FEDERAL COURT OF AUSTRALIA

Owners – Strata Plan No. 23007 v Cross, in the matter of Cross [2006] FCA 900

BANKRUPTCY – Proceedings in connection with sequestration – petition and sequestration order – where petition served personally on mentally disabled debtor – where sequestration order made by registrar in absence of debtor – where application for review out of time – where alternative application based on debtor’s absence – whether service of petition defective – whether sequestration order effective – whether formal defect or irregularity – whether sequestration order should be set aside or bankruptcy annulled – whether costs, charges and expenses of bankruptcy to be borne by debtor

EVIDENCE – Burden of proof, presumptions, and weight and sufficiency of evidence – mental capacity – consideration of interaction between presumption of capacity and presumption of continuance – evidence of involuntary admission to psychiatric hospital

PROCEDURE – Disability – mentally disabled persons – consideration of matters relevant to determining whether a person is, owing to mental illness, incapable of managing his or her affairs in respect of the proceedings

HELD – Debtor was a mentally disabled person at the time of service – personal service upon the debtor constituted a breach of the rules and a defect in the proceedings on the petition – the defect was not a formal defect or an irregularity – the sequestration order was effective though voidable – the order ought to be set aside rather than the bankruptcy annulled.

WORDS & PHRASES ‘mentally disabled person’

Federal Court of Australia Act 1976 (Cth) s 35A

Bankruptcy Act 1966 (Cth) ss 30, 153B, 154

Federal Court Rules O 43 r 13, O 35 r 7

Adams v Lambert (2006) 225 ALR 396 applied

Cameron v Cole (1944) 68 CLR 571 referred to

Capsalis v Ozdemir [2005] FMCA 1163 referred to

Gibbons v Wright (1953) 91 CLR 423 referred to

Ginane v Diners Club Limited (1993) 120 ALR 375 referred to

Hadjimouratis v Casanova [2005] FMCA 1468 referred to

In re Daskalavski (Applicant); Ex parte The Austral Brick Co Pty Ltd [1998] FCA 782 distinguished

Kirby v Leather [1965] 2 QB 367 referred to

Kleinwort Benson Australia Ltd v Crowl 165 CLR 71 applied

Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338 considered

Masterman-Lister v Brutton & Co (Nos 1 and 2) (CA) [2003] 1 WLR 1511 applied

Mason v Tritton (1994) 34 NSWLR 572 referred to

Murphy v Doman (2003) 58 NSWLR 51 applied

Official Trustee v Nedlands (2000) 173 ALR 255 referred to

Re Ditfort; Ex Parte DCT (1988) 19 FCR 347 referred to

Re Long; Ex parte Fraser Confirming Pty Ltd (1975) 12 ASR 130 referred to

Re Millar; Ex parte Commonwealth Development Bank of Australia (No. 388/1993, unreported, 27 April 1993, Burchett J) applied

Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 applied

State Rail Authority of New South Wales v Hammond (1988) 15 NSWLR 395 referred to

The Fore Street Warehouse Company Limited v Durrant & Co. (1883) 10 Q.B.D. 471 referred to

Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44 referred to

White v Fell (Court of Appeal, unreported, 12 November 1987, Boreham J) applied

L Shelford, A Practical Treatise of the Law Concerning Lunatics, Idiots, and Persons of Unsound Mind, 2^nd edn, S Sweet, London 1847

J H Wigmore, A Treatise on the Anglo-American System of Evidence in Trials at Common Law, 3^rd edn,Little Brown & Co., Boston, 1940

T Snow et a., The Annual Practice, 11^th edn, Sweet & Maxwell, London, 1893

T W Chitty, Chitty’s Archbold’s Practice of the Queen’s Bench Division of the High Court of Justice,14^h edn, H Sweet & Son, London, 1885

THE OWNERS - STRATA PLAN NO. 23007 v ISABELL JEAN CROSS BY HER TUTOR, THE PROTECTIVE COMMISSIONER OF NEW SOUTH WALES and MICHAEL GREGORY JONES, TRUSTEE OF THE BANKRUPT ESTATE OF ISABELL JEAN CROSS

NSD 396 OF 2004

EDMONDS J

14 JULY 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  Michael Gregory Jones, trustee of the bankrupt estate of Isabell Jean Cross, be joined as a party (second respondent) to the proceedings, effective 6 December 2005.

2.                  The orders of Registrar Tesoriero made 9 August 2004 be set aside and the applicant’s petition dated 4 March 2004 and filed 23 March 2004 be dismissed.

3.                  The costs of the first and second respondents of the motion be paid by the applicant on an indemnity basis.

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

REASONS FOR JUDGMENT

Edmonds J:

The Motion

1                     On 9 August 2004 Ms Isabell Jean Cross was bankrupted in her absence on the first return date of a creditor’s petition. At the time she was worth more than half a million dollars and had at least $100,000 in her bank account. She owed the applicant, who was her only creditor, little more than $2,000. Now Ms Cross’ tutor, a Deputy Protective Commissioner of New South Wales, asks the Court to set aside the sequestration order which made Ms Cross bankrupt.

2                     In these reasons I will refer to the applicant as the ‘Creditor’, the first respondent as ‘Ms Cross’ and the second respondent as the ‘Trustee’.

3                     The sequestration order of 9 August 2004 was made by a registrar of the Court and the orders sought in Ms Cross’ notice of motion, which was filed on 7 November 2005, are:

‘1. That the Court review the decision of the Registrar made on 9 August 2004 to make a sequestration order.

2. For an order that the sequestration order made by the Registrar on 9 August 2004 be set aside.

3. Such further or other order as this Court may see fit.

4.                  That the applicant [the Creditor] pay the costs of and incidental to this application.’

4                     The basis for the application for review is s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (‘the FCA Act’), which provides:

‘(5) A party to proceedings in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the Court to review that exercise of power.

(6)               The Court may, on application under subsection (5) or of its own motion, review an exercise of power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised.’

5                     The power to make a sequestration order is a power falling within s 35A(1): see s 35A(1)(h); O 77 r 7 (now repealed); and Item 8 of Schedule 3 (now repealed) to the Federal Court Rules (‘the FCR’).

6                     As contemplated by s 35A(5), in bankruptcy proceedings O 77 r 8 of the FCR provided that an application for review must be brought within 21 days of the date of the registrar’s decision. Therefore, the present application should also be seen to encompass an application for an extension of time pursuant to O 3 r 3.

7                     Ms Cross did not appear before the registrar on 9 August 2005 and the FCR provide that an order made in the absence of a party may be set aside: O 35 r 7. This provides an alternative basis for the second order sought in the notice of motion and there is no time limitation on the bringing of such a motion.

8                     Another way in which Ms Cross’ bankruptcy might end is by annulment by the Court pursuant to s 153B of the Bankruptcy Act 1966 (Cth) (‘the Act’). That section relevantly provides:

‘153B Annulment by Court

(1) If the Court is satisfied that a sequestration order ought not to have been made … the Court may make an order annulling the bankruptcy.

(2)               …’

Joinder of the Trustee

9                     On the application of Michael Gregory Jones, trustee of the bankrupt estate of Ms Cross, I ordered that the Trustee should be joined as a second respondent pursuant to O 6 r 8 of the FCR. Mr Jones had filed notice of intention to oppose the motion. The application was made at the commencement of the hearing of the motion and the formal order of joinder is the first of the orders disposing of the motion.

Background

10                  Ms Cross was born on 3 December 1939 and is currently 66 years old. On 28 May 2003 the Creditor commenced proceedings in the Local Court at Kogarah against her for unpaid contributions to the Creditor’s administrative and sinking funds totalling $1,813.58 and interest of $29.81. On 15 June 2003 a licensed commercial agent served Ms Cross with a Statement of Liquidated Claim. The relevant portion of the affidavit of service is as follows:

‘1. I did on [the] 15^th day of June, 2003 duly serve the defendant Isabell Jean Cross with this Statement of Liquidated Claim by delivering a true copy thereof to a male apparently not less than the age of sixteen (16) years and apparently residing at 12/28 Tullimbar Road, Cronulla being the defendant’s usual place of residence.

2. At the time of service I said to the person to be served, ‘Does Isabell Jean Cross reside here?’, to which the person replied, “Yes”.’

11                  On 25 July 2003 default judgment was entered in the Local Court in favour of the Creditor in the amount of $2,413.31. A writ of execution subsequently issued but remained unsatisfied. On 21 January 2004 the Creditor caused a bankruptcy notice to be served on Ms Cross. The relevant portion of the affidavit of service is as follows:

‘1. On Wednesday the 21^st of January, 2004 at 8:50 o’clock in the afternoon [sic] I did duly serve Isabell Jean Cross with the Bankruptcy Notice herein by delivering a true copy thereof, signed and dated by the Official Receiver, in a sealed envelope addressed to the debtor and placing it under the door of her residence at 12/28 Tullimbar Road, Cronulla.

2. At the time of service I spoke with a male occupant of Unit 11 and he said to me in words to the effect [sic], ‘She’s home now.’ I knocked on the door, however, no-one came to the door. I then walked to the rear of the unit and looked in from the balcony. All the lights were on inside and I observed a female sitting on the lounge. I attempted to get her attention but she refused to acknowledge my presence. I then returned to the front door and again tried knocking on the door. There was no response and I, therefore, placed the envelope containing the Bankruptcy Notice under the door.

