the written guarantee. 21 The creditor also submitted that, in any event, the debtor's evidence that she had not signed the guarantee was irrelevant, because, in deciding whether this Court ought not to have made the sequestration order, I would limit myself to the facts as they had been believed by the Court to be at the time at which it made the sequestration order and then ask myself whether, on those facts, I was satisfied that the sequestration order ought not to have been made. As there had been no evidence before this Court on 12 April 1999 that the debtor had not signed the written guarantee, I could not be satisfied, so it was submitted, that the sequestration order ought not to have been made at that time. 22 As to that submission, I need only say that it is contrary to well-recognised authority, which I will naturally follow, as to the approach which is to be taken when deciding whether one is satisfied that a sequestration order earlier made ought not to have been made. For example, in Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 at 350, Gummow J said, "The 'true facts' which are considered in deciding whether the sequestration order ought not to have been made include those now known then to have existed", and, I add, now known then not to have existed. 23 I will therefore proceed for the purpose of the present application on the bases that the debtor was not responsible under the written guarantee and that I am thus satisfied that the sequestration order ought not to have been made against her estate on 12 April 1999. 24 Having resolved in her favour, therefore, the first of the two fundamental questions to be resolved on her application, I turn now to the question of this Court's discretion in the matter. 25 In Marek's Case, in which the High Court allowed an appeal from a refusal to annul a bankruptcy, McTiernan J first said (at 3), after referring to the discretionary nature of the power conferred by the predecessor of s 153B, "The materials on which the application fell to be decided are the facts to which the applicant deposed in his affidavit and the materials in the report which the official receiver made on the application." (I interpolate here that the materials on which the present application falls to be decided are similar. There are two affidavits by the debtor and one by her solicitor, all read before me without objection by the creditor. (Only the most recent of three affidavits sworn by the solicitor was read.) There are also two reports by the trustee (see O 77, r 44, of the Federal Court Rules), both of which were tendered before me by the debtor as part of her own case, again, without objection by the creditor. (The creditor, incidentally, sought neither to cross-examine the debtor or her solicitor nor to go into evidence itself.)) McTiernan J then continued, "There is nothing in the affidavit or the report adverse to the applicant…. Nothing which was said [by the court below] imputes dishonesty or fraud to the applicant and no issue of commercial morality or public interest was raised against him." Kitto and Menzies JJ (at 4-5) referred to a bankrupt's legitimate expectation that an annulment would be granted if a condition precedent to its grant were made out, "unless in the circumstances of the case, and speaking generally that means in the conduct of the bankrupt, there is seen to be a reason to the contrary, being a reason relevant to the purposes of the Act". 26 It is obvious from the approach taken by the High Court in Marek's Case that the conduct of a bankrupt since bankruptcy may provide a reason, relevant to the purposes of the Act, for refusing to annul that bankrupt's bankruptcy, even if the Court is satisfied that the sequestration order concerned ought not to have been made in the first place. That approach has been acted on in many cases and has led to the refusal to annul a bankruptcy, nonetheless though a condition precedent to annulment has been satisfied: see, merely by way of example, Re Lawson (1939) 11 ABC 137 (Clyne J); Re Gray (1960) 19 ABC 29 (Clyne J); and Pollock v Deputy Commissioner of Taxation (1994) 94 ATC 4148 (Carr J). 27 Conduct of a bankrupt which could provide a reason, relevant to the purposes of the Act, for refusing to annul that bankrupt's bankruptcy would obviously include the commission by the bankrupt since bankruptcy of offences relating to his or her bankruptcy. 28 There is evidence before me which leads me to conclude, for the purpose of the present matter, that the debtor has, while bankrupt, committed two offences relating to her bankruptcy. 29 First, she has committed an offence against subs 54(1) of the Act, which provides, "Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he or she is notified of the bankruptcy: (a) make out and file in the office of the Official Receiver for the District in which the sequestration order was made a statement of his or her affairs; and (b) furnish a copy of the statement to the trustee." (I note that, at the foot of subs 54(1) of the Act, appears the phrase, "Penalty: 5 penalty units". For the significance of that phrase, see subs 4D(1) of the Crimes Act 1914 (Cth). "Penalty units" are, incidentally, defined in s 4AA of the Crimes Act. I note also that I am unaware of either any statutory provision defining, or any case discussing, either the sources or means of notification to a person of his or her bankruptcy which will trigger the commencement of the fourteen day period referred to in subs 54(1) of the Act. That is a matter to which I will return below.) 30 Secondly, the debtor has committed an offence against subs 7(1) of the Crimes Act, namely, attempting to commit an offence against par 269(1)(a) of the Act. 31 Subsection 7(1) of the Crimes Act provides relevantly, "Any person who attempts to commit any offence against any law of the Commonwealth … shall be guilty of an offence and shall be punishable as if the attempted offence had been committed." (I note that in Duff v The Queen (1979) 28 ALR 663 at 697, it was held by a Full Court of this Court that an attempt to commit an offence against any particular Commonwealth law was an offence, not by force of the particular Commonwealth law concerned, but by force of s 7 of the Crimes Act itself.) 32 Paragraph 269(1)(a) of the Act provides relevantly, "An undischarged bankrupt shall not … obtain credit to the extent of $3,000 or more from a person without informing that person that he is an undischarged bankrupt…." (I note that, at the foot of s 269 of the Act, appears the phrase, "Penalty: Imprisonment for 3 years". I note also that, because of s 304A of the Act, the $3,000 figure in par 269(1)(a) has, since 1 July 1992, been increased quarterly in accordance with increases in the CPI. I am not aware of the precise figure presently, but am confident that it does not exceed $3,500, since, according to McDonald, Henry & Meek, Australian Bankruptcy Law & Practice, p 9408, the appropriate figure as of 1 January 1997 was $3,363.) 