FEDERAL COURT OF AUSTRALIA

Wilcox v Cottrell [2001] FCA 1357

BANKRUPTCY – earlier sequestration order made by Registrar for non-compliance with bankruptcy notice based on court judgment – application of bankrupt to set aside sequestration order on ground of abuse of process referrable to champertous agreement – application dismissed at first instance by primary judge – bankrupt appealed to Full Court – Full Court rejected stated grounds of appeal but remitted to primary judge for review and hearing de novo proceedings for bankruptcy earlier purportedly determined by Registrar – finding of act of bankruptcy by reason of failure to comply with act of bankruptcy committed within six months before presentation of petition – only defect in documentation formal and no substantial injustice occasioned thereby – debtor had belatedly moved beforehand to set aside court judgment upon which bankruptcy notice based – absence of evidence of likelihood of debtor being able to set aside court judgment – absence of sufficient cause for sequestration order not to be made.

Bankruptcy Act 1966 (Cth) ss 52(1), 52(4)

Federal Court Rules O 77 r 19

Australia and New Zealand Banking Group Ltd v Prestia [2001] FCA 792 followed

Cottrell v Wilcox [2001] FCA 866 referred to

Daly v Watson (1994) 50 FCR 544 followed

Martin v Commonwealth Bank of Australia [2001] FCA 87 referred to

JOHN ALFRED WILCOX v DAVID MERVYN COTTRELL

N 7880 OF 2000

CONTI J

21 SEPTEMBER 2001

SYDNEY

THE COURT ORDERS THAT:

1.                  A sequestration order be made against the estate of the Respondent.

2.                  The Respondent to pay the costs of the Applicant of the proceedings.

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

REASONS FOR JUDGMENT

1                     On 29 November 2000, Registrar Tesoriero made a sequestration order against the estate of the Respondent (“Mr Cottrell”) pursuant to the petition of the Applicant (“Mr Wilcox”) filed on 18 October 2000. The act of bankruptcy which founded the order was non-compliance with a bankruptcy notice requiring the payment of $36,679.42, being the amount of the judgment obtained by Mr Wilcox against Mr Cottrell on 17 August 1999 in the Wagga Wagga Local Court for moneys lent together with interest.

2                     Mr Cottrell had not sought to establish in opposition to the petition the existence of a counterclaim or cross claim, and he did not apply to set aside the bankruptcy notice prior to the making of the sequestration order. After the sequestration order was made, Mr Cottrell provided a statement of financial affairs on 19 December 2000 which disclosed as his only assets a cause of action being taken by him in the Melbourne County Court, plus the meagre sum of $8.00 standing to the credit of a savings back account.

3                     On 20 December 2000, Mr Cottrell filed a notice of motion by which he sought an order that the Registrar’s decision be reviewed and the sequestration order set aside. The basis of that application was an alleged abuse of process said to be referrable to a champertous agreement. I dismissed that notice of motion upon the footing that such alleged basis was misconceived in law.

4                     On 9 July 2001, a Full Court comprising Sundberg, Emmett and Finkelstein JJ (Cottrell v Wilcox [2001] FCA 866) dismissed an appeal of Mr Cottrell based upon the alleged champertous agreement, and other claims of breach of duty and of perversion in the course of justice, but nevertheless remitted to me for hearing de novo the proceedings for bankruptcy of Mr Wilcox, particularly in the light of the earlier decision of another Full Court in Martin v Commonwealth Bank of Australia [2001] FCA 87 and the authorities there cited. Such hearing was directed to be further conducted by me upon the explicit basis that “there is no notice of opposition to the petition”. The Judgment of the Full Court in the present proceedings contained the following concluding observations:

“

·        During the hearing and in his reasons the primary judge referred to the matter before him variously as an application to set aside the Registrar’s sequestration order and “in the nature of an appeal from the Registrar”.

·        His Honour did not have before him current affidavits as required by rule 19.