3. I had previously attended the address on at least seven previous occasions without success including the previous day when neighbours had again advised me that the debtor was at home and had observed her inside the unit from the balcony, however, she refused to come to the door.’

12                  Ms Cross did not comply with the bankruptcy notice and the Creditor’s solicitors were instructed to proceed with a creditor’s petition. Mr Adrian Mueller had carriage of the matter for the Creditor’s solicitors, J S Mueller & Co, and swore an affidavit in relation to the present motion. Mr Meuller deposed, relevantly:

‘8. It was difficult to locate the whereabouts of the respondent in order to effect service of the creditor’s petition upon her. For this reason a number of inquiries were made by my firm in order to ascertain the respondent’s whereabouts and obtain further information about the respondent and her affairs.

9. As a result of these inquiries on or about 31 March 2004 J. S. Mueller & Co. became aware that the respondent was at Sutherland Hospital.’

13                  On 1 April 2004 the Creditor’s solicitors wrote to the registrar of Sutherland Hospital. The letter states, relevantly:

‘We understand that Ms Cross is currently under psychiatric care in your hospital.

We wish to effect service of process upon Ms Cross and accordingly would you please advise us:-

(a) Has a guardian and/or financial manager been appointed in respect of Ms Cross;

(b) If no guardian or financial manager has been so appointed, please advise us of the name of the person with whom Ms Cross is residing or in whose care she is.’

14                  The answers to these questions would have provided the Creditor’s solicitors with the information necessary to effect service in accordance with the provisions of O 43 r 13 of the FCR, which sets out special rules for the service of persons under a disability, including mentally disabled persons. In particular, O 43 r 13(6) provides:

(6) Where the person to be served is a mentally disabled person and has no tutor in the proceeding, the document may be served:

(a) if a committee is appointed of his person or estate, or he has a guardian, on the committee or guardian; or

(b) if there is no committee or guardian, on a person with whom he resides or in whose care he is.’

15                  During the course of the hearing Mr Bentley, the solicitor appearing on behalf of the Creditor and a member of the firm JS Mueller & Co, explained why the wording of this letter is so strikingly similar to the wording of O 43 r 13(6) of the FCR in the following exchange:

‘Well, the reason we ask, perhaps everything that’s in the section, indeed that is based on the sections because we didn’t know the circumstances of Ms Cross. We knew she was residing at home when she was served with the bankruptcy notice. We knew she was at this stage in Sutherland Hospital. What we didn’t know is how long she was going to be there or anything about that.

HIS HONOUR: But you knew why she was there.

MR BENTLEY: At that stage.

HIS HONOUR: Yes.

MR BENTLEY: Yes. We understood she was in the psychiatric unit.

HIS HONOUR: You knew that she was in Sutherland Hospital and she was there for psychiatry care.

MR BENTLEY: Yes. That’s correct.’

16                  The Creditor’s solicitors received no response to their letter of 1 April 2004 and so wrote to the registrar of Sutherland Hospital again on 30 April 2004 enclosing a copy of their previous letter. No response was received to this correspondence.

17                  On 18 May 2004, Ms Haragli, a paralegal at J S Mueller & Co, wrote to Mr Mueller, relevantly:

‘I have spoken to Robert at Sutherland Hospital Psychiatric Ward. Defendant has been discharged. File has gone to medical records. He is going to try and locate file and get address where Defendant is. Will keep you posted…’

18                  On 17 June 2004 further email correspondence passed between Mr Mueller and Ms Haragli. Ms Haragli had contacted a member of Sutherland Hospital’s Records Team and obtained an address for Ms Cross’ next of kin, a Mrs Smith. Mrs Smith was said to live in Victoria and to have dementia. An attempt to contact Mrs Smith by telephone was unsuccessful. The next day the Creditor’s solicitors sent a letter to Mrs Smith’s post office box in Victoria which reads, relevantly, as follows:

‘We act for [the Creditor] the body corporate for 28 Tullimbar Road, Cronulla. We understand that you are the mother of Isabell Jean Cross who owns unit 12 in that property.

Our client is trying to locate your daughter as not only have levies for the property remained unpaid for a considerable period of time, but it also appears that your daughter has not lived in the property for several months and has left it empty.

If you are able to assist us in locating your daughter, kindly telephone Jeffrey Mueller of this office upon receipt of this letter. We look forward to hearing from you.’

19                  Mr Mueller deposes to that letter being returned by the postal service.

20                  On 7 July 2004 Ms Haragli wrote to Mr Mueller and explained, relevantly:

‘Sutherland Hospital Acute Care Team …

I have spoke to Shanti Gupta, who is [the] debtor’s case worker. She advised that she is in contact with [the] debtor and confirmed that the debtor’s address is at the unit. She would not provide any further information. She said that she needed [the] debtor’s okay before she could do that. She refused to co-operate and would not allow me to set her up for sub-service.’

21                  On 12 July 2004 Mr Mueller deposes to having a telephone conversation with a Ms Kellie Sanders. He is not able to recall the terms of the conversation but does recall that Ms Sanders indicated that she was a social worker from Sutherland Hospital and that Ms Cross was under the care of Sutherland Hospital at that time. Immediately after speaking with Ms Sanders, Mr Mueller wrote a letter to a firm of process servers in, relevantly, the following terms:

‘We refer you to your report dated 30 June 2004 and to today’s telephone discussions. We now return the following documents in duplicate:-

1. Creditor’s Petition.

2. Affidavit of Truth of Statements in Paragraphs 1, 2 and 3 of Petition.

3. Affidavit Verifying Paragraph 4 of Petition.

4. Consent to Act as Trustee.

5. Affidavit of Service of Bankruptcy Notice.

We understand that the Respondent is currently at Sutherland Hospital in the psychiatric ward. The Respondent’s social worker, Kelly [sic] Sanders (Tel: …) has indicated that the Respondent will be released from the hospital within the next 48 hours and we therefore request that you attend Sutherland Hospital today in order to effect personal service of the Creditor’s Petition upon the Respondent.’ (Emphasis added)

22                  Thus, any notion of effecting service in the way contemplated by O 43 r 13(6) of the FCR had been effectively abandoned by the Creditor.

23                  A licensed commercial agent attended the hospital the next day, 13 July 2004, and his affidavit of service recounts, relevantly:

‘1. On Tuesday the 13^th of July, 2004 at 12:34 o’clock in the afternoon I did duly serve Isabell Jean Cross the debtor herein with an Official copy of the Petition, being duly sealed with the Seal of the Court and signed by an officer acting with the authority of the District Registrar of the Federal Court by delivering the same to Isabell Jean Cross personally at Sutherland Hospital, Psychiatric Unit, 430 Kingsway, Caringbah.

2. At the time of service I identified the person I served as the said Isabell Jean Cross by asking the person to be served, “Are you Isabell Jean Cross, the person referred to in this Creditor’s Petition?”, to which the said person then replied, “Yes”. I served the debtor in the presence of Kelly [sic] Sanders a Social Worker working with the debtor.’

24                  Ms Kellie Sanders is a social worker in the Psychiatric Inpatient Unit at Sutherland Hospital. In a letter dated 7 October 2005, which is in evidence, she writes:

‘On the day of July 13^th, 2004 a representative of J. S. Mueller & Co. Solicitors attended the Psychiatric Inpatient Unit of the Sutherland Hospital and served Ms Cross with official legal papers detailing proceedings against Ms Cross whilst she was in my presence. There was no uncertainty around Ms Cross’ status as a current inpatient on the Psychiatric Unit. Unfortunately my recollection of this day does not include what the Solicitor’s representative said to Ms Cross or myself, or what Ms Cross or myself said to the representative in regards to the papers that had been served.

I recall that the papers were handed to Ms Cross and that she retained possession of these. I also note that at the time Ms Cross did not appear to understand the serious nature of the documents she had been handed. Despite this, I encouraged Ms Cross to seek legal advice to which she agreed, and as such we telephoned the Sutherland Office of Legal Aid and arranged for an appointment to be held on the 12^th August, 2004 at 9:30 am. Ms Cross was agreeable to attending this appointment at that time.

Ms Cross was discharged from The Sutherland Hospital on 15 July, 2004. This marked the end of my contact with her.’

25                  Ms Sanders, who is not a lawyer, does not appear to have closely read the documents which were handed to Ms Cross, or if she did, did not observe that the petition had been endorsed with a hearing date of 9:15 am on 9 August 2004, or if she did, did not know the implication of that endorsement; otherwise, she would not have fixed the appointment with the Sutherland office of Legal Aid after that date.

26                  On 6 August 2004, a few days before the Creditor’s petition was due to be called on for hearing, Mr Mueller made a file note which reads, relevantly:

‘Attended Sue-Ellen of [the] Mental Health Review Tribunal. She was unable to furnish me with any details without the consent of [Ms] Cross. She would not confirm even if there was a current order or any proceedings pending.

Attended Guardianship Tribunal and was advised that no financial manager or guardian has been appointed to [Ms] Cross.

Attended Kelly [sic] Sanders (in whose presence [Ms] Cross was served with the Creditors Petition) of Sutherland Hospital and was advised that Cross has been discharged and that Sanders is no longer involved on her case and that Shanti Gupta is [Ms] Cross’ case worker.

