FEDERAL COURT OF AUSTRALIA

NRMA Insurance Ltd v Vale [2001] FCA 511

BANKRUPTCY – bankruptcy notice – whether valid – debtor brought proceeding in Supreme Court – proceeding transferred to District Court – debtor unsuccessful – order for costs made against debtor – District Court decision appealed – bankruptcy notice issued – whether address of creditor’s solicitor given in bankruptcy notice misleading – whether order required to be attached to bankruptcy notice is original order or costs order ‑ whether s 41(2) of Bankrupcy Act 1966 (Cth) requires certificate of taxed costs to be attached to notice 

BANKRUPCY –making of sequestration order – where debtor divested herself of valuable real property for nominal consideration – where appeal of decision giving rise to debt on foot – whether unfairly prejudicial to make order pending outcome of appeal

Bankrupcy Act 1966 (Cth) s 41, 52, Reg 4.02

Motor Accidents Act 1988 (Cth) s 66A

Stec v Orfanos(1999) FCA 457 cited

NRMA INSURANCE LIMITED v LINDA ANNE VALE  (IN THE MATTER OF: LINDA ANNE VALE)

N 7118 OF 2001

EMMETT J

24 APRIL 2001

SYDNEY

THE COURT ORDERS THAT:

1. A sequestration order be made against the estate of Linda Anne Vale.

2. The petitioning Creditor’s costs including reserved costs be taxed and paid in accordance with the Act.

THE COURT NOTES THAT:

3. The act of bankruptcy was committed on 26 February 2001.

4. Consent to act as a trustee has been signed by Roderick Mackay Sutherland and has been lodged with the official receiver in Sydney.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     On 29 September 1994, Linda Anne Vale (“the Debtor”), commenced proceedings in the Supreme Court of New South Wales against her husband, Malcolm Geoffrey Vale.  In that proceeding the Debtor alleged that she was a passenger in a motor vehicle driven by her husband at the time of an accident in which she was severely injured on 14 November 1992.  On 12 April 1995, Master Malpass granted leave to NRMA Insurance Limited (“the Creditor”), to be joined as a party to the proceeding pursuant to s 66A of the Motor Accidents Act 1988 (NSW).

2                     A defence was filed by the Creditor on 18 August 1995, in which it was alleged that the Debtor was, in fact, the driver of the vehicle at the time of the accident.  The proceeding was transferred to the District Court and at a call-over held on 25 August 1998, the proceeding in the District Court was listed for hearing to commence on 15 February 1999.  The proceeding did not proceed to hearing on that day because a passenger in the vehicle at the time of the accident was unfit to attend court for the purpose of giving evidence.  On 15 February 1999, the matter was listed again for hearing, on 7 June 1999.

3                     On 23 April 1999, the Debtor executed transfers of substantial parcels of land, whereby those parcels, which were jointly owned with her husband, were transferred into the sole name of her husband.  The consideration was purely nominal, being $1 for each of two transfers.  On 7 June 1999, the hearing of the proceeding commenced before Sidis DCJ in the District Court. The hearing proceeded on 7 to 11 June and 21 and 22 June 1999.  On 15 July 1999, Sidis DCJ published her reasons for entering a judgment for the defendants.  On 11 August 1999, Sidis DCJ ordered the Debtor to pay the costs of the defendants, including the costs of the Creditor.

4                     On 12 May 2000 the Creditor served on the solicitors for the Debtor an application for assessment of party/party costs, together with a bill of costs pursuant to the order made by Sidis DCJ on 11 August 1999.  In due course a judgment was entered in favour of the Creditor against the Debtor in the District Court in the sum of $152,664.58.  That was the amount of the costs allowed pursuant to the process to which I have just referred. 

5                     A bankruptcy notice was issued on 18 January 2000 at the behest of the Creditor claiming that the Debtor owed the Creditor the sum of $152,664.58, as shown in the schedule to the bankruptcy notice. By the bankruptcy notice, the Creditor claimed that that debt was due and payable by the Debtor. A copy of the judgment of the District Court of 7 December 2000 was attached to the bankruptcy notice.  The bankruptcy notice was served on the Debtor on 5 February 2001. No application was made to extend the time for complying with the bankruptcy notice. Although there was some correspondence requesting that consent to extend time be given, no such consent was forthcoming.  Accordingly, subject to any question as the validity of the bankruptcy notice, an act of bankruptcy was committed when the Debtor failed on or before 26 February 2001 to comply with the requirements of the bankruptcy notice.