·        He did not say, as a judge customarily does when hearing an application for a sequestration order, that he was satisfied of the matters proof of which s 52 of the Act requires.

·        His Honour considered whether he should stay proceedings under s 52(3),by which we take him to be referring to a stay of the Registrar’s sequestration order.”

The above reference to “rule 19” is to Order 77 Rule 19 of the Federal Court Rules.

5                     The bankruptcy notice referred to in [1] above had been issued by the Official Receiver on 18 November 1999 based upon the abovementioned judgment debt, the certificate of the Official Receiver being attached thereto. In its originally word-processed form, the bankruptcy notice stipulated the time for compliance therewith as “twenty-one days after service on you of this Bankruptcy Notice”, but on the copy of the bankruptcy notice which had been attached to the affidavit of service thereof made by Kate Bailey on 9 October 2000, an amendment was made to such bankruptcy notice which substituted “28 August 2000” for “service on you of this Bankruptcy Notice”, such amendment was duly authorised by the Official Receiver. Earlier on 2 May 2000, the Official Receiver had extended the period for service of the bankruptcy notice until 30 June 2000, and on 27 June 2000, the Official Receiver had further extended the period for service thereof until 18 November 2000. Such extensions of time for service at the instance of the Official Receiver were authorised by Bankruptcy Regulation 4.02A.

6                     On 14 July 2000 Registrar Quinn ordered that the bankruptcy notice, as so extended as to times for compliance therewith, could be effected by pre-paid ordinary post addressed to Mr Cottrell at 1 Boree Road Urana in the State of New South Wales, or by personal service upon any person apparently over the age of sixteen years present at a certain address in the State of Victoria. Affidavits as to service of the bankruptcy notice by both such modes were made by Kate Bailey and Graham Charles Gehrig on 9 October 2000 and 20 September 2000 respectively.

7                     A creditor’s petition dated 5 October 2000 based upon non-compliance with such bankruptcy notice was filed in the Registry on 18 October 2000. It contained four paragraphs numbered 1, 2, 3 and 4 reading as follows:

“1.       The respondent debtor owes the applicant creditor the amount of $36,697.42 for monies loaned to the respondent, plus interest and costs.

2.         The applicant creditor does not hold security over the property of the respondent debtor.

3.         At the time when the act of bankruptcy was committed, the respondent debtor was ordinarily resident and personally present in Australia.

4.         The following act of bankruptcy was committed by the respondent debtor within 6 months before the presentation of this petition:

            The respondent debtor failed either to comply on or before 18 September 2000 with the requirements of a bankruptcy notice deemed served on the respondent debtor on 28 August 2000 which bankruptcy notice was found upon a judgment obtained in the Local Court at Wagga Wagga, New South Wales, or to satisfy the Court that the respondent debtor had a counter-claim set-off or cross demand equal to or exceeding the amount of the judgment debt set out in the bankruptcy notice.”

At the same time there was filed in the Registry an affidavit of Mr Wilcox made on 5 October 2000 to the effect that the Local Court judgment remained wholly due and unsatisfied thereby verifying paragraph 1 of the Petition. At the same time there was filed an affidavit of Clare Jennifer Branch sworn on 18 October 2000, the same attesting to the absence of any counterclaim, set-off or cross demand, and of any application to set aside the bankruptcy notice, appearing in the index kept by the Registrar of the Court and by the Registrar of the Federal Magistrate’s Court. Such affidavit of Ms Branch also verified that according to her searches made on 18 October 2000 of the index kept by the Insolvency and Trustee Service of Australia, the same contained no entry in relation to Mr Cottrell. For some reason not apparent to me, Ms Branch repeated the whole of such exercise on 20 October 2000, and made and filed an affidavit dated 20 October 2000 to such effect.