Left message for Shanti Gupta which was not returned. Note from previous discussion between [Ms Haragli] and Gupta (see email 7/7/04) that Gupta won’t divulge information without the consent of [Ms] Cross.’

27                  On 9 August 2004 the Creditor’s petition was called on for hearing but Ms Cross was not present. There was no Legal Aid solicitor, nor was there anyone from the hospital or any of the places Mr Mueller had contacted a few days earlier. In short, there was no one to represent Ms Cross’ interests. Buried in an affidavit of service was a one sentence reference to the Psychiatric Unit of Sutherland Hospital. Even if the registrar had picked up that reference, its significance would not have been immediately apparent.

28                  One can only assume that at the other end of the otherwise empty bar table was Mr Bentley of JS Mueller & Co, who knew full well Ms Cross’ situation. In the end a sequestration order was made against Ms Cross’ estate in her absence and on the first return date of the petition. Mr Bentley cannot recall what transpired at that hearing and there is no transcript. However the irresistible inference is that the registrar was not told about Ms Cross’ situation, the attempt to comply with the special rules as to service which had been inexplicably abandoned or of the message left with Ms Gupta on 6 August 2004. If the registrar had been told of any of these matters he would have undoubtedly adjourned the hearing of the petition and made directions designed to inform those who cared for Ms Cross of the proceedings.

29                  Mr Michael Gregory Jones of the accounting firm Jones Condon had consented to act as trustee of Ms Cross’ estate if she were to become bankrupt and so became the Trustee on 9 August 2004. The 21 day period in which the registrar’s decision might be reviewed also began to run and was set to expire on 31 August 2004.

30                  The evidence does not go so far as to explain what occurred in relation to Ms Cross’ appointment with Legal Aid on 12 August 2004 but a chronology handed up by counsel for Ms Cross indicates that the appointment was not kept. On 16 and 30 September 2004 Ms Cross attended Legal Aid appointments in the company of an employee of Sutherland Hospital. Legal Aid’s involvement was described as being to –

‘… provide advice to [Ms] Cross about documents that she had with her when she attended appointments at Sutherland Legal Aid office on 16 and 30 September 2004; to advise her as to her entitlements to social security benefits and to write letters to relevant organisations to obtain information regarding her financial situation.’

31                  It was around 30 September 2004 that Legal Aid found out that Ms Cross had been bankrupted.

32                  On 4 March 2005 Ms Melissa De Rooy, who was Ms Cross’ occupational therapist, made an application to the Guardianship Tribunal of NSW for a Financial Management Order in relation to Ms Cross.

33                  On 23 March 2005 Ms Cross had a further appointment at Legal Aid but, by that time, Ms De Rooy’s application for a Financial Management Order was already on foot and it appears that Legal Aid did not see its involvement continuing beyond that time.

34                  On 11 April 2005 the Guardianship Tribunal made a Financial Management Order in relation to Ms Cross pursuant to the Guardianship Act 1987 (NSW). That order provided that Ms Cross’ estate was to be subject to management under the Protected Estates Act 1983 (NSW) and management of the estate was committed to the Protective Commissioner.

35                  On 5 May 2005 the Office of the Protective Commissioner (‘the OPC’) received a letter from the Trustee. The first part of the letter refers to a ‘letter of 18 April 2005’ from Legal Aid regarding Ms Cross. That letter is not in evidence. The second part of the letter informs the OPC that the Trustee’s solicitors in the matter are J S Mueller & Co Solicitors and that he has instructed them to apply to the Supreme Court of NSW for a replacement certificate of title for Ms Cross’ home. The Trustee then states his intention to sell the home (being a unit at Cronulla) and ‘apply the proceeds to pay the creditors of the bankrupt and the fees and costs of the administration.’ Finally, the Trustee asks the OPC to prepare a Statement of Affairs.

36                  On 10 May 2005 Westpac Banking Corporation wrote to the OPC to advise that the balance of an account held by Ms Cross was $118,767.38 in credit. On 16 May 2005 J S Mueller & Co wrote to the OPC indicating that ‘the current levy arrears and owner invoices due amount to $8,724.49 together with $691.51 interest on levy arrears’. A copy of an ‘Owner Ledger’ which had been received from the Creditor was enclosed.

37                  At this stage it seems reasonable to assume that J S Mueller & Co was acting for both the Creditor and the Trustee.

38                  On 25 May 2005 the OPC wrote to the Trustee in the following terms:

‘I refer to our discussion of 17 May 2005 when I confirmed that our client has sufficient funds liquid funds [sic] to discharge any just debts and that arrangements will be made to discharge such debts when full details are known. In view of this we also requested that no action be taken in respect of our client’s real property.

I note that you advised me you would be forwarding details of all debts and charges that you are aware of, including your fees as trustee, within the next few days.

We do not appear to have received this information to date. Please would you arrange to forward it as a matter of some urgency.’

39                  On 6 June 2005 the Trustee replied. He estimated that the total amount required to ‘obtain an annulment’ was $35,088.23. That estimate was subject to all Ms Cross’ creditors being identified and to her having no liability for unpaid taxes. Attached to the letter is a distribution plan which records that the remuneration of the Trustee to 3 June 2005 amounted to some $13,990 and that additional remuneration was expected to amount to $5,500.

40                  On 16 June 2005 the OPC wrote to the Trustee, relevantly:

‘As you may be aware, our client suffers from a disability which has affected her capacity to manage her finances and to defend proceedings that were brought against her by the Body Corporate. We are currently investigating the circumstances in which judgment was entered against our client including the validity of service of the Statement of Claim. We put you on notice that an application to set aside the judgment that has resulted in your appointment may be made depending on the outcome of our investigations. We therefore respectfully suggest that no further action be taken to realize our client’s assets.’

41                  The OPC went on to request copies of the various court documents relating to the local court judgment and the creditors petition, including the affidavit of service of the petition.

42                  On 20 June 2005 the Trustee replied. He had forwarded the OPC’s letter to the ‘petitioning creditor’s Solicitor, J S Mueller and Co.’ since, he writes, the documents which had been requested should be in the possession of that firm. He goes on:

‘I note that as Trustee of the bankruptcy my role is to administer the estate, I do so via an order of the Federal Court. In my role as trustee I am an officer of the court and must execute my duties as quickly and diligently as possible to satisfy the bankrupt’s creditors.

Therefore I must continue in my endeavours to realize the assets of the estate. I note that currently I am unaware of the bankrupt’s financial position as a Statement of Affairs… has not been lodged. This means I am not in a position to know what the financial position of the bankrupt is at the date of bankruptcy…’

43                  The Trustee does not set out the basis for his conclusion that he must continue in his endeavours to realise the assets of the estate to satisfy the bankrupt’s creditors; apart from the Creditor, there were none. He had no reason to believe otherwise. Moreover, in the face of the information that had been provided to him orally by the OPC on 17 May 2005 and confirmed by letter dated 25 May 2005 (see [38] supra), the Trustee had no reason to think that Ms Cross’ liquid funds were insufficient to meet her liabilities.

44                  Statements relating to Ms Cross’ bank account with Westpac indicate that a withdrawal of $115,000 was made on 21 June 2005. Ms Roslyn Nash, an Estate Manager employed by the OPC, deposed to that sum being deposited into the OPC’s trust account on 22 June 2005.

45                  On 23 June 2005 the OPC wrote to the Trustee confirming that the OPC held in excess of $100,000 on behalf of Ms Cross and requesting the Trustee refrain from taking any further action and incurring further costs until the OPC had had an opportunity to consider Ms Cross’ position in respect of the proceedings which had led to her bankruptcy.

46                  Between June 2005 and November 2005 the OPC carried out its investigations and began marshalling evidence in support of an application to set aside the sequestration order, which was ultimately filed on 7 November 2005.

The Issues

47                  The motion raises four issues:

The Service Issue: Was service of the Creditor’s petition properly effected? This issue relevantly involves the next issue.

The Disability Issue: Whether Ms Cross was a person under a disability for the purposes of the FCR when the Creditor’s petition was handed to her in the Psychiatric Unit of Sutherland Hospital on 13 July 2004.

The Breach Issue: If there was a breach of the FCR as to service, what are the consequences?

The Annulment Issue: Whether the bankruptcy should be annulled or the sequestration order set aside? What are to become of the costs of the administration of the bankruptcy?

The Service Issue

48                  The first question is whether Ms Cross was properly served with the Creditor’s petition. The FCR required a creditor’s petition to be personally served on the debtor: O 77 r 18A; O 7 r 1(1). Order 7 r 2(1)(a) provides that personal service is effected on an individual by leaving a copy of the document with him. However, O 43 r 13, establishes a specific regime for the personal service of documents on persons who are under a disability, as defined. Prima facie, that regime expressly prohibits service in the manner mandated by O 7 r 2(1)(a): see O 43 r 13(2).

49                  Counsel for Ms Cross, Ms Gormley, submitted that Ms Cross was at all material times a person under a disability for the purposes of the FCR and that the provisions of O 43 r 13 had not been complied with.

50                  Order 43 r 13 provides:

‘13 Service

(1) This rule applies where, in any proceeding, a document is required to be served personally on a person under disability.

(2) Personal service on a person under disability shall not be effected otherwise than in accordance with this rule.

(3) Where the person under disability has a tutor in the proceeding, the document may be served on the tutor.

(4) The document may be served on any person (including the person under disability) whom the Court may, before or after service, approve.