6                     It is common ground that the requirements of the bankruptcy notice were not complied with.  On 2 March 2001 the Creditor presented a petition seeking an order for the sequestration of the estate of the Debtor.  The Debtor opposes the making of a sequestration order on two grounds.  The first is that the bankruptcy notice is alleged to be defective in the following respects:

·        the address shown in paragraph 4, at which payment of the debt can be made, is incorrect, and further, or alternatively, misleading;

·        the bankruptcy notice seeks payment of legal costs but no certificate of assessed costs is attached to the bankruptcy notice.

The second ground is that the Debtor has lodged notice of appeal to the Court of Appeal of New South Wales.  That appeal is fixed for hearing on 19 June 2001, although the Debtor proposes to apply for vacation of that date for hearing, on the basis that her counsel is not available.  I shall deal with each of the grounds separately. 

7                     The bankruptcy notice requires payment of the debt to:

NRMA Insurance Limited

c/- Sparke Helmore Solicitors

Level 30 2 Park Street

SYDNEY NSW 2000.

There is a space between the figures “30” on the one hand and the figure “2” on the other hand. The first contention on behalf of the Debtor is that the address is misleading because it could be construed as number 30, level 2, or even 302 Park Street.  With the greatest of respect to the author of the contention, I do not see how it can be construed as anything other than Level 30, at the building known as 2 Park Street.  That is, in fact, the address of the solicitors.  There appears to me to be no substance whatsoever in this contention. 

8                     Next, it is suggested that there has been a failure to comply with the requirements of s 41(2) of the Bankruptcy Act 1966 (Cth)or, alternatively, the bankruptcy notice is misleading. Section 41(2) provides that a bankruptcy notice must be in accordance with the form prescribed by the regulations.  Regulation 4.02 provides that, for the purposes of s 41(2), the form of bankruptcy notice set out in Form 1 is prescribed.  Form 1 is contained in Schedule 1 to the regulations as follows:

“                                              Schedule

(NB:  Amounts, where applicable, are to be inserted in column 2)

For the Information of the Creditor –

Notes to the Schedule

Note 1:            Legal costs (item 2 of the Schedule)

If legal costs are being claimed in this Bankruptcy Notice, a certificate of taxed or assessed costs in support of the amount claimed must be attached to this Bankruptcy Notice.

Note 2:                        Interest accrued (item 3 of the Schedule)

If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice.  The document must state:

(a)        the provision under which the interest is being claimed; and

(b)        the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.

(NB:  If different rates are claimed for different periods, full details must be shown.)

9                     A certificate is required to be attached only if legal costs are claimed in Item 2 of the Schedule, that is to say, legal costs not included in the judgment or order on which the bankruptcy notice is based.  Although the judgment itself is based on an order of the District Court concerning the payment of legal costs, no legal costs not included in the judgment are claimed in the bankruptcy notice.  I do not consider that there has been a failure to comply with the requirements of the form, see Stec v Orfanos(1999) FCA 457 para [17]. 

10                  Nor do I consider that there is any basis for concluding that the bankruptcy notice is misleading. The procedure whereby the judgment from the District Court was entered on 7 December 2000 involves the entry of a judgment for costs once determined in an appropriate court.  It is not uncommon for a bankruptcy petition relating to a costs order in the District Court to be based on a judgment in the Local Court. Because of the limitation on the jurisdiction of the Local Court; the judgment for costs in this case was entered in the District Court.

11                  The contention that is advanced on behalf of the Debtor is that it would not have been apparent to the Debtor, from reading the bankruptcy notice, how it was that a judgment for the sum of $152,664.58 was entered in a proceeding different from the one in which the order for costs was made by Sidis DCJ.  I do not know whether it would be apparent or not.  The procedure is clear.  There is certainly evidence that the Debtor’s solicitor understood that the judgment of 7 December was based on the order for costs made by Sidis DCJ.  He said as much in a letter to the Creditor’s solicitors.

12                  There is no ambiguity in the bankruptcy notice in specifying that the Creditor’s claim is that the Debtor owes it money pursuant to the judgment of 7 December 2000, a copy of which is attached to the bankruptcy notice.  I do not consider that the bankruptcy notice is misleading in any way in failing to attach any further material relating to the assessment of costs.  I am satisfied that the bankruptcy was a valid bankruptcy notice, and that accordingly, an act of bankruptcy was committed by the Debtor on 26 February 2001.