8                     According to an affidavit of Allen Maxwell Tanner sworn on 31 October 2000, Mr Cottrell was subsequently served in person on 26 October 2000 with the petition herein. Mr Tanner’s affidavit deposes that “the Affidavit of Truth of the Statements in Paragraphs 1, 2 and 3 of the petition sworn by Clare Jennifer Branch on 20^th October 2000 and a copy of the Affidavit Verifying paragraph 4 of the petition sworn by John Alfred Wilcox on 5^th October 2000 and a Copy of the Consent to Act as Trustee” were personally delivered to Mr Cottrell “at the front of the County Court, 565 Lonsdale Street Melbourne in the State of Victoria”. Contrary to such affidavit of Mr Tanner, a copy of the abovementioned “Affidavit of Truth” was not attached thereto, but such oversight was subsequently made good by an additional affidavit of Mr Wilcox verifying the petition made on 17 November 2000. The defect was formal only, and no substantial injustice has been caused thereby: see Daly v Watson (1994) 50 FCR 544 at 553. Why Ms Branch’s affidavit of 20 October 2000 was served, rather than the virtually identical affidavit of 18 October 2000 which she had also made and filed in the Registry, does not appear but would not matter. In any event, no application was ever made by Mr Cottrell to set aside the bankruptcy notice.

9                     When the creditor’s petition came on for hearing before Registrar Tesoriero, there was before him not only the filed documentation to which I have referred in [5-8] above, but additionally affidavits required to satisfy the statutory requirements of s 52(1) of the Bankruptcy Act 1966 (Cth) and correspondingly of Order 17 Rule 19 of the Federal Court Rules, namely the affidavit of the Applicant of 28 November 2000 as to the Local Court judgment debt remaining unsatisfied, and the affidavit of Claire Jennifer Blanch of 29 November 2000 concerning the negative results of her searches of the National Personal Insolvency Index and of the Court Registries. In addition, notice of intention to appear and support bearing date 21 November 2000 was filed on 28 November 2000 by a firm of lawyers Goddard Elliott concerning a sum of $21,636.64 for legal services said to be owing to them by Mr Cottrell.

10                  In the light of all of the foregoing material, there had been placed before the Registrar evidence of substantial compliance with applicable statutory and regulatory requirements, the only irregularity being that contained in the affidavit of Mr Tanner referred to in [8] above.

11                  At the hearing de novo before me of the bankruptcy proceedings brought by Mr Wilcox against Mr Cottrell, which took place on 19 September 2001 by telephone link as requested by Mr Cottrell, I was provided on behalf of the Applicant with the following affidavits required by and in compliance with Order 77 Rule 19 of the Federal Court Rules:

(i)                  That of Jarrod Mark White of 10 September 2001 as to the abovementioned affidavits of Graham Charles Gehrig of 20 September 2000 and of Kate Bailey of 9 October 2000;

(ii)                That of the Applicant of 18 September 2001 as to the still outstanding judgment against the Respondent obtained in the Local Court at Wagga Wagga in the sum of $36,697.42; and

(iii)               That of Jarrod Mark White of 19 September 2001 as to up-dated searches of the Registry indices and of the National Personal Insolvency Index disclosing the continuation of the status quo prevailing at the time of the hearing before Registrar Tesoriero.

12                  Placed before me by Mr Cottrell in purported opposition to the making of a sequestration order were the following documents:

(i)                  Report of Dr W R Davies of 12 September 2001 concerning Mr Cottrell’s attendance at the Wagga Base Hospital in a severe anxiety state during the morning of 10 September 2001, which was originally the appointed day for the hearing of the present proceedings; as a result of the Respondent’s expressions of concern as to his medical condition on that day, I stood over the hearing of the proceedings until 19 September 2001, against the opposition of the Applicant’s Counsel;

(ii)                Copy of a notice of motion filed on 5 September 2001 by Mr Cottrell for an order as to the setting aside of the judgment of the Local Court at Wagga Wagga on 17 August 1999, together with the Applicant’s affidavit in support of such notice of motion; no basis in law for such setting aside was provided by such notice of motion; the stated basis is supposedly contained in an affidavit made by Mr Cottrell on 3 September 2001. The affidavit referred to a previous affidavit said to have been provided in support of a notice of motion made to the Local Court on 8 March 2001, but no such affidavit was provided. What was the fate of that notice of motion was not stated. The present notice of motion is listed for hearing by the Local Court on 31 January 2002; and

