Burge & Ors v Swarbrick [2009] FMCA 1279 (18 December 2009)

Last Updated: 21 December 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BURGE & ORS v SWARBRICK

[2009] FMCA 1279

BANKRUPTCY – Application for sequestration order – opposed application – whether formal matters proven – persons on whose behalf affidavit in support of creditors’ petition made – relevance of alleged criminal conviction of one applicant.

Bankruptcy Act 1966 (Cth), ss.43, 44, 47(1), 52(1) Copyright Act 1968 (Cth), ss.10 & 77(1) Evidence Act 1995 (Cth), s.59(1) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.4.02, 4.04(1)(a), (1)(b) & (2), 4.05, 4.06(2), (3) & (4)

Burge & Ors v Swarbrick (2005) 149 FCR 193; [2005] FCAFC 257 Burge & Ors v Swarbrick (2007) 232 CLR 336; [2007] HCA 17 Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145 Re Sanders (2003) 1 ABC(NS) 408; [2003] FCA 1079 Sanders v Knudsen & Yates trading as the Hargreaves Practice [2004] FCAFC 305 Swarbrick v Burge & Ors (2004) 138 FCR 353; [2004] FCA 813 Swarbrick v Burge & Ors [2009] FMCA 985

First Applicant:

BRENT BURGE

Second Applicant:

TREVOR ROGERS

Third Applicant:

BENJAMIN WARREN

Fourth Applicant:

BOLD GOLD INVESTMENTS PTY LTD

Fifth Applicant:

GLEN PETER BOSMAN

Sixth Applicant:

SERGIO EDWARD ZAZA

Respondent:

JOHN HARLEY SWARBRICK

File Number:

PEG 216 OF 2009

Judgment of:

Lucev FM

Hearing date:

18 December 2009

Date of Last Submission:

18 December 2009

Delivered at:

Perth

Delivered on:

18 December 2009

REPRESENTATION

Counsel for the Applicant:

Mr N Timoney

Solicitors for the Applicant:

Stables Scott

The Respondent:

In person (by telephone)

ORDERS

(1) A Sequestration Order be made against the estate of John Harley Swarbrick.
(2) The Applicant Creditors’ costs be fixed in the sum of $4382.50 (inclusive of disbursements of $1552.50) and be paid out of the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.

AND THE COURT NOTES THAT:

(3) The date of the act of bankruptcy is 3 June 2009.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH

PEG 216 OF 2009

BRENT BURGE

First Applicant

TREVOR ROGERS

Second Applicant

BENJAMIN WARREN

Third Applicant

BOLD GOLD INVESTMENTS PTY LTD

Fourth Applicant

GLEN PETER BOSMAN

Fifth Applicant

SERGIO EDWARD ZAZA

Sixth Applicant

And

JOHN HARLEY SWARBRICK

Respondent

REASONS FOR JUDGMENT

(Ex tempore – revised and amended)

Application

1. This is an application seeking the issuance of a sequestration order against John Harley Swarbrick.
2. The application is opposed by Mr Swarbrick who seeks that the creditors’ petition be dismissed having regard to the grounds set out in a Notice Stating Grounds of Opposition to Petition[1] filed 9 December 2009 and Mr Swarbrick’s affidavit in support of those grounds filed and sworn the same day.[2]

Facts

Prior proceedings

3. The history of prior proceedings in this matter is set out in this Court’s judgment in Swarbrick v Burge & Ors.[3] For present purposes the following summary of the prior proceedings is sufficient:
   • 2. In September 2003 Mr Swarbrick commenced proceedings in the Federal Court seeking intellectual property protection in respect of the JS 9000 design. Mr Swarbrick was successful before the Federal Court at first instance,[4] and on appeal before the Full Court of the Federal Court.[5] On appeal to the High Court however Mr Swarbrick lost, and the appellants, the respondents in the present proceedings, were successful.[6] On 31 July 2007 the High Court ordered that Mr Swarbrick pay the present respondents’ costs of the Intellectual Property Litigation. On 5 June 2008 a Deputy District Registrar of the Federal Court ordered that Mr Swarbrick pay costs in the sum of $125,110 to the present respondents. [7]
4. In Swarbrick an application by Mr Swarbrick for an extension of time for compliance with, and to set aside, a bankruptcy notice, taken out by the applicants in these proceedings, was dismissed.[8]

Debt

5. The debt which it is alleged is outstanding is the sum of $125,110 that Mr Swarbrick was ordered to pay pursuant to the Costs Order.