(5) Where the person to be served is an infant or minor and has no tutor in the proceeding, the document may be served:

(a) if he is aged 16 years or upward, on him;

(b on a parent of his or a guardian of his person or of his estate; or

(c) if he has no parent and has no guardian of his person or of his estate, on a person with whom he resides or in whose care he is.

(6) Where the person to be served is a mentally disabled person and has no tutor in the proceeding, the document may be served:

(a) if a committee is appointed of his person or estate, or he has a guardian, on the committee or guardian; or

(b) if there is no committee or guardian, on a person with whom he resides or in whose care he is.

(7) A document served pursuant to any of subrules (3) to (6) must be served in the manner required by the Rules with respect to the document.

(8) A judgment or order requiring a person under disability to do, or refrain from doing any act, a notice of motion for the committal of a person under disability, and a subpoena against a person under disability, must, in addition to any other service required by these Rules, and notwithstanding anything in subrules (3) to (6), be served personally on the person under disability.

(9)               Sub-rule (8) does not apply to an order for interrogatories or for discovery or inspection of documents.’

51                  The relevant definitions are found in O 1 r 4:

‘person under disability means an infant, minor or mentally disabled person.

mentally disabled person means a person who, owing to mental illness, is incapable of managing his or her affairs in respect of the proceedings.

tutor means a next friend, guardian ad litem or committee of the person or estate of a person under disability.’

52                  There has been no relevant amendment to O 43 of the FCR since it was made in 1979.

The Disability Issue

53                  The provisions of O 43 r 13 are triggered if the person to be served is a ‘person under disability’. Where it is said that the person is a ‘mentally disabled person’ rather than an infant or minor the relevant question is: Is the person concerned a person who, owing to mental illness, is incapable of managing his or her affairs in respect of the proceedings? The words ‘in respect of the proceedings’ are important because they focus upon the person’s ability to bring or defend proceedings rather than whether the person is able to manage his or her affairs generally or in relation to some other transaction. Such an approach is consonant with the common law approach to capacity. For example, in Gibbons v Wright (1953) 91 CLR 423 the High Court said (at 437):

‘The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation.’

54                  In Masterman-Lister v Brutton & Co (Nos 1 and 2) (CA) [2003] 1 WLR 1511 Chadwick LJ illustrated the point (at 1538-9) by reference to the case of In Re C (Adult: Refusal of treatment) [1994] 1 WLR 290:

‘C had been admitted to a secure hospital as a patient under Part III of the Mental Health Act 1983. He was subsequently diagnosed as suffering from gangrene in the foot. Acting by his next friend he sought an injunction to restrain the hospital from amputating. Thorpe J held that C had the requisite mental capacity to make a decision to refuse treatment. As he put it, at p 295:

“Although his general capacity is impaired by schizophrenia, it has not been established that he does not sufficiently understand the nature, purpose and effects of the treatment he refuses. Indeed, I am satisfied that he has understood and retained the relevant treatment information, that in his own way he believes it, and that in the same fashion he has arrived at a clear choice.”

Nevertheless, it was never in doubt that C was a patient for the purposes of the procedural rule which required that his suit could not have been brought except with the interposition of a next friend. There is no inconsistency between the requirement that a party to legal proceedings comply with Order 80 and a decision that he has an understanding of the nature, purpose and effects of the medical treatment which is under consideration in those proceedings. The test is issue specific; and, when applied to different issues, it may yield different answers.’

55                  Once it is accepted that the exigencies of bringing or defending the proceedings are the focal point of the test of capacity for the purposes of the FCR, the next question is what are the considerations to which the Court should have regard in applying that test?

56                  Masterman’s case provides much assistance in this regard. There the plaintiff brought an action for personal injuries compensation which he settled. Later the plaintiff sought to re-open the claim on the basis that it had never received the approval of the court as required by the rules in the case of a person under disability. It was therefore necessary to determine whether the plaintiff was such a person. The relevant test was whether the plaintiff was, by reason of mental disorder within the meaning of the Mental Health Act 1983 (UK), incapable of managing and administering his property and affairs. The Court of Appeal held that the test was addressed specifically to the plaintiff’s capacity to conduct and compromise the proceedings: see 1521-1524 per Kennedy LJ; 1533-1535 per Chadwick LJ; Potter LJ agreeing. The Court of Appeal’s interpretation of the test as being issue specific aligns it more closely to the test under the FCR which makes express provision in that regard.

57                  In applying the test Chadwick LJ said (at 1539):

‘75 For the purposes of Order 80 and now CPR Pt 21 the test to be applied, as it seems to me, is whether the party to legal proceedings is capable of understanding, with the assistance of such proper explanation from legal advisers and experts in other disciplines as the case may require, the issues on which his consent or decision is likely to be necessary in the course of those proceedings. If he has capacity to understand that which he needs to understand in order to pursue or defend a claim, I can see no reason why the law whether substantive or procedural should require the interposition of a next friend or guardian ad litem (or, as such a person is now described in the Civil Procedure Rules, a litigation friend).’

58                  All of the members of the Court of Appeal endorsed the approach taken by Boreham J in the unreported case of White v Fell, 12 November 1987, where the issue of incapacity arose in the context of the limitation of actions. In that case his Honour observed:

‘The expression “incapable of managing her own affairs and property” must be construed in a common sense way as a whole. It does not call for proof of complete incapacity. On the other hand, it is not enough to prove that the plaintiff is now substantially less capable of managing her own affairs and property than she would have been had the accident not occurred. I have no doubt that the plaintiff is quite incapable of managing unaided a large sum of money such as the sort of sum that would be appropriate compensation for her injuries. That, however, is not conclusive. Few people have the capacity to manage all their affairs unaided ... It may be that she would have chosen, and would choose now, not to take advice, but that is not the question. The question is: is she capable of doing so? To have that capacity she requires first the insight and understanding of the fact that she has a problem in respect of which she needs advice ... Secondly, having identified the problem, it will be necessary for her to seek an appropriate adviser and to instruct him with sufficient clarity to enable him to understand the problem and to advise her appropriately ... Finally, she needs sufficient mental capacity to understand and to make decisions based upon, or otherwise give effect to, such advice as she may receive.’ (Emphasis added)

59                  The ability to properly instruct an advisor was also referred to by Lord Denning MR in the limitation case of Kirby v Leather [1965] 2 QB 367. In upholding the trial judge’s decision that the plaintiff was of unsound mind so as to prevent the relevant period of limitation from running against him, his Lordship said, at 384:

‘After a time he was to some extent able to appreciate (from being told by others) something of what had happened to him, and indeed to his scooter. But he could not concentrate on it for any length of time: not long enough to be able to appreciate the nature and extent of any claim that he might have. In particular he had no insight at all into his own mental state. He was not capable of instructing a solicitor properly. He certainly was not capable of exercising any reasonable judgment upon a possible settlement.’

60                  See also Martin v Azzopardi (1973) 20 FLR 345 at 347 per Fox J where his Honour considered the content of the test under the ACT Supreme Court Rules.

61                  In light of what is said in these authorities and having regard to the use of the words ‘in respect of the proceedings’ in the FCR, the following are relevant to determining capacity in the present case:

(a)                Whether Ms Cross had the ability to understand that she required advice in respect of the Creditor’s petition which had been left with her;

(b) whether she had the ability to communicate this requirement to someone who could arrange an appointment with an appropriate advisor or, alternatively, that she could arrange such an appointment of her own accord;

(c) whether she had the ability to instruct her advisor with sufficient clarity to enable him or her to understand the situation and to advise her appropriately; and

(d) whether she had the ability to make decisions and give instructions based upon, or otherwise give effect to, such advice as she might receive.

62                  Mr Bentley submitted that the test of capacity is to be applied as at the time Ms Cross was given the Creditor’s petition on 13 July 2004. This submission is undoubtedly correct.

63                  None of the parties adduced any expert evidence going to the issue of whether Ms Cross was a mentally disabled person for the purposes of the FCR at the time she was given the Creditor’s petition nor, for that matter, at any other time.

64                  Counsel for Ms Cross, over objection, tendered a copy of a report of Dr Janet Johnson, Staff Specialist Psychiatrist at Sutherland Hospital, Caringbah dated 8 April 2005 and a copy of a report of Melissa de Rooy, Occupational Therapist at that hospital, dated 6 April 2005. I allowed the tender subject to relevance. Dr Johnson’s report referred to an application to the Mental Health Review Tribunal for a Protected Estate Order when Ms Cross was in hospital in July 2004. Apparently it was declined because of Ms Cross’ refusal to disclose any details about her finances. Ms de Rooy’s report stated, inter alia:

‘Involvement with Ms Jean Cross

Ms Cross has been known to the Sutherland Division of Mental Health since March 1^st 2004, when she was admitted to the psychiatric inpatient ward. Following this admission, Ms Cross has received services from a Primary Clinician within the Community Mental Health Team. I have been Ms Cross’ Primary Clinician since December 2004.

Initially Ms Cross refused to engage with myself due to false beliefs that her recently changed medication was making her unwell. However Ms Cross’ mental state improved as her illness began to respond to the medication (administered as per her Community Treatment Order) and thus Ms Cross is currently well engaged with myself. I have contact with Ms Cross approximately once a week, either at her home, at a community venue or within the community rooms at the hospital. At present Ms Cross willingly engages with myself and willingly attends reviews with a psychiatrist when required to.