(iii)               A signed statement of Mr Cottrell to the effect that the purpose of Mr Wilcox’s pursuit of the bankruptcy proceedings is to “stifle” litigation in “Victorian Civil Matter 9705055”, which litigation was said to relate to the “the act of Marie Den Boer to incite others to murder the Applicant Cottrell”; such stifling of litigation is claimed by Mr Cottrell to involve a conspiracy and an act to prevent the course of justice on the part of Ms Den Boer, Ting Den Boer, David Lucas of Lucas Nealle Lawyers and Claire Branch of Kemp Strang Lawyers.

13                  When I asked Mr Cottrell to explain verbally the basis for his application to set aside the Local Court judgment obtained by Mr Wilcox against Mr Cottrell upon which the present proceedings are based, he said words to the effect that the judgment debt was based upon some form of illegal conduct involving Mr Wilcox and the Applicant, which was said to vitiate the viability of the judgment debt. Nothing that he said to me in that regard was comprehensible in terms of legal principle, but he claimed that he had nevertheless the support of legal advice from solicitors who were acting for him in connection and the setting aside of the judgment debt.

14                  I observe that the creditor’s petition upon which Mr Wilcox relies was presented to the Court on 5 October 2000, with the consequence that the period of twelve months specified in s 52(4) of the Act has not expired. I am satisfied that the matters specified by s 52(1) of the Act have been fulfilled, as have been the requirements of Order 77 Rule 19.

15                  There are no viable grounds upon which I would be justified in withholding the making of a sequestration order against Mr Cottrell’s estate. He has not purported to establish by any evidence placed before me any basis, much less any prima facie legally viable basis for his belated application to set aside the judgment of the Local Court at Wagga Wagga, nor any satisfactory reason for his delay in so doing. Nor for what it may matter has he sought to address the claim of the supporting creditor Goddard Elliott (see [9] above); that creditor apparently sought the sequestration of Mr Cottrell’s estate on 13 February 2001 by a Federal Court Magistrate in Melbourne, without an appreciation of the then bankruptcy status of Mr Cottrell, but such creditor nevertheless obtained an order that its costs of proceedings MZ 94 of 2000 be paid out of Mr Cottrell’s bankrupt estate. He has not established the existence of any viable or cognisable asset from the proceeds of realisation from which he could satisfy Mr Wilcox’s longstanding judgment debt. Whether or not his bankruptcy would necessarily inhibit or bring to an end the criminal (or quasi criminal)proceedings in the Victorian County Court, which he has been conducting for some time in person, has not been demonstrated, but in any event the subsistence of such proceedings has not been shown to be sufficient to establish a fair or reasonable basis for placing Mr Cottrell in a position to pay and satisfy his debts owing to Mr Wilcox and Goddard Elliott. The following passage from the judgment of Hely J in Australia and New Zealand Banking Group Ltd v Prestia [2001] FCA 792 at [32] is here apposite:

“In Ling v Enrobook Pty Ltd (1997) 74 FCR 19 a Full Court approved a statement by Lehane J that, as a general proposition, there is no apparent reason why a petitioning creditor should not be entitled to have a sequestration order made, if the requirements of s 52 are otherwise satisfied, simply because the debtor may have a counter claim or cross demand against some other creditor. The Full Court said:

            “The above authorities do not, in our view, support the appellant’s contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s 40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party.

            The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a ‘sufficient cause’ for a sequestration order not to be made; see for example, Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303. But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.””

16                  I order that:

(i)                  A sequestration order be made against the estate of the Respondent Mr Cottrell; and

(ii)                The costs of the Applicant Mr Wilcox be taxed and paid by Mr Cottrell in accordance with the Act.

Associate:

Dated:              21 September 2001