33 As to the debtor's commission of an offence against subs 54(1) of the Act, although, as I have already mentioned, that subsection does not define the sources of notification to a person of his or her bankruptcy which will trigger the commencement of the fourteen day period referred to in subs 54(1) of the Act, I am in no doubt that notification by the person's trustee was in the legislature's contemplation as a source (if not the sole source) of such notification. Here, the debtor was notified of her bankruptcy by (or on behalf of) her trustee orally on 14 April 1999 and again in writing by letter dated 16 April 1999. 34 As to the means of notifying the debtor of her bankruptcy, however, a question may arise, although I emphasise immediately that it does not arise in the present case, whether oral notification was in the legislature's contemplation as a possible means of such notification, or whether only written notification was in contemplation. I have said that the question does not arise in the present case, because, on the assumption that the debtor was not notified of her bankruptcy within the meaning of subs 54(1) of the Act by an oral communication on 14 April 1999, she was notified of her bankruptcy within the meaning of subs 54(1) of the Act by a written communication dated 16 April 1999, but did not comply with the provision until 12 May 1999. Further, as I understand her evidence before me, she conceded in it that she had not filed a completed statement within fourteen days of receiving the trustee's letter dated 16 April 1999. As to that, she said, "The Trustee has complained that I was guilty of two things since he notified me of his appointment: i. Of delay in filing a complete Statement of Affairs; and ii. Of delay in coming in to see him to discuss my estate and financial position. I am guilty of the first one because I was not familiar with the Form sent to me and had never had to do this before. I found parts of it difficult to follow. I did not intend to deceive the Trustee. When I was asked to do a further Statement I sought advice on how to fill it out properly." (It is unnecessary for present purposes to set out the debtor's explanation for her alleged delay in attending on the trustee.) 35 Although, as I have said, it does not matter in the present case whether the debtor was notified of her bankruptcy within the meaning of subs 54(1) of the Act by the oral communication of 14 April 1999, still the question whether oral notification will suffice for the purpose of the subsection could be an important one in some cases and so I propose to comment on it briefly. 36 If one examines the Act for references in it to the process of notification, one finds that, on many occasions, the legislature has seen fit explicitly to require that such process occur in writing. For instance, subs 6A(3) of the Act provides that if the trustee has reasonable grounds to suspect that any particulars set out in a statement of affairs that was filed by a person under (relevantly) subs 54(1) of the Act are false or misleading in a material respect or that any material particulars have been omitted from that statement, the trustee may "by written notice given to the person" require etc. The existence of many such provisions in the Act tells against reading subs 54(1) thereof as requiring, by implication only, written notification to a person of that person's bankruptcy in order to start time running under the subsection. 37 On the other hand, being notified of one's bankruptcy starts time running for the doing of particular acts, the omission to do which is a criminal offence. That being so, one can appropriately say, adapting the language of the Judicial Committee of the Privy Council in Musson v Rodriguez [1953] AC 530 at 533, that, "it would be unfortunate if the proof [of the notification] … were to be subject to the uncertainties which attend proof by oral evidence". 38 All in all, it appears that it would be a useful piece of law reform if the legislature were to amend subs 54(1) of the Act, so that it identified with precision those sources and means of notification to a person of his or her bankruptcy which would start time running under the provision. 39 Having now identified a breach by the debtor of subs 54(1) of the Act, I say of that breach that, if it were the only offence committed by the debtor in relation to her bankruptcy, I would not have exercised against her the discretion which is conferred on me by s 153B of the Act. Although it is not easy to reconcile the debtor's implied assertion that she had had no legal advice about how to complete a statement of affairs before delivering her first, unsatisfactory, statement to the trustee on 3 May 1999 with the fact that, by that date, she already had lawyers acting for her, still she did produce a satisfactory statement shortly thereafter. 40 However, I take an entirely different attitude to the debtor's conduct of having attempted to obtain credit from the St George Bank without disclosing her status as an undischarged bankrupt than I do to her breach of subs 54(1) of the Act. The offence involved is a much more serious one than the offence against subs 54(1) of the Act (as appears from their respective maximum penalties). It is significant that the debtor did not seek to deny before me that she had engaged in the relevant conduct. Indeed, her tendering in her own case of the trustee's report in which it was asserted that she had engaged in the relevant conduct appears to me to have amounted in effect to an acknowledgment by her that she had engaged in the relevant conduct. Further, unlike her attempt to excuse herself as to the trustee's complaint about her statement of affairs by relying, in effect, on her ignorance, she made no attempt whatever to offer an excuse to the Court for the conduct presently under discussion, nonetheless though the creditor made that conduct part of its case for my refusing her an annulment. In the circumstances, I do not consider that it would be a sound exercise of my discretion to annul her bankruptcy. 41 Having reached the conclusion which I have just expressed, it is unnecessary for me to deal with a number of other matters relied on by the creditor as justifying my exercising my discretion against annulling the debtor's bankruptcy. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katz.