Diagnosis

Ms Jean Cross was diagnosed with schizophrenia in March 2004, however it is believed by the treating team that Ms Cross has had this illness for many years, with it being untreated until 2004. Ms Cross currently receives the anti-psychotic medication, Risperidone, in injection form, fortnightly. Ms Cross does not believe that she has schizophrenia however acknowledges that the medication helps her stay “cool, calm and collected”.

Ms Cross had two admissions to the psychiatric inpatient unit in 2004. During her first admission Ms Cross displayed symptoms of thought disorder, paranoid and persecutory delusions about foreign people, the government and her neighbours (whom she wielded a knife at following their request that she move her car which was blocking a common driveway). Ms Cross was diagnosed with breast cancer during her admission and a mastectomy was consented [to] by the Mental Health Review Tribunal, as Ms Cross was too delusional to understand the seriousness of her condition. Ms Cross also had a preoccupation with the USA and believed that there were creatures like dragons in her garden. Ms Cross displayed similar psychotic symptoms during her second admission including persecutory delusions about the FBI and the British. Ms Cross refused to discuss her financial difficulties and held false beliefs that all the banks were closed and that the government did not pay single women. Ms Cross also believed that the body corporate of her home did not exist and thus refused to pay them any money.’

65                  In addition to what is set out at [10] – [26] supra, on the basis of the evidence referred to at [64] supra, I find that in 2004 Ms Cross was admitted to the Psychiatric Unit of Sutherland Hospital twice. The first period of admission was from 1 March to 12 May during which time she was diagnosed with breast cancer and a mastectomy was consented to by the Mental Health Review Tribunal. The second was from 23 June until 15 July as an involuntary patient. During the second period of admission an application was made to the Mental Health Review Tribunal for a Protected Estates Order in respect of Ms Cross. Such an order was not made because Ms Cross would not disclose any details about her finances. Some months later, on 11 April 2005, the Protective Commissioner was appointed as financial manager of Ms Cross’ estate pursuant to the Protected Estates Act 1983 (NSW).

66                  It is a principle of long standing that the law presumes every person to be sane and, in modern times, the principle has been expressed as a presumption that a person of full age is capable of managing his or her affairs: Murphy v Doman (2003) 58 NSWLR 51 at [36] per Handley JA. It follows that the person who asserts incapacity must prove it.

67                  In his text, A Practical Treatise of the Law Concerning Lunatics, Idiots, and Persons of Unsound Mind, 2^nd edn, S Sweet, London 1847, Shelford sets out the way in which the law has approached the proof of insanity (at 56):

‘The burthen of proof of insanity lies on those asserting its existence. – The presumption of law is in favour of sanity: and, therefore, if a person has never been subject to a commission of lunacy, nor has had an unsound state of mind imputed to him by his friends or relations, or even by common fame… the burthen of proof is cast upon those who impeach his understanding. And where a particular transaction is sought to be avoided on the ground of insanity, the evidence of it ought to apply to that particular period; and the question in such a case is, not whether the party had ever been insane before, but whether he was of sufficient sound mind on the day of the contract in question. On the other hand, as the law presumes the state of a man’s mind to continue unchanged until the contrary be made manifest; if a person has ever been subject to a commission, or to any restraint permitted by law even a domestic restraint, clearly and plainly imposed upon him in consequence of undisputed insanity, the burthen of proof shewing sanity is thrown upon those who seek to establish a lucid interval, or the soundness of his understanding [citing White v Wilson, 13 Ves 88] But where there is satisfactory evidence of sanity of a party at the time of a contract, the antecedent state of his mind, and the causes of it, may be laid totally out of view [citing 1 Dow. P.C. 177].’

68                  In the present case it is important to have regard to the second ‘presumption’ mentioned above, namely that the law presumes a person’s state of mind to continue unchanged. Such a presumption is one application of the more general ‘presumption of continuance’, which Kirby P discussed in Mason v Tritton (1994) 34 NSWLR 572 at 587 – 588. In its application to mental illness, Wigmore explained the role of that principle in the following way:

‘A condition of mental disease is always a more or less continuous one, either in latent tendency or in manifest operation. It is therefore proper, in order to ascertain the fact of its existence at a certain time, to consider its existence at a prior or subsequent time. The degree of continuity varies infinitely in various cases, and hence there can be little certainty in the inference from one period to another. Nevertheless, since it can never be known beforehand to what variety the case in question belongs in this respect, the facts of prior and subsequent existence cannot be absolutely known beforehand to be relevant. Much must depend on the type of insanity, as preliminarily indicated by the person’s conduct at the time in question. There is also a further element of uncertainty in criminal cases, in that the accused has a strong motive to feign insanity after the act charged; and thus particular scrutiny is required in weighing the evidence of the accused person’s subsequent insane conduct.

In spite, however, of these uncertainties and difficulties, Courts are to-day universally agreed that both prior and subsequent mental condition, within some limits, are receivable for consideration; stress being always laid on the truth that these conditions are merely evidential towards ascertaining the mental condition at the precise time of the act in issue.’ (Emphasis added)

(See J H Wigmore, A Treatise on the Anglo-American System of Evidence in Trials at Common Law, 3^rd edn,Little Brown & Co., Boston, 1940, Vol 2 par §233.)

69                  In relation to the presumption of continuance generally, Wigmore said (at §437):

‘The opponent… may always attempt to explain away the effect of the evidence by showing that in the meantime other circumstances have occurred to raise a probability of change instead of continuance.’

70                  In the present case Ms Cross’ representatives bear the burden of proving that Ms Cross was incapable of managing her affairs in respect of the proceedings as at the time of service of the Creditor’s petition. The best way to discharge that burden would be by expert evidence in proper form directed to the test of capacity under the FCR, including the matters set out at [61] supra, and focussed upon Ms Cross’ state of mind at the time of service.

71                  However, that is not to say that the burden may not be discharged in other ways. One way in which that burden might be discharged is by establishing Ms Cross’ incapacity at some other point in time and inviting the Court to infer that Ms Cross’ state of capacity had remained unchanged between the time of such proven incapacity and the time of service of the Creditor’s petition. A similar course was taken in Murphy v Doman (2003) 58 NSWLR 51. That case concerned a litigant in person who suffered the effects of mental illness during the course of the proceedings. He was required to file written submissions by a certain date, which was extended. At the expiration of the extended period he appeared before the court and behaved in a bizarre manner, refusing to tender the submissions he had brought that day (6 August 2001). On 18 September the matter was listed for judgment and that morning the trial judge received a letter from Mr Murphy explaining that he had been admitted to a psychiatric hospital shortly after 6 August and asking for leave to file and serve his submissions.

72                  One of the questions which arose before the Court of Appeal was whether Mr Murphy was incompetent on 6 August 2001. There was evidence confirming Mr Murphy’s assertion that a few days later he had been admitted as an involuntary psychiatric patient. In his judgment Handley JA held (at 57) that the later involuntary admission was evidence of Mr Murphy’s previous psychiatric condition ‘because of the retrospective presumption of continuance’. At 58 his Honour said:

‘There is a presumption of sanity which applies unless and until the contrary is proved. Attorney-General v Parthner (1792) 3 Bro CC 441 at 443; 29 ER 632 at 634; M’Naghten’s Case (1843) 10 Cl & F 200 at 210; 8 ER 718 at 722. This means in modern terms, that there is a presumption that a person of full age is capable of managing his or her affairs.

[Mr Murphy’s] bizarre behaviour on 6 August, when he declined to tender the written submissions he had brought to court, did not alert the judge or defendant’s counsel to the fact that the plaintiff was an incompetent person. However, viewed in light of the evidence available on 18 September, it showed that on 6 August the plaintiff was incapable of managing his affairs and in particular the legal proceedings he was attempting to conduct on his own behalf.’

73                  It follows that Ms Cross’ representatives may properly rely upon evidence as to her capacity which has its origin before and after 13 July 2004 in discharging the burden of proving her incapacity on that day. In particular, they may rely upon evidence of Ms Cross’ previous admission to the Psychiatric Unit of Sutherland Hospital between 1 March and 12 May 2004 and, subsequently, her involuntary admission to that unit which occurred on 23 June 2004 and continued until 15 July 2004.

74                  In his submissions, Mr Bentley argued that evidence of Ms Cross’ admission did not show that she was, owing to mental illness, incapable of managing her affairs in respect of the proceedings. In support of his argument Mr Bentley referred to certain provisions of the Mental Health Act 1990 (NSW). Whether a person may be admitted or detained as an involuntary patient under that Act turns upon whether the person is a ‘mentally ill person’ or a ‘mentally disordered person’ as defined. The definitions of those phrases are found in ss 9 and 10:

‘9 Mentally ill persons

(1) A person is a mentally ill person if the person is suffering from mental illness and, owing to that illness, there are reasonable grounds for believing that care, treatment or control of the person is necessary:

(a) for the person’s own protection from serious harm, or

(b) for the protection of others from serious harm.

(2) In considering whether a person is a mentally ill person, the continuing condition of the person, including any likely deterioration in the person’s condition and the likely effects of any such deterioration, are to be taken into account.

