Re Leslie Brix-Nielsen v Trustee In Bankruptcy, Hugh Jenner Wiley [1989] FCA 9 (2 February 1989)

FEDERAL COURT OF AUSTRALIA

Re: LESLIE BRIX-NIELSEN
And: TRUSTEE IN BANKRUPTCY, HUGH JENNER WILEY
No. W 1486 of 1987
FED No. 5
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL
TERRITORY
Einfeld J.(1)

CATCHWORDS

Bankruptcy - application to annul bankruptcy - whether sequestration order ought not to have been made - going behind judgment to see if real debt - discretion under section 154 to grant annulment

Bankruptcy Act 1966: s 154

HEARING

SYDNEY
2:2:1989

Applicant appeared in person

Solicitor for the respondent M.D. Nikolaidis and Co

ORDER

The bankruptcy of the applicant Leslie Brix-Nielsen is annulled.

Note: Settlement and entry of these orders is dealt with in accordance with Order 124 of the Bankruptcy Rules.

DECISION

This is an application pursuant to section 154(1)(a) of the Bankruptcy Act 1966 (the Act) dated 15 August 1988, seeking an annulment of the bankruptcy of Leslie Brix-Nielsen (the applicant). The bankruptcy occurred when a sequestration order was made on 1 October 1987 based on a judgment debt of $4874.49 obtained in the Local Court of New South Wales on 18 March 1986 in favour of Linda Clare Wilson (the judgment creditor). The application is opposed by the trustee of the applicant's estate.

2. The applicant met the judgment creditor after advertising for crew to participate in a voyage on a sailing vessel which he mastered, named 'Alpha Centauri' (the vessel). The voyage commenced in Spain in October 1981 and finished in Sydney sailing via the Panama Canal.

3. At her request, the applicant dealt with the judgment creditor's application to join the crew through her mother, Mrs Jacqueline Alice Wilson, because the judgment creditor herself was in Europe at the time. Having been informed of the terms and conditions of the trip by her mother, the judgment creditor was interviewed by the applicant on 13 July 1981 in Malmo, Sweden where the ship was apparently undergoing final outfitting. On or about 16 July 1981 the judgment creditor was accepted as a crew member subject to the applicant's receipt from her of the sum of $3832.50. This was provided by a cheque forwarded by Mrs Jacqueline Wilson on 19 October 1981. The payment was inclusive of all living expenses incurred whilst on board the vessel and was based on a rate of $10.50 per day for the anticipated 12 months of the voyage.

4. Essential to this case, the applicant says that before crew were accepted, the following conditions were made clear to them:

(a) the fee was to be paid;
(b) no refunds would be made to any crew member who permanently left
the ship before the end of the voyage unless there were medical
or compassionate grounds to justify the departure;
(c) the only circumstances in which crew members would receive a
refund was if there was any surplus of funds at the completion
of the voyage after a complete overhaul of the vessel had been
made.

5. All crew members, including the judgment creditor, entered a verbal contract with the applicant including these terms, and the judgment creditor joined the vessel in Fuengirola, Spain on or about 15 September 1981.

6. As events turned out the judgment creditor left the crew and vessel on 4 April 1982 in Lake Gatun, Panama. Subsequently she sued for, and the judgment debt was intended to be a refund of, the unexpired portion of the voyage on a pro rata basis of $10.50 per day for what was said to be the unexpired portion of 175 days. The amount claimed and first adjudged to be owing was $2055 which, if 175 days was the length of the journey not undertaken by the judgment creditor, appears to me to be an error, as 175 days at $10.50 is $1837.50. However, the amounts and calculations have at no stage of this matter ever apparently been disputed in this respect. The applicant claimed, however, that the judgment creditor is not entitled to any refund because

(a) the terms and conditions relating to payment and refund had been
explained to the judgment creditor before undertaking the
voyage;
(b) she did not fall into the exceptional category relating to
medical condition or compassionate grounds;
(c) there were no surplus funds at the end of the voyage.

7. The applicant also claims that the judgment creditor committed a fundamental breach of contract by leaving the voyage. He further submitted that Australian law does not apply to this case because the contract was made outside Australia on Swedish soil and was to be performed outside Australia.

8. Effectively these submissions amounted to a request that the applicant's entitlement to an annulment be dealt with by going behind the judgment debt. The court may go behind the judgment debt in order to ascertain whether in fact there is a real debt: see Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212; Simon v Vincent O'Gorman Pty Ltd [1979] FCA 75; (1979) 41 FLR 95; Corney v Brien [1951] HCA 31; (1951) 84 CLR 343; and Cameron v Cole [1944] HCA 5; (1943) 68 CLR 571. In order to consider the appropriateness of doing so in this case, it is first necessary to outline the extraordinary litigious history of this matter. In the interests of brevity, I will list the various steps chronologically.

