Voskuilen v Morisset Megamarket Pty Limited

REASONS FOR JUDGMENT 1. This is an application under s 153B of the Bankruptcy Act 1966 (Cth) to annul a sequestration order made on 24 September 2004 by Registrar Hedge. My power to make the order is conditional upon the court being satisfied that the sequestration order ought not to have been made. It is well established by the authorities that even if this condition is satisfied the court has a discretion which is to be exercised in the interests of justice. 2. The applicant ("the bankrupt") relies on three matters to support a finding that the sequestration order ought not to have been made. First he submits that he has a claim which is listed for hearing in the Supreme Court of New South Wales in early February 2005. Second, he submits that the bankruptcy petition was not served on him. Third, he submits that an amendment to the petition made on 14 September 2004 had the effect of introducing a new act of bankruptcy as the ground for the petition. It was said that the act of bankruptcy relied upon in the petition was "stale" because more than six months had elapsed between the act of bankruptcy and the filing of the petition. 3. The relevant facts are as follows. On 22 October 2002, a certificate of determination of costs in an amount of $8162.60 was issued out of the Supreme Court of New South Wales. It was issued out of that court in the common law division, matter number 90974 of 2002, but the bill of costs appears to have arisen out of a judgment given by Young J on 31 January 2002 in matter number 1258 of 2002. 4. On 6 November 2002, the certificate of determination of costs was filed in the Downing Centre by Morisset Mega Market Pty Limited ("Morisset"), which is the respondent on this application. 5. Upon filing in the Local Court, the certificate had the effect of a judgment of that court, see section 208JA(4) of the Legal Profession Act 1987 (NSW) ("Legal Profession Act"). 6. On 13 December 2002, the Official Receiver issued bankruptcy notice N2965 of 2002 ("the bankruptcy notice"). On 9 January 2003, the bankruptcy notice was served on the bankrupt. On 29 January 2003, the bankrupt filed an application to set aside the bankruptcy notice. On 11 March 2003, Registrar Hedge ordered by consent that the application to set aside the bankruptcy notice be adjourned to 25 November 2003 and extended time for compliance with the bankruptcy notice to the same date. On 25 November 2003, Registrar Hedge ordered that the application to set aside the bankruptcy notice be dismissed. 7. On 27 February 2003, Morisset filed a creditor's petition. The act of bankruptcy specified in the petition was the failure to comply with the bankruptcy notice. The petition wrongly stated that the bankruptcy notice was founded upon a judgment of the Supreme Court of New South Wales dated 22 October 2002 rather than a judgment of the Local Court of 6 November 2002. However, the petition correctly stated the amount of the judgment debt and annexed the bankruptcy notice as well as a copy of the certificate as to determination of costs. The certificate stated that upon filing it was taken to be a judgment of the court under section 208JA(4) of the Legal Profession Act. 8. On 5 August 2004, Registrar Kavallaris ordered substituted service of the creditor's petition. The petition was ordered to be served by leaving a copy at the bankrupt's last known address and by sending a copy to the bankrupt's then solicitor Mr David Cohen of David H. Cohen & Co. There was abundant evidence before the Registrar to satisfy her that an order for substituted service ought to be made. The order for substituted service was entered on 17 August 2004. 9. On 20 August 2004, service of the bankruptcy petition was effected pursuant to the order for substituted service. On 31 August 2004, a letter from David H. Cohen & Co was sent to the solicitors for Morisset. The letter commenced with the words, "We have been consulted by Mr Voskuilen in relation to the bankruptcy petition". The letter then stated that the petition was defective for a number of reasons. On 31 August 2000, the bankrupt personally signed a notice of intention to oppose the petition. The notice signed by the bankrupt contained a denial that he had been served with the bankruptcy notice although he later admitted that he had in fact been served. 10. On 1 September 2004, Mr Cohen appeared in the Federal Magistrate's Court and filed in the court a notice of appearance and the notice of intention to oppose the petition which had been signed by the bankrupt on 31 August 2004. On 14 September 2004, an order was made amending the creditor's petition. The amended petition correctly stated the date of the judgment debt as 6 November 2002 and that it was obtained in the Local Court. The amended petition also contained an amendment of the act of bankruptcy relied upon. The amendment read as follows: "The respondent debtor failed on or before 25 November 2003 to comply with the requirements of a Bankruptcy Notice served on the respondent debtor on 9 January 2003 or to satisfy the Court that the respondent debtor had a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph 1 of the Bankruptcy Notice. The Bankruptcy Notice is founded on the judgment referred to in paragraph 1 hereof." 11. On 14 September 2004, the bankrupt was served with the amended petition. The petition had been amended pursuant to s 33(1)(b) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act ") by the order made on 14 September 2004. On 24 September 2004, Mr Cohen filed an affidavit which stated that pursuant to application made on 20 September 2004 in the Local Court, the bankrupt was given leave by the Local Court on 24 September 2004 to pay the judgment debt by instalments. On the same day, that is 24 September 2004, Registrar Hedge made the sequestration order. 