FEDERAL COURT OF AUSTRALIA

Roads Corporation v Love [2016] FCA 38

ORDERS

THE COURT ORDERS THAT:

1.    A sequestration order be made against the estate of Thomas James Love.

2.    The applicant's costs, including reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

THE COURT NOTES THAT:

1.    The date of the act of bankruptcy is 6 May 2014.

2.    A consent to act as trustee has been signed by Paul Andrew Burness and Matthew James Jess.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PAGONE J:

1    Roads Corporation applied on 9 May 2014 for a sequestration order against the estate of Mr Thomas James Love. The hearing of the application was delayed in part because there were outstanding proceedings that might have affected the application, but in larger part because of Mr Love’s deteriorating health which required frequent treatment that made it difficult for him to prepare for, or to attend, hearings. Mr Love was unrepresented in all but the last directions hearing and at the trial of the application. Counsel appearing for Mr Love at the last directions hearing before the trial successfully sought an adjournment of the hearing to enable those then retained to appear for Mr Love to consider the material which had been filed in the application by Roads Corporation and also to consider the extent to which the many grounds of opposition which had been raised by Mr Love remained open in the application. Counsel appearing for Mr Love at the hearing of the application did not consent to the sequestration order being made but responsibly conceded that there was no basis to oppose the application.

2    The Court may make a sequestration order against the estate of a debtor under s 52(1) of the Bankruptcy Act 1966 (Cth) if satisfied with the proof of the matters required by s 52(1). The Court may dismiss a petition under s 52(2) if it is not satisfied with the proof of any of the matters required by s 52(1), or if the Court is satisfied by the debtor of an ability by the debtor to pay the debts or that for other sufficient cause a sequestration order ought not to be made. Sections 52(1) and (2) provide:

(1)    At the hearing of a creditor’s petition, the Court shall require proof of:

(a)    the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(b)    service of the petition; and

(c)    the fact that the debt or debts on which the petitioning creditor relies is or are still owing;

and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

[…]

(2)    If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

(a)    that he or she is able to pay his or her debts; or

(b)    that for other sufficient cause a sequestration order ought not to be made;

it may dismiss the petition.

In each case the power to make the sequestration order, or to dismiss the petition, is discretionary, but whether or not either discretion is to be exercised on the given facts of the case arises after the preconditions to the exercise of the relevant power have been satisfied.

3    The first of the matters required by s 52(1) to be proven by Roads Corporation are those stated in the creditor’s petition. For that purpose s 52(1)(a) permits the Court to be satisfied about those matters by an affidavit verifying the petition. The petition stated (a) that Mr Love owed Roads Corporation $4,892,848.74, (b) that Roads Corporation does not hold security over the property of Mr Love, (c) that Mr Love was ordinarily resident in Australia at the time when the act of bankruptcy was committed, and (d) that Mr Love had failed to comply on or before 6 May 2014 with the requirements of a bankruptcy notice served on him on 15 April 2014 or had otherwise failed to satisfy the Court of a counter-claim, set-off or cross-demand equal to or more than the sum claimed in the bankruptcy notice. Part 2 of the petition contained an affidavit by Mr Timothy John Pontefract verifying from his own knowledge matters (a), (b) and (c) above as were stated in the petition. The affidavit also claimed in respect of (d) that Mr Love had failed to pay the debt claimed by Roads Corporation, or to make an arrangement to the satisfaction of Roads Corporation for payment of the debt, and there was no evidence to the contrary. Roads Corporation also relied upon an affidavit made on 16 April 2014 by Mr Dennis John Domaille and an affidavit by Ms Sharon Marie Cooper made on 9 May 2014. The affidavit of Mr Domaille exhibited a copy of the bankruptcy notice together with a copy of the Supreme Court judgment made by Dixon J on 14 November 2012, and copies of Supreme Court general forms of order made, respectively, by Costs Registrar Conidi on 4 March 2013, Osborne J on 23 April 2010, and Judicial Registrar Gourlay on 17 April 2012. The total amount in the Supreme Court judgments was $7,915,985.17 as identified in the bankruptcy notice and in paragraph 1 of the creditor’s petition in this proceeding. Both the bankruptcy notice and the creditor’s petition allowed credits in the sum of $3,023,136.43 as sworn to by Mr Domaille in paragraph 1(b) of his affidavit leaving the net amount of $4,892,848.74 claimed. The affidavit of Ms Cooper gave evidence of her search as at 9 May 2014 which revealed that no application had been made on behalf of Mr Love in respect of the bankruptcy notice.