9. 13 April 1984 - plaint and default summons commencing action issued by judgment creditor claiming the unexpired portion of the 175 days totalling $2055 and costs, a total of $2171.00.

10. 16 July 1984 - matter listed for hearing in Local Court. Mr Bartels, solicitor, instructed by the applicant appears. Stood over to 29 October 1984.

11. 29 October 1984 - matter listed for hearing. There was no appearance on behalf of the applicant and the magistrate ordered the sum of $3073.50 to be paid to the judgment creditor. This figure consisted of $2016.00 judgment debt (again the calculation appears erroneous) and $1057.50 costs.

12. 1 November 1984 - solicitor for the judgment creditor informs Mr Bartels by letter of the outcome of the proceedings 29 October 1984.

13. 23 January 1985 - letter from solicitor for judgment creditor to Mr Bartels informing him of an intention to issue a bankruptcy notice due to lack of reply to previous letter.

14. 4 February 1985 - letter from Mr Bartels saying he has referred the matter to his client for instructions.

15. 5 and 20 February 1985 - letters from solicitor for judgment creditor wanting to know what instructions Mr Bartels has been given.

16. 28 February 1985 - Mr Bartels informs the solicitor for judgment creditor by letter of intention to move to set aside judgment obtained on 29 October 1984 on the basis of lack of jurisdiction of the Australian Courts.

17. 20 March 1985 - application to set aside judgment filed.

18. 8 May 1985 - judgment of 29 October 1984 set aside on the basis that a defence be filed within 21 days and the defendant pay plaintiff's costs of the October 1984 and this (8 May) hearing within three months.

19. 28 May 1985 - defence filed essentially on the basis that the contract was made in Sweden and that under the conditions of refund, there was no available surplus. The defence does not state that the only circumstances in which a crew member who left could claim a refund is where there were medical or compassionate grounds.

20. 30 July 1985 - matter listed for hearing. The applicant himself was at Court on this day for the hearing. It is not clear if Mr Bartels was present. During the course of the hearing, the Court building had to be fully vacated following a bomb scare. While in the street outside the Court building, the magistrate told the applicant that in the circumstances the case had to be adjourned for that day and that he would be informed in due course of the adjourned hearing date. The date eventually fixed was 27 September 1985. The applicant says that he did not receive any further notices or summonses or notifications from his solicitor relating to his case. He specifically was not informed of the adjourned hearing date. N.B. The application to set aside judgment and application to stay proceedings both dated 21 July 1987 state that the bomb scare took place on 27 September 1985, but this seems to be an error.

21. 27 September 1985 - matter adjourned to 18 March 1986. Apparently Mr Bartels was not present. The applicant says he was not informed.

22. On or about 10 January 1986 - applicant withdrew his instructions from Mr Bartels and lodged a complaint with the Law Society regarding his conduct of the case.

23. 12 March 1986 - subpoena to the applicant to appear and produce documents and financial records in relation to the vessel on 18 March 1986 delivered to the offices of Mr Bartels who had also been advised that the matter would proceed on 18 March 1986. The subpoena was apparently not passed on to or drawn to the attention of the applicant.

24. 18 March 1986 - hearing at Local Court. The applicant fails to appear at the hearing because he says he was totally unaware of the proceeding. Judgment was entered against the applicant for $4874.49. This sum included judgment debt of $2055 and total of $2819.49 for costs and witnesses' expenses to date, although costs up to 8 May, totalling $1,165, were not included.

25. 24 March 1986 - letter sent to the applicant from solicitor for judgment creditor informing him of the outcome of proceedings on 18 March 1986, stating that judgment was obtained for sum of $4874.49 and that the sum of $1,165, for costs incurred up to 8 May 1985, was not included in the final judgment. The letter informed the applicant that he now owed the creditor $6039.49. The applicant denies ever having received this letter and therefore says he knew nothing of the judgment.

26. 6 January 1987 - bankruptcy notice issued dated 28 November seeking payment of $5378.37, being $4874.49 debt and interest totalling $503.88. All costs appear to have been omitted.

27. 15 January 1987 - affidavit of service of bankruptcy notice sworn by Paul James Walker stating that on 10 January 1987 the applicant was served at an address described as 9 Catalina Crescent Avalon. The applicant says he was never served with the bankruptcy notice. At the time he lived at 19 Catalina Crescent, North Avalon.

28. 2 February 1987 - act of bankruptcy committed.