13                  Following some confusion on the part of the Debtor’s solicitor concerning the procedure for appeal, a notice of appeal was lodged in the NSW Court of Appeal.  The confusion on the part of the Debtor’s solicitor seems to have been concerned with both the possibility of a stay by reason of filing the notice of appeal, and the need for leave before filing a notice of appeal.  Those difficulties do not concern me.

14                  However, the Debtor did in fact seek a stay of the costs order from the Court of Appeal.  That application came before Giles JA on 9 April 2001.  Giles JA dismissed the application.  In the course of delivering his reasons for doing so, his Honour said inter alia the following:

“I have read the Notice of Appeal and the Submissions filed by the Applicant and the Insurer.  The question was one of fact, although the grounds of Appeal raise one, and possibly a second, error of law. 

It is not possible for me to form other than a very general view of the prospects of the appeal in light of that to which I have been  taken.

I proceed on the basis that the Applicant has an arguable, but perhaps not strong, case on Appeal, the difficulty in overcoming fact-based conclusions needing no emphasis.

The third element raises more difficulty for the Applicant.  There is no evidence from the Applicant as to how her prosecution of the Appeal would or might be impeded.  There is evidence that in early 1999 the Applicant and her husband were registered proprietors of a number of properties and that in April 1999 she transferred her interest in those properties to her husband as sole proprietor for nominal consideration.  This may or may not have some sinister connotions but for present purposes it is enough to show that the Applicant had substantial assets in the form of land in 1999 but divested herself of them and that her husband does have substantial assets in the form of land.

It is accepted by Counsel for the Applicant (and quite properly) that the husband is in the Applicant’s camp, and it was said that he was supporting her in the appeal.  He has an interest in the appeal as the family unit stands to benefit from it.

The evidence did not include any explanation, except on the basis of possible success on appeal, for the failure to pay costs.  That could have been done with funds held and it was not suggested that the Insurer could not repay the Applicant if the Appeal was successful.  The bankruptcy of the Applicant is unlikely to mean an end to the Appeal.  I infer that the Applicant’s husband and his assets would be devoted to the prosecution of the Appeal. I cannot see why the Applicant and her husband, with their faith in the appeal, should not proceed despite bankruptcy of the Applicant.  Bankruptcy does not mean an end to an appeal and if it can be seen with sufficient confidence that the appeal will be proceeded with, the threat of bankruptcy will not provide grounds for a stay in circumstances as the present.”

15                  Counsel for the Debtor is content that I proceed on the basis of the assessment by Giles JA of the prospects in the appeal, namely that the Debtor has an arguable, but perhaps not strong, case.  There is no suggestion that the appeal is not being pursued in good faith.

16                  There has been no explanation offered of the curious transaction in April 1999 a short time before the hearing of the proceeding in the District Court.  An inference can be drawn that the purpose in the mind of the Debtor, in divesting herself of substantial real property, was to ensure that she would not have assets that could meet an order for costs.  That inference is open, and there has been no evidence adduced in order to rebut the inference. Nor has it been suggested that there is any prejudice to the Debtor by reason of a sequestration order in relation to the prosecution of her appeal to the Court of Appeal.

17                  Certainly, there is a prejudice to any citizen in having a sequestration order made.  The consequences are disabling in many respects.  The bankrupt is deprived of many assets which would rest in the trustee in bankruptcy.  However, I have no evidence at all as to the financial position of the Debtor or the nature of any assets that she may have.  There does not appear to be any particular prejudice that would flow from a sequestration order.  Having regard to the unexplained transfer of real property, however, there does not appear to be a basis for granting an indulgence simply because of the outstanding appeal.

18                  Accordingly, I do not consider there is any ground for refusing a sequestration order based on the currency of the appeal.  Nor do I consider that the currency of the appeal is a ground for adjourning the hearing of the petition, particularly in view of the circumstance that it is clear that the Debtor does not intend to prosecute the appeal with all due diligence, having regard to her intended application to vacate the date for hearing.

19                  I am satisfied that the Debtor committed the act of bankruptcy alleged in the petition.  I am satisfied with the proof of the other matters of which subsection 52(1) of the Bankruptcy Act requires proof.  Accordingly, I propose to make a sequestration order against the estate of Linda Anne Vale.  I will order the petitioning Creditor’s costs including reserved costs again to be taxed and paid in accordance with the Act.  I have already noted that the act of bankruptcy was committed on 26 February 2001 and I note that consent to act as a trustee has been signed by Roderick Mackay Sutherland and has been lodged with the official receiver in Sydney.

Associate:

Dated:              9 May 2001