4    The other two matters required by s 52(1) to be proven by Roads Corporation were (a) that the petition had been served upon Mr Love and (b) that the debts on which it relied were still owing. The former was also established by the affidavit of Mr Domaille who swore to the fact of service of the petition. The latter was established by an affidavit of debt by Mr Pontefract dated 27 January 2016 deposing to the fact that each of the debts relied upon by Roads Corporation was still owing on 27 January 2016. Ms Roslyn Ruth Lambert also swore an affidavit on 27 January 2016 deposing to a search that she had conducted on that day of the records of the National Personal Insolvency Index which revealed no details of a debt agreement concerning the debts relied upon by Roads Corporation.

5    None of these facts were in dispute and I am satisfied with the proof by Roads Corporation of the matters required by s 52(1). Mr Love did not satisfy the Court (a) that he was able to pay his debts for the purposes of s 52(2) (although Mrs Love stated on oath that the business had been growing by about $1 million each year and expressed her belief – no doubt genuinely held – that all creditors would be paid in full if allowed to continue trading) or (b) that for “other sufficient cause” a sequestration order ought not to be made (see: Cain v Whyte (1933) 48 CLR 639 at 646; Russell v Polites Investments Pty Ltd [2012] FCA 11, [24]; Totev v Sfar [2006] FCA 470, [44]), although Mrs Love referred to the existence of an appeal in proceedings involving the Commonwealth Bank which, if successful, might result in Mr Love having some funds for the payment of creditors.

6    The Court has a residual discretion about whether to make a sequestration order against Mr Love notwithstanding that it is satisfied with the proof of the matters under s 52(1) and that Mr Love has not satisfied the Court of the matters in s 52(2). Mr Love had filed a substantial amount of material before retaining those who appeared for him at the hearing of the application for a sequestration order. Much of that material related to grounds of opposition which were not pressed at the hearing. Some of the material related to matters which had been overtaken by events (such as an application for special leave to appeal to the High Court which had been made by Mr Love and had been pending before, but had been decided against Mr Love before, the hearing of the creditor’s petition). Counsel for Mr Love, however, made submissions on instructions from Mrs Love for the Court to consider in relation to the exercise of its residual discretion under s 52(1). In that context counsel sought an indulgence from the Court to permit Mrs Love to give an oral explanation of three matters that she wished to have considered by the Court on behalf of her husband. Counsel for Roads Corporation did not oppose that course and Mrs Love was heard on oath about the three matters indicated by counsel as well as other matters. An additional matter raised by Mrs Love concerned the state of Mr Love’s health and physical condition. It is not necessary to set out the description given by Mrs Love of the condition of Mr Love, except to note that it is clear that Mr Love is suffering from a severe, debilitating and extensive illness. It was Mrs Love’s belief, based upon what she had been told by those treating her husband, that his cancer had been caused by the stress occasioned by long litigation with Roads Corporation.