10 Mentally disordered persons

A person (whether or not the person is suffering from mental illness) is a mentally disordered person if the person’s behaviour for the time being is so irrational as to justify a conclusion on reasonable grounds that temporary care, treatment or control of the person is necessary:

(a) for the person’s own protection from serious physical harm, or

(b) for the protection of others from serious physical harm.’

75                  Mr Bentley is correct, insofar as he submits, that the evidence of involuntary admission does not conclusively prove that Ms Cross was a mentally disabled person for the purposes of the FCR in respect of the Creditor’s petition at the time she was admitted. The tests under the Mental Health Act differ from the test which falls to be applied under the FCR. However, evidence of involuntary admission is relevant to the question of capacity under the FCR because it could rationally affect the assessment of the probability of the existence or non-existence of that capacity: Evidence Act 1955 (Cth) s 55. For example, such evidence tends to suggest that Ms Cross was not capable of communicating with or instructing a solicitor or advisor at that time.

76                  At its highest, Mr Bentley’s submission is that it is possible for a person to be an involuntary patient at a psychiatric hospital or psychiatric unit of a hospital but nevertheless have the capacity to manage his or her affairs in respect of certain proceedings. Even if that is possible, the question which must be answered is: Is the Court satisfied, on the balance of probabilities, that Ms Cross was incapable of managing her affairs in respect of the proceedings when she was admitted as an involuntary patient? The further question may then arise as to whether an inference should be drawn concerning the continuation of that incapacity and, as contemplated by Wigmore in [69] supra, Mr Bentley drew attention to the following matters, each suggesting that Ms Cross may have had capacity at times after she was given the Creditor’s petition:

1.                  Ms Cross was due to be released from involuntary detention on 14 July 2004 and in fact was released on 15 July 2004.

2.                  Ms Cross was served in the presence of a social worker who arranged an appointment for her to see a Legal Aid solicitor to which appointment Ms Cross agreed. Clearly the social worker thought that Ms Cross could manage her affairs in respect of the proceedings otherwise why make an appointment for her to see a solicitor?

3.                  The Legal Aid solicitor saw her on 16 and 30 September 2004 and then again on 23 March 2005. The solicitor took instructions on an ongoing basis which can only give rise to the conclusion that he considered that Ms Cross could manage her affairs in respect of the proceedings. On 23 March 2005 he saw her with Ms de Rooy, an occupational therapist, at a time when an application had been made on 4 March 2005 for a Financial Management Order. Those circumstances seem not to have affected the view of either Ms de Rooy or the solicitor as to Ms Cross’ ability to provide instructions for the carriage of proceedings.

4.                  Moreover, the Financial Management Order, which was given on 11 April 2005, is of no relevance as to Ms Cross' capacity as at 13 July 2004.

77                  The first submission does not take the Creditor’s case very far. The provisions of the Mental Health Act set in place a detailed regime which regulates the involuntary admission and detention of patients. Though it is possible that a person would be discharged under that Act because the person is no longer a mentally disordered person or a mentally ill person: see, for example, ss 29(2), 33(2), 35, 52 and 57, it is equally true that a person would be discharged where care of a less restrictive kind is appropriate and reasonably available to the person: see, for example, ss 20, 40, and 57. There is simply no evidence about why Ms Cross was discharged. It is very difficult to determine how the evidence of her discharge should be treated except to say that the fact that advance notice of it was given tends to show that consideration had been given to whether it was necessary to continue Ms Cross’ detention at the hospital and that it had been determined that her detention was necessary until 14 July 2004. The fact that Ms Cross was not released on that day but was made to wait until 15 July also speaks against drawing any inference from these events favourable to the Creditor.

78                  The second submission is not supported by the evidence. In a letter dated 7 October 2005 Ms Sanders writes of the events of 13 July 2004:

‘I recall that the papers were handed to Ms Cross and that she retained possession of these. I also note that at the time Ms Cross did not appear to understand the serious nature of the documents she had been handed. Despite this, I encouraged Ms Cross to seek legal advice to which she agreed, and as such we telephoned the Sutherland Office of Legal Aid and arranged for an appointment…’

79                  Even if it were relevant, Ms Sanders’ view appears to be that Ms Cross should see a solicitor whatever the extent of her capacity might be. Indeed, Ms Sanders took care to assist Ms Cross to make the appointment rather than leave Ms Cross to undertake that task herself which would tend to suggest incapacity rather than capacity. In any event, for the reasons in [24] and [25] supra, it was, with respect, a case of the ‘blind leading the blind’.

80                  The third submission focuses on evidence of what occurred at the earliest in September 2004 over a month after the proceedings, at least from the Creditor’s point of view, had finished and over two months after the purported service of the Creditor’s petition. In any event, the evidence is that Ms Cross attended the solicitor ‘with a worker from Sutherland Hospital’ and in the Legal Aid Commission’s view its involvement was:

‘… to provide advice to [Ms] Cross about documents that she had with her when she attended appointments at Sutherland Legal Aid office on 16 and 30 September 2004; to advise her as to her entitlements to social security benefits and to write letters to relevant organisations to obtain information regarding her financial situation …’

81                  It appears that the Commission found out that Ms Cross was bankrupt on or about 30 September 2004, that is, nearly two months after she had been declared bankrupt.

82                  Even if any inference of the kind described by Mr Bentley could be drawn from this evidence, it has little weight in the scheme of the other evidence.

83                  As to the submission that the financial management order is not relevant to the question of capacity, such a submission cannot be sustained in view of the test in s 55 of the Evidence Act and what has been set out above in relation to proving capacity.

84                  A further submission was advanced on the basis of Ms Gupta’s indication on 7 July 2004 that she could not respond to the Creditor’s solicitor’s enquires without Ms Cross’ consent. It was submitted ‘How could Ms Cross give that consent if she was incapable of managing her affairs in respect of the proceedings?’ One answer may be that Ms Gupta could not provide the information because Ms Cross could not, and in fact did not, give her consent.

85                  I have come to the conclusion and am satisfied on the balance of probabilities that Ms Cross was incapable of managing her affairs in respect of the Creditor’s petition when she was admitted as an involuntary psychiatric patient on 23 June 2004. The next question is whether an inference should be drawn that Ms Cross’ incapacity continued up to and including the time that she was served with the Creditor’s petition on 13 July 2004. I have concluded that the inference should be drawn in the present case and I do so. It follows that Ms Cross was a mentally disabled person for the purposes of the FCR when she was given the Creditor’s petition and that the Creditor has failed to comply with the provisions of O 43 r 13.

The consequences of failure to comply with the FCR

86                  Given that Ms Cross was a mentally disabled person, then, prima facie, the Creditor’s petition was required to be served on the person with whom Ms Cross resided or in whose care she was: O 43 r 13(6). Absent the approval of the Court, what was done in this case was expressly forbidden by sub-rule 13(2). There was therefore a clear breach of the FCR in the way in which the Creditor’s petition was served, which constituted a defect in the proceedings. What, therefore, is the effect of that defect upon the validity and effectiveness of the sequestration order?

87                  The Federal Court is a superior court (FCA Act, s 5(2)) and therefore, whatever the nature of the defect or defects in the proceedings, the sequestration order is not void or a nullity in the sense that it is without legal effect: see Cameron v Cole (1944) 68 CLR 571 at 590 per Rich J; Emanuele v ASC (1997) 188 CLR 114 at 119, 120 per Brennan CJ and at 156 per Kirby J; Re Anasis; Ex parte Total Australia Ltd (1985)63 ALR 493 at 496 and Re Fuller [1999] FCA 1811 at [13] – [16] per Hill J. This principle applies to orders made by registrars of the Federal Court pursuant to the scheme of delegation of powers under s 35A of the FCA Act: Official Trustee v Nedlands (2000) 173 ALR 255 at [22] – [25] per Finn J.

88                  In Cameron v Cole the High Court held that the Federal Court of Bankruptcy was a superior court and Williams J, whose dissent was not on this point, said (at 607):

‘When, therefore, the Federal Court of Bankruptcy has made a sequestration order under the Act, it is not, in my opinion, a nullity, so that, even if it has been irregularly obtained, it operates until it is set aside and causes the debtor to become a bankrupt and his property to vest in the official receiver…’

89                  The sequestration order in the present case is therefore, at worst, voidable and was effective to bankrupt Ms Cross when it was made. The question of whether it can truly be seen to be voidable depends upon the applicability and operation of s 306.

90                  Section 306 only applies to a formal defect or an irregularity but where that precondition is satisfied, it operates automatically: Kleinwort Benson Australia Ltd v Crowl 165 CLR 71 at 81. As the High Court said in Adams v Lambert (2006) 225 ALR 396 at [24], the composite expression ‘a formal defect or an irregularity’ conveys a meaning with elements of both inclusion and exclusion. The Court went on to say (at [26]):

‘The question of construction raised by the words “a formal defect or an irregularity” is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority it was said: “A better test … is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid … In determining the question of purpose, regard must be had to ‘the language of the relevant provision and the scope and object of the whole statute’”.’

91                  The High Court also held that the kind or degree of breach is relevant to a consideration of s 306 and that if a defect could cause substantial injustice, it may not easily be classified as a formal defect or irregularity: see [18], [22]. Ultimately, the characterisation of a defect as formal or substantive is a matter for judgment, however, it is first necessary to consider, as the High Court has indicated, the legislative regime in relation to, in this case, creditors’ petitions.