29. 18 May 1987 - creditor's petition issued alleging a failure to comply with the bankruptcy notice said to have been served on 10 January 1987. The petition claimed the amount of $5719.44, being the judgment debt plus costs and interest.

30. 16 July 1987 - affidavit of service of creditor's petition sworn by Paul James Walker stating that on 8 July 1987 at 9.10 pm the applicant was served with the petition at Cremorne, New South Wales. The applicant says that he was served with a copy of the petition on 16 July 1987.

31. 21 July 1987 - with the assistance of a chamber magistrate, the applicant files application for a stay of proceedings in the Local Court and application to set aside the judgment.

32. At some time between 21 July and 7 August 1987 - applicant engages another firm of solicitors, Messrs Ferriers.

33. 7 August 1987 - Ferriers inform solicitor for judgment creditor that application to stay proceedings and application to set aside proceedings have been made.

34. 13 August 1987 - notice of intention to oppose petition filed by Ferriers. This was later withdrawn by the same solicitors allegedly without any or any informed instructions.

35. 26 August 1987 - application to set aside judgment heard in Local Court. The application to set aside was refused, although the magistrate found that the applicant had a bona fide defence on the merits. The decision not to set aside appears to have been founded on the applicant's alleged failure to have acted more promptly. At the hearing Mr Bartels said in cross-examination said that he had not informed the applicant either by letter or telephone of the proceedings to be held on 18 March 1986 and did not attend Court on behalf of his client.

36. 1 October 1987 - sequestration order made.

37. 20 October 1987 - statement of affairs filed, revealing debts of $5000 and assets of $70.

38. The applicant bases his application upon the following factors which he states should be considered in determining whether the sequestration order ought to have been made:

(1) He was never served with the bankruptcy notice. His wife
Birgitta Brix-Nielsen in an affidavit dated 12 August 1988 and
his son Alain Brix-Nielsen in an affidavit dated 10 August 1988
corroborated the applicant's denial of service as alleged in the
affidavit of the process server. The applicant gave evidence
that there is no such place as 9 Catalina Crescent, Avalon and
that his address is 19 Catalina Crescent, North Avalon. The
applicant was not cross-examined on this issue and no evidence
was called to rebut his claims. I accept the evidence of the
applicant.
(2) The bankruptcy notice is defective in failing to show the
correct amount owing. The applicant says the bankruptcy notice
should have claimed an additional amount of money which he
particularised but to me the amount truly in dispute is a
mystery.
(3) Mr Bartels, the solicitor who represented him at the time when
the proceedings commenced in 1984, failed to act properly in the
conduct of the case and in the applicant's best interests. Mr
Bartels did not keep him informed of the progress of the case
after the bomb scare and failed to inform him of the hearing on
18 March 1986. I have not heard from Mr Bartels in these
proceedings, but I have the advantage of some of the evidence he
gave in the Local Court on 26 August 1987.
(4) According to the applicant, Mr Bartels placed himself in a
position of conflict of interests when he acted on behalf of the
applicant whilst at the same time holding office as Director and
Secretary of a company involved in a commercial dispute
involving the applicant's wife's bakery business. As I have no
evidence on this matter at all and have not heard Mr Bartels, I
can make no finding on this assertion.
(5) The applicant says that he never received any letter from the
solicitors for the judgment creditor dated 24 March 1986. He
says the only time that he knew of the judgment debt was when he
was served with the creditor's petition on 16 July and not 8
July as alleged by the process server. There was no contrary
evidence and he was not cross examined to suggest otherwise. I
accept his evidence.
(6) He acted promptly as soon as the petition came to his attention.
His evidence that service of the petition was not effected until
16 July 1987 was not rebutted by the process server who was not
called. I accept his evidence.
(7) As to the withdrawal of the notice to oppose the petition filed
by Messrs Ferriers, the applicant says he did not instruct the
solicitors to withdraw the notice to oppose but says that in a
telephone conversation with a solicitor of the firm he was led
to believe that he should go bankrupt and then move to annul the
bankruptcy. I have not heard anything from the solicitor at
Ferriers with whom the applicant dealt. Although I do not think
that I should try to resolve this matter in the circumstances,
it is not appropriate that I draw any conclusion adverse to the
applicant so far as the current proceedings are concerned.
(8) The magistrate held that he had a bona fide defence.

39. Section 154 of the Act provides:

Where the Court is satisfied -
(a) that a sequestration order ought not to have been
made or, in the case of a debtor's petition, that
the petition ought not to have been presented or
ought not to have been accepted by the Registrar;
or
(b) that the unsecured debts of the bankrupt, being
debts that have been proved in the bankruptcy, have
been paid in full or the bankrupt has obtained a
legal acquittance of them,
the Court may make an order annulling the bankruptcy.