7    Mr Love’s circumstances are, in many ways, tragic. However, the matters referred to by Mrs Love are not sufficient to justify a refusal to make the sequestration order sought by the petitioning creditor. Mr Love’s physical condition does not alter the fact that his estate is insolvent and may in any event require administration under rules similar to those in the Bankruptcy Act 1966 (Cth): see Meinhardt (Hong Kong) Ltd v William Lindsay Meinhardt (deceased) (No 2) [2006] FCA 1323, [56]. The other matters about which Mrs Love was heard concerned issues arising in the past litigation with Roads Corporation (including that in which the judgment debt arose) and, in part, concerned the conduct of those acting for Roads Corporation in that litigation. Mrs Love was critical of the conduct of Roads Corporation and in particular of its legal advisers. The first matter raised by Mrs Love concerned information which Roads Corporation had obtained in the course of earlier litigation from discussions by one of its legal advisers with an expert witness (a Mr Kerr) who had been an expert retained by Mr Love. Mrs Love said that the information given by Mr Kerr to Roads Corporation established that what Roads Corporation had pleaded in subsequent proceedings was knowingly wrong but that Mr Love did not know of the discussions between Mr Kerr and Roads Corporation until much later when the costs of Roads Corporation came to be taxed. The second matter was the conduct of Roads Corporation in demolishing a homestead known as Clonard before an application had been determined for the homestead to be given a heritage listing. The third matter was that the quarry business has been growing by about $1 million per year and would lead to all creditors being paid out in full if allowed to trade. Mrs Love made other statements of a more general, and unhelpful, nature reflecting, no doubt, the pressures of her situation. Mrs Love, for example, at one point suggested that it had been the intention of Roads Corporation to inflict harm upon Mr Love and that the application for a sequestration order was “all about” protecting “the mistakes that the public servants and Roads Corporation have made”. Mrs Love also mentioned, as did counsel for Roads Corporation, the circumstances surrounding the proceeding involving the Commonwealth Bank in respect of which there was an existing appeal which, if successful, might result in funds being available for payment to creditors.

8    The matters raised by Mrs Love were raised for consideration in the exercise of the discretion about whether to make a sequestration order upon the assumption, as is the case, that the Court was satisfied of the matters required to be proven by the creditor under s 52(1) and was not satisfied by Mr Love of the matters for him to prove under s 52(2). None of the matters raised by Mrs Love would have justified going behind the judgment (see Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) [2014] FCA 461, [55]); although it was not suggested otherwise. The matters raised by her do not justify a refusal to make a sequestration order as a matter of discretion to the extent that what was relied upon was insufficient to prove or disprove (as the case required) a matter to be taken into account under ss 52(1) and (2) as a pre-condition to the exercise of the Court’s discretion. It would undermine the provisions, and the authorities concerning the circumstances justifying the Court to go behind a judgment, to refuse to make a sequestration order on discretionary grounds in reliance upon matters that do not justify the Court to go behind the judgment debts relied upon by a petitioning creditor. Mrs Love’s complaint about the Kerr evidence was something which, at best, affected the judgment debt; however it is clear from an affidavit which Mr Love filed in these proceedings that the Kerr evidence, and its impact upon the proceedings in which it was relevant, had been drawn by Mr Love to the attention of counsel who had been appearing for him in the appeal in those proceedings and in the subsequent application for special leave to appeal to the High Court. It seems that a forensic decision was made about the Kerr evidence issue in the proper place where such a decision ought to have been made and it would not be appropriate to decline to make a sequestration order by reason of the Kerr evidence issue in the Court’s exercise of the general discretion where it is not sufficient to warrant going behind the judgment. The second matter referred to by Mrs Love concerned the conduct of Roads Corporation with respect to the Clonard homestead, but that does not reveal conduct on its part sufficient to decline the making of the sequestration order. The third matter did not establish solvency and what was said by Mrs Love was too speculative to provide a foundation for the exercise of the discretion against the making of a sequestration order in circumstances where the evidence was insufficient to establish solvency in the sense required by s 52(2)(a). Similarly, the existence of an appeal in respect of proceedings against the Commonwealth Bank was, at most, speculative and insufficient to decline to make the sequestration order in circumstances where the appeal is against a judgment which was not otherwise shown likely to be overturned.

9    Accordingly, there will be orders that:

(1)    A sequestration order be made against the estate of Thomas James Love.

(2)    The applicant’s costs, including reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

The Court notes that the date of the act of bankruptcy is 6 May 2014 and that a consent to act as trustee has been signed by Paul Andrew Burness and Matthew James Jess.

Associate:

Dated:    3 February 2016