92                  A useful starting point is the analysis of Burchett J in Re Millar; Ex parte Commonwealth Development Bank of Australia (No 388/1993, unreported, 27 April 1993), where his Honour first set out what the Full Court had said in Ginnane v Diners Club Limited (1993) 120 ALR 375 at 376:

‘Paragraph 52(1)(b) of the Bankruptcy Act provides that at the hearing of a creditor’s petition, the Court shall require proof of the service of the petition and, if it is satisfied with the proof of that service, as well as the other matters specified in sub-section 52(1), it may make a sequestration order against the estate of the debtor. Sub-section 52(2) provides, among other things, that if the Court is not satisfied with the proof of the service of the petition, it may dismiss the petition. These provisions illustrate a unique prescription relating to a petition for a sequestration order. A sequestration order affects the status of a person. The Legislature, in recognition of this feature, has insisted that the petitioner must prove, among other things, service of the petition on the debtor.’

93                  Burchett J went on to say:

‘If one turns to s 52 of the Act, the force of what their Honours say is immediately apparent. It is a peculiar feature of litigation under the Bankruptcy Act, upon a creditors petition, that the court is expressly required to hear proof of service of the petition, and is expressly required, if it is not satisfied with the proof (among other things) of that matter, to dismiss the petition.

It seems to me very difficult to regard s. 306 as capable of avoiding the consequences of any serious default, in respect of the requirements regarding the service of the petition so specifically stated in s. 52, on the basis that such a serious default would be a mere formal defect or an irregularity. The requirements of s. 52 are essential requirements for the proof of the petition. They are made essential, no doubt, because the law recognises that proceedings in bankruptcy have an extraordinarily far reaching effect, not only upon the status of the debtor but also so as to convert, in some cases, actions and omissions of his in the past – which at the time they were done or omitted did not constitute any offence – into serious criminal offences.’

94                  It is clear from what his Honour said that having regard to the purposes of the statutory regime a serious breach of the requirements of service was intended by the legislature to lead to invalidity, in the sense that it would not constitute a mere formal defect to which s 306 would apply. This analysis echoes what the High Court said in Adams v Lambert , namely that the kind or degree of the breach is relevant to a consideration of s 306.

95                  In Re Ditfort; Ex Parte DCT (1988) 19 FCR 347, which was an application for annulment, Gummow J expressed agreement with the proposition, advanced by Walters J in Re Long; Ex parte Fraser Confirming Pty Ltd (1975) 12 SASR 130, that there is a necessity for strictness of proof in observance of the requirements for service of bankruptcy notices and bankruptcy petitions. His Honour said (at 359 – 360):

‘Whilst not necessarily being of the view that s 306 can never apply in such a case in any circumstances, I respectfully agree with what was said by his Honour as to the importance of proper proof in these cases, and as to the salutary consequences for creditors of failure to comply with the rules…’

96                  In this case the relevant rules are, of course, the provisions of O 43 r 13 which set in place a special regime for service. The provisions of sub-rule 13(6) reflect the position in England as it became after Judicature: See, T Snow et a., The Annual Practice, 11^th edn, Sweet & Maxwell, London, 1893 at 248; T W Chitty, Chitty’s Archbold’s Practice of the Queen’s Bench Division of the High Court of Justice 14^h edn, H Sweet & Son, London, 1885 at 1144. The practice in Chancery before Judicature was that ‘service of a copy of the bill was effected in the ordinary manner’ (Annual Practice, supra, at 248).

97                  The Rules of Court in the First Schedule to the Supreme Court of Judicature Act (1873) 38 & 39 Vict. c. 77 provided, relevantly in O 9 r 5:

‘When a lunatic or person of unsound mind not so found by inquisition is a defendant to the action, service on the committee of the lunatic, or on the person with whom the person of unsound mind resides or under whose care he or she is, shall unless the Court or Judge otherwise orders, be deemed good service on such defendant.’ (Emphasis added)

98                  In The Fore Street Warehouse Company Limited v Durrant & Co. (1883) 10 Q.B.D. 471 the writ had been served on the lunatic defendant’s business manager. Grove J said of the rule (at 473):

‘I think the principle of this rule is that the service should be on some person qualified to act for the lunatic or most likely to know to whom the fact of service ought to be communicated. The manager of the lunatic’s business might be ignorant of these matters. Where the writ is served in such a manner that it may probably never reach the lunatic, I do not think it can be valid and proper service. The plaintiffs may reasonably be required to go through the formalities which may give the friends of the lunatic a proper opportunity of appearing.’

99                  It is also useful to consider what has been said about the next step in the process contemplated by the rules, namely the appointment of a next friend or tutor. The Rules of the Supreme Court of New South Wales, and in particular those which preceded the recent uniform civil procedure regime, are in a similar form to those which operate in this Court. In State Rail Authority of New South Wales v Hammond (1988) 15 NSWLR 395 Kirby P, with whom Hope and Mahoney JJA agreed, explained (at 400) that:

‘… the provisions of Pt 63, r 2 [which establishes the procedural requirement of a next friend] are simply machinery or procedure provisions. They are designed, principally, to ensure that there is someone answerable to the court on behalf of the litigant, with a disability; that crucial decisions affecting that litigant can be properly and responsibly made; and that a person exists who can bear any costs as are ordered against the person with the disability at the end of the litigation.’

100               Two features of the language of O 43 r 13 merit particular consideration. First, while the machinery provisions of O 43 r 13, namely, sub-rules (3) – (6) use the word ‘may’, one must take into account sub-rule (2) which provides:

‘(2) Personal service on a person under a disability shall not be effected otherwise than in accordance with this rule.’

101               Second, a certain tension seems to arise within the rule when ones comes to sub-rule (4), which provides:

‘(4) The document may be served on any person (including the person under disability) whom the Court may, before or after service, approve.’

102               However, when one bears in mind the purpose of this rule and its place in the broader rules as to litigation involving disabled persons, there is no tension between sub-rules (2) and (4). One can readily imagine a case where the Court would approve a particular person upon whom service could be effected. Indeed, it would be a prudent course to obtain such approval in advance of proceeding against a disabled person. On the other hand, where service has taken place in breach of the rule but those who care for the disabled person nevertheless appear at Court and no injustice has been occasioned by the breach of the rules, one appreciates how the Court might approve service which has already taken place. The discretion in sub-rule (4) is premised upon the mandatory nature of the rule, as reflected in the language of sub-rule (2). Where the objects of the rule have otherwise been achieved, it facilitates the proceedings moving forward by validating service which would have otherwise been prohibited.

103               It is also important to note that the rules expressly reject the idea that one might serve, perhaps out of an abundance of caution, both the person designated by sub-rule 13(6) and the mentally disabled person with an initiating process such as a creditor’s petition. The course which is not only to be preferred but which appears to be required is to approach the Court for a grant of approval. Only in relation to the limited class of documents in sub-rule (8) is a different approach to be adopted.

104               Thus, in their general application the special rules as to service firmly ensure that their aim is attained, namely that an opportunity is afforded to those who care for a mentally disabled person to appear before the Court and to represent and protect that person’s interests where by definition he or she does not have the capacity to do so alone. The existence of a facility for the proceedings to move forward once that aim has been achieved does not detract from the control which the Court maintains over this step in proceedings against mentally disabled persons. In bankruptcy proceedings the legislature has protected all debtors by requiring proof of service of the petition in every instance. In the case of mentally disabled persons that protection extends to the requirement to serve in accordance with the special rules designed to ensure that the opportunity is a real one.

105               In my judgment, strict compliance with the provisions of O 43 r 13 is necessary in bankruptcy proceedings. A breach of these rules could result in substantial injustice being visited upon the disabled respondent. Moreover, a serious breach could defeat the intention of the O 43 altogether and lead to a breach of the fundamental rules of natural justice. The FCR require service upon a particular person and that was not done. The FCR also prohibit service upon the disabled person and that was ignored. The conduct of the Creditor constituted a serious breach of the FCR and resulted in a defect in the proceedings which was not a formal one. Section 306 does not apply and the sequestration order is voidable.

106               The separate question of whether substantial injustice has been occasioned by the defect in these proceedings does not arise. In any event, I am of the opinion that in all the circumstances of this case substantial injustice has been occasioned by the defect which cannot be remedied by order of the Court save to set aside the sequestration order and dismiss the petition.

The Annulment Issue

107               It is quite clear that Ms Cross should not have been bankrupted. She was solvent at the time. A creditor who issues a creditor’s petition runs the risk that if the debtor is solvent, the likelihood is that the petition will be dismissed with costs. The evidence suggests that Ms Cross, due to her state of mind, may have thought that the body corporate of her home unit building did not exist and that she therefore did not owe it any money. Whether that be right or not, bankruptcy proceedings are not for debtors who won’t pay debts. They are for debtors who can’t pay debts. As the Full Court said in Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 at 376:

‘In bankruptcy, rights of creditors to sue the bankrupt are converted into rights of proof against his estate and he is protected from suit. The avoidance of preferences, voluntary settlements and fraudulent dispositions of property by the bankrupt is intended to restore the property or money of the bankrupt to his estate to achieve a fair and rateable division of the bankrupt’s property among his creditors.

The bankrupt is disqualified from holding certain offices. Bankruptcy involves a change of status and quasi-penal consequences. Upon discharge from bankruptcy, the bankrupt is released form his debts subject to certain exceptions.