40. The case raises the following issues:

(1) whether the sequestration order ought to have been made;
(2) if not, whether the discretion provided in section 154(1) should
be exercised in favour of the applicant such that an annulment
of the bankruptcy is granted.

41. In Re Piccardi; ex parte George Gregory Grivas (unreported 3 Aug 1988, under appeal) I made a detailed analysis of the authorities on this question. For the reasons given there, I am satisfied that if the applicant is entitled to relief, annulment is the appropriate course for the facts in this case, on the basis that the sequestration order ought not to have been made.

42. It seems that the applicant has suffered a gross injustice in this case. He engaged solicitors to act on his behalf who appear to have let him down in several respects. One admits to not having attended the Court hearings of the claim at all, to not informing the applicant of the second hearing of the matter, to not attending himself, and to not having kept the applicant in touch with the progress of the matter. Another seems to have advised or permitted the withdrawal of a proposed opposition to the petition without any apparently persuasive reason. Neither solicitor was called to dispute the applicant's account of their conduct and advice. My acceptance that the applicant did not receive notification of the judgment, was not served with the bankruptcy notice: Re Ram and Singh Ex Parte Continental Seagram Pty Ltd (unreported 23 September 1988); and was not served with the petition until 16 July 1987, means that action to set aside the judgment was taken 5 days after his first knowledge that judgment had been entered against him. This was as reasonably prompt a response as might have been expected. The ultimate failure to set the judgment aside seems to have been no fault of the applicant's.

43. Although I respectfully disagree with the magistrate's eventual conclusion that there was tardiness by the applicant in moving to set the judgment aside, I see no reason to disagree with the magistrate's assessment of the facts, and his conclusion that the applicant appeared to have a bona fide defence to the judgment creditor's claim. Indeed, no evidence has been brought before me to suggest that the judgment creditor's claim is good and that the applicant's defence is without merit. It seems that there is a real doubt about the judgment creditor's right to the moneys involved.

44. The trustee submitted that in the exercise of the Court's discretion under section 154(1)(a), the following factors should be considered:

(1) The affidavit of service of the process server contained a
typographical error where the address was stated as number 9.
It was said that this should have been "19". I reject this
submission firstly because the suburb referred to by the process
server was "Avalon" and not "North Avalon" where the applicant
lives. More importantly, had there been a typographical error,
the process server had ample time to file another affidavit to
rectify the position, or he could have been called to give
evidence of the accidental nature of the error.
(2) The solicitor for the judgment creditor wrote a letter dated 10
September 1987 confirming a conversation with the solicitor then
acting on behalf of the applicant where it was communicated that
the petition would no longer be opposed. It seems to me that
this is irrelevant because the issue is whether the solicitor
should have withdrawn the notice of opposition in the light of
the known facts and the relevant law.
(3) The Court should consider the conduct of the bankrupt in not
complying with his statutory obligation to submit a proper and
complete statement of affairs. The trustee said that
considerable expense was incurred to ascertain further details
of the applicant's financial affairs because the applicant had
failed to disclose all assets and credits, and that he was
insolvent at the time of the sequestration order. The trustee's
report indicates that the bankrupt has made no contribution to
his estate and seeks an investigation of the disposition of
assets resulting from the sale of the vessel and the proceeds
from a compensation claim - all funds which the trustee says
were paid to the applicant's wife.

45. The applicant replied that he had tried to be co-operative and that he had completed the statement of affairs to the best of his ability. I am inclined to accept that the applicant did not try too hard to be complete because of his feelings of grievance at the judgment creditor and at the way his litigation and affairs had been treated. Although this had nothing at all to do with the trustee, it is understandable that the applicant might not have felt motivated to comply strictly with a law which in his mind had not been as strictly applied to him as it was being required to be complied with by him.

46. The applicant has made several attempts to defend his case and to prevent the bankruptcy occurring. These include:

(a) engaging a solicitor to appear for him in the Local Court
hearing of the matter;
(b) filing an application to set aside the judgment obtained on 29
October 1984;
(c) filing a defence on 28 May 1985;
(d) attending Court to defend the matter on 30 July 1985;
(e) filing an application to stay proceedings and to set aside
judgment on 21 July 1987;
(f) attending the hearing of the second application to set aside the
judgment;
(g) engaging another firm of solicitors to oppose the petition;
(h) moving to annul the bankruptcy.

47. For all these reasons I do not consider that there are any discretionary reasons why annulment should not follow. I annul the bankruptcy. I will hear the parties on costs.