12. The Official Receiver appeared on the present application. Two affidavits were filed in order to assist the court although the Official Receiver did not take any position on this application. The Official Receiver's evidence discloses amongst other things that since the date of the sequestration order, proofs of debt have been lodged by Energy Australia for $321.30, $2,774 by Esanda Finance Corporation and $4012 by Lion Finance Pty Limited. The Official Receiver's affidavits state that should annulment be granted, an amount to reimburse the Official Receiver for costs and expenses is required to be paid. The amount calculated in the most recent affidavit is in excess of $10,000. 13. The solicitor for the Official Receiver, whilst I have said taking no position on the present application, expressed concern at the increase in her costs since an earlier affidavit filed in November 2004. 14. The principles on which annulment may be granted are well established. In Re Deriu (1970) 16 FLR 420 at 421, Gibbs J said that there are two matters which the court must consider. The first is whether the sequestration order "ought not to have been made". The second is whether in the exercise of the court's discretion the sequestration order should be annulled; see also Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 at [20]. 15. None of the matters put to me can make good the first requirement. The principal matter on which the bankrupt relied was a contention that the sequestration order ought not to have been made because it was in conflict with s 118 of the Constitution of the Commonwealth of Australia, under which full faith and credit is to be given throughout the Commonwealth to, inter alia, the judicial proceedings of every state. 16. It was submitted that the effect of the sequestration order was to prevent the bankrupt from continuing the proceedings in the Supreme Court of New South Wales which are listed for hearing early next year. This was said to infringe, as I have said, the full faith and credit provisions of the Constitution. It was submitted that if the Registrar who had made the sequestration order had been told of the existence of the Supreme Court proceedings, she would have declined to make the order. However, I cannot accept this submission. The Bankruptcy Act provides in s 58 thatthe property of a debtor, upon becoming bankrupt, vest in the Official Trustee. It is well-established that this extends to the right to prosecute legal proceedings; see Cummings v Claremont Petroleum NL (1996) 185 CLR 124. 17. Moreover, s 60(2) of the Bankruptcy Act provides that an action commenced by a person who subsequently becomes bankrupt is, upon his or her becoming bankrupt, stayed until the Trustee makes an election to continue the proceeding. 18. Thus the sequestration order does not result in a termination of the legal proceedings which are on foot. Instead, it provides for the Official Trustee to elect whether to pursue the proceedings. There can be no suggestion that this fails to give full faith and credit to the judicial proceedings on foot in a state jurisdiction. Indeed, s 60(2) of the Bankruptcy Act makes specific provision for whether or not the proceedings are to be prosecuted or discontinued. 19. The second submission put on the bankrupt's behalf was that the creditor's petition had not been served. It was said on a number of occasions that the solicitors for Morisset had only to contact the bankrupt on his mobile phone; but this entirely overlooks the fact that an order for substituted service was made and complied with. Indeed, and perhaps even more pointedly, it overlooks the fact that the evidence makes it plain that the bankrupt was aware of the petition and gave instructions to his then solicitor to oppose it. The suggestion that the bankrupt was not served is without substance. 20. The third matter relied upon by the bankrupt is also without substance. The amendment to the creditor's petition merely makes clear that the judgment debt was obtained in the Local Court and not the Supreme Court and it also makes clear the date of the judgment. The act of bankruptcy relied upon by Morisset was the same as that which was set forth in the petition filed on 27 February 2004. 21. In addition to the above points there was a suggestion that the judgment debt in the Local Court had been stayed. This is not borne out by the evidence. Moreover, the bankrupt's last ditch attempt to avoid the sequestration order by obtaining an order from the Local Court for payment by instalments was futile. This is because the act of bankruptcy had already been committed. 22. Even if the sequestration order ought not to have been made I would exercise my discretion against annulling it. The discretion is, as I have said, to be exercised to prevent injustice; see Hanouf v Hedwan (unreported, Madgwick J, 13 February 1998). I am not satisfied that it would be contrary to the interests of justice to set aside the order. This is because, in particular, there is evidence of other unsatisfied debts which are the subject of proofs lodged with the Official Receiver. The bankrupt has made no attempt to satisfy me that he is solvent and in my view I can infer that he is not. 23. I note and also take into account the fact that the bankrupt has not offered to meet the condition required by the Official Receiver, namely the payment of approximately $10,000 to meet the costs and expenses of the bankruptcy administration to date. 24. Accordingly, the orders I will make are, firstly, that the application for annulment be dismissed and, secondly, that the respondent's costs of this application are to be paid out of the bankrupt estate. I certify that the preceding twenty four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.