These considerations negate the existence of any policy underlying the Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The words “able to pay his debts” in s. 52(2) of the Act do not mean “willing and able” to do so.’ (Emphasis added)

108               The parties are agreed that the bankruptcy should be brought to an end, the only question being how that should be achieved. By her motion, Ms Cross seeks to have the sequestration order made by the registrar on 9 August 2004 set aside. In opposing the motion, the Creditor and the Trustee contend that the appropriate course is to make an order pursuant to s 153B(1) of the Act annulling the bankruptcy. In a normal case, annulment is undoubtedly the appropriate course; but this is anything but a normal case.

109               The matter which evokes the response on the part of the Trustee to oppose the motion is that in the case of annulment, the Trustee gets the benefit of s 154(1)(b) of the Act, namely, he may apply the property of Ms Cross still vested in him – the home unit at 12/28 Tullimbar Road, Cronulla – in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the Trustee; whereas, if the sequestration order is set aside, he has no such right of application. The Creditor’s opposition to the setting aside of the sequestration order is no doubt sourced in the consequential orders I would make of dismissing the petition and revoking the costs order made by the registrar on 9 August 2004.

110               At the outset, it may be said that there is no longer any third course, for example, rescission of the sequestration order: See s 37(2) of the Act; Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44 at [19] and [20]. On the other hand, reviews of registrar’s orders, like appeals to the Full Court, are outside the intended ambit of s 37.

111               At the forefront of Ms Cross’ case is that she was bankrupted on the first return date of a creditor’s petition which was left with her while she was an involuntary patient in the Psychiatric Unit of Sutherland Hospital, but which I have found was not properly served, for a debt in respect of unpaid body corporate levies of $1,813.58, increased to approximately $2,400 by debt collection, legal and court costs of obtaining a default judgment in respect thereof; when, on the evidence before me, she owned assets in excess of half a million dollars including the home unit worth $375,000, money on deposit with major banks of more than $130,000 and shares and securities in major listed companies worth approximately $90,000.

112               Moreover, Ms Cross was not present when the sequestration order was made. Had she, or representatives on her behalf, been present on the day, or if her circumstances and the circumstances of service of the Creditor’s petition had been ventilated with the registrar on 9 August 2004 rather than being left buried in some affidavit of service, I have no doubt that the sequestration order would not have been made. Mr Bentley, in his submissions, said:

‘At this point I would just like to also make this quite clear that my friend made some submissions about what happened in front of Registrar Tesoriero but that affidavit of Mr Wellmeela clearly says that she was served in a psychiatric unit. There is no hiding that, the documentation which was presented to the court clearly stated the fact. Now I presented that petition but unfortunately so long ago I can’t remember what was said. I have a vague recollection that something may have been said about it but I can’t recall and I am unable to assist the court or swear an affidavit so I haven’t but there is no doubt that it is quite clear in evidence from Mr Wellmeela’s affidavit what happened, where it happened and what was going on, so it is not as if anyone has tried to conceal this from the court or from the Registrar.’

The fact is that Mr Bentley was the only person present before Registrar Tesoriero on 9 August 2004. He would not have been surprised at that. He certainly did not expect Ms Cross to be present. That he cannot remember what was said before the registrar on that day suggests to me that none of the relevant surrounding circumstances were brought to the registrar’s attention because he, Mr Bentley, was blinded by an obsession to ensure that whatever else happened, Registrar Tesoriero made the sequestration order on that day. As an officer of the Court, he had an overriding duty to do more – to draw to the Court’s attention Ms Cross’ circumstances and the circumstances under which she was purportedly served with the Creditor’s petition.

113               It is true that there has been some effluxion of time between the making of the sequestration order on 9 August 2004 and the filing of the motion on 7 November 2005. At least three things can be said about this, maybe more. First, there is no time limitation in which to bring a motion to set aside an order after it has been entered where the order has been made in the absence of a party: O35 r 7(2)(a) of the FCR, cf., s 35A(5) of the FCA Act and O 77 r 8 (now repealed) of the FCR. Second, there is a dearth of evidence as to what occurred in the period from 9 August 2004 until April 2005. It seems that the Trustee applied to become and became the registered proprietor of the home unit at Cronulla on or about 19 October 2004 but otherwise there was no administration of the bankrupt estate. The Legal Aid Commission became aware of Ms Cross’ bankruptcy on or about 30 September 2004, nearly two months after she was made bankrupt. But otherwise there is no evidence as to what happened, if anything happened at all, in addition to the matters mentioned, during this period. In all the circumstances, I do not think this period should be counted as part of the effluxion of time. Third, on the evidence before me, the second period in the effluxion of time (from 11 April 2005 until 7 November 2005) was taken up by the OPC discovering the relevant evidence as to what took place, obtaining legal advice thereon and, on the basis of that advice, deciding what action was to be taken. In all the circumstances I do not find the second period so long as to militate against exercising my discretion to set aside the sequestration order rather than annul the bankruptcy.

114               In re Daskalavski (Applicant); Ex parte The Austral Brick co Pty Ltd [1998] FCA 782, Emmett J (in a short ex tempore judgment) concluded that, in circumstances where his Honour was satisfied that the sequestration order ought not to have been made, it was appropriate to annul the bankruptcy rather than set it aside where the estate had already been administered in bankruptcy. But that is not the case here. Only one asset of Ms Cross, her home unit at Cronulla, has been vested in the Trustee and the debt on which she was bankrupted, together with subsequent unpaid strata levies, was paid out by the OPC, not the Trustee, following the Protective Commissioner being appointed the financial manager of Ms Cross’ financial affairs by order of the Guardianship Tribunal dated 11 April 2003. Notwithstanding the Trustee’s claim for remuneration to 3 June 2005 ($13,990) and his anticipated claim for additional remuneration ($5,500), there was no evidence that the Trustee had been actively involved in the administration of Ms Cross’ bankrupt estate.

Conclusion

115               When this choice – as between an order that the sequestration order be set aside on the one hand and an order for annulment of the bankruptcy on the other – has come before the courts on earlier occasions, the courts have consistently stressed that a balance must be struck between the rights of the applicant, who should never have been made bankrupt in the first place, and the Trustee who has simply done what the Act requires him to do: Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338 at [43] per Weinberg J; followed in Capsalis v Ozdemir [2005] FMCA 1163 at [17] per Connolly FM; Hadjimouratis v Casanova [2005] FMCA 1468 at [13] and [16] per Connolly FM; and in Vaucluse Hospital Pty Ltd v Phillips at [70] and [71] per Riethmuller FM. The rights of the petitioning creditor have never been referred to as a relevant factor, and understandably so.

116               This is not a case where the pendulum of balance tilts in favour of Ms Cross (compare Kyriackou) as against the Trustee; on the contrary, I have come to the firm conclusion that it would be totally unfair, indeed a miscarriage of justice, for Ms Cross to be saddled with any of the relatively considerable costs of the administration of her estate. While that may involve the invocation of some injustice on the Trustee, in the circumstances of this case it seems it must be tolerated in the face of an inability of the Court to order the petitioning creditor to bear such costs: Kyriackou at [39] per Weinberg J. For present purposes, I am prepared to accept that as being the correct position, however, I do not think it is free from doubt. The powers of the Court under s 30 of the Act are expressed in extremely wide terms. In the circumstances of this case, it seems unjust to me that the Creditor only has to pay the costs of the motion even though it also loses the registrar’s order as to costs of the petition.

117               Because of the conclusion I have come to as expressed in [116] supra, I propose to exercise my discretion under O 35 r 7 of the FCR to set the sequestration order aside. In the circumstances, it is only appropriate that I summarise the matters I have taken into account in exercising my discretion to do so:

1.                  The inappropriateness of bankruptcy proceedings as a debt collection remedy or mechanism. Such proceedings were never intended to operate against debtors who could, but would not, for whatever reason, pay.

2.                  The size of the debt – originally less than $2,000.

3.                  The aggregate value (free of encumbrances) of Ms Cross’ assets – closer to $600,000 than $500,000, approximately $200,000 of which were in liquid form.

4.                  The size of the actual and anticipated costs and expense of administering the estate: In excess of $35,000, when, on the evidence, there was minimal administration.

5.                  The circumstances of Ms Cross’ mental condition and her admissions (once involuntarily) to the Psychiatric Unit of Sutherland Hospital during 2004 – for a total of over three months.

6.                  My finding that Ms Cross was not properly served with the Creditor’s petition.

7.                  The fact that she was not present or represented at the hearing at which the sequestration order was made.

8.                  The fact that the circumstances referred to in 5 and those underlying my finding in 6 were not ventilated before the registrar on 9 August 2004 (the first return date of the petition) when the sequestration order was made.

9.                  The fact that those involved in ensuring that Ms Cross was bankrupted on 9 August 2004 – Messrs Meuller and Bentley – were officers of the Court.

118               The orders of the Court will be:

1.                  Michael Gregory Jones, trustee of the bankrupt estate of Isabell Jean Cross, be joined as a party (second respondent) to the proceeding, effective 6 December 2005.

2.                  The orders of Registrar Tesoriero made 9 August 2004 be set aside and the Creditor’s petition dated 4 March 2004 and filed 23 March 2004 be dismissed.

3.                  The costs of Ms Cross and of the Trustee of the motion be paid by the Creditor on an indemnity basis.

Associate:

Dated: 14 July 2006