Law

6. The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act 1966 (Cth),[9] subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act, being met.
7. The applicants, as petitioning creditors, are also obliged to put before the Court affidavits:
   1. verifying the petition;[10]
   2. as to search of the records of the Court and the Federal Court as to any application in relation to the bankruptcy notice;[11]
   100. of service of the bankruptcy notice;[12]
   4. of service of documents required to be served under the FMCA (Bankruptcy) Rules, r.4.05;[13]
   5. of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition;[14] and
   6. of debt on which the creditor still relies as owing.[15]
8. The Court may decline to issue a sequestration order if:
   1. it is not satisfied with the proof of any of the above matters;[16] or
   2. it is satisfied by Mr Swarbrick that:
      1. he is able to pay his debts;[17] or
      2. for other sufficient cause a sequestration order ought not be made.[18]

Consideration

9. The Court is satisfied as to the matters required to be proved for the making of a sequestration order. Specifically, the Court accepts that there is:
   1. an affidavit verifying the petition;
   2. an affidavit of search of court records;
   100. an affidavit of service of the bankruptcy notice;
   4. an affidavit of service of relevant documents;
   5. an affidavit of search of the National Personal Insolvency Index; and
   6. an affidavit of debt still owed.
10. A petitioning creditor who has made out the requirements set out above has a prime facie right to a sequestration order unless very special circumstances are shown to justify the Court departing from its usual practice.[19]
11. There is no proof before the Court that Mr Swarbrick is able to pay the debt referred to in the petition. There is no proof before the Court of the precise nature of the proceedings still on foot in the Federal Court in matter number WAD 195 of 2003. Mr Swarbrick’s Affidavit refers to “possible damages” in those proceedings outweighing the debt referred to in the creditor’s petition. Mr Swarbrick’s Affidavit makes it clear that damages are a future possibility not a current asset. Although he asserts that possible future damages would “outweigh” the debt referred to in the creditor’s petition there is no evidence on which this Court can base any concluded view as to what the “possible damages” in those other proceedings might be. In any event, it does not matter. The test of solvency is not whether Mr Swarbrick’s assets exceed his liabilities, but whether, looking at all of his financial circumstances, he is able to utilise such cash resources as he can command through the use of his assets to meet his debts as they fall due. Even where assets exceed liabilities it is possible to find that a person is not able to pay their debts within the meaning of s.52(2)(a) of the Bankruptcy Act.[20] Mr Swarbrick has to prove that assets are available to be realised and capable of ready realisation likely to result in payment of the debt within a reasonable time.[21] There is no such proof before the Court. There is therefore no basis for dismissing the petition on the basis that Mr Swarbrick is able to pay his debts.
12. Mr Swarbrick has stated the following grounds in opposition to the making of a sequestration order:
    • 1. The respondent debtor denies that the first three persons noted as applicant creditors are a party to the Bankruptcy Notice 61 of 2009.
    • 2. The respondent debtor denies that the first three persons noted as applicant creditors are a party to the Petition PEG 216 of 2009, filed 24 November 2009.
    • 3. The respondent debtor denies that the sixth named creditor Sergio Zaza is duly authorised to make an affidavit on behalf of the first three named Applicant creditors.[22]
13. In Mr Swarbrick’s Affidavit he says as follows:
    • 2. I deny the claim made in paragraph 1 of Affidavit of Edward Sergio Zaza sworn 23 November 2009, in these proceedings.
    • 3. I deny that Edward Sergio Zaza is duly authorised to make affidavit statements or claims on behalf of the first, second and third Applicants : Burge, Rogers and Warren.
    • 4. I deny that the first, second and third Applicants have instructed Stables Scott in these proceedings.
    • 5. I have spoken to the first Applicant in these proceedings several times in the past two weeks, he claims he has not given instructions to Stables Scott solicitors for many years, and was not aware of current proceedings.
    • 6. I understand from numerous conversations with fifth Applicant Glen Bosman and recent conversations with first Applicant, Brent Burge that all contact with the second and third Applicants (Rogers, Warren) ceased in approximately late 2003.
    • 7. Related matters between the Applicants and Respondent in these proceedings are still on foot in the Federal Court WAD 195 of 2003. The possible damages claim by the Respondent (Applicant in WAD 195) would outweigh the Applicants claim in this Court. Criminal conviction in 2004 of the third Applicant are to be addressed by way of Notice of Fact to be lodge on 10th December 2009, with respect WAD 195 of 2003.[23]
14. Mr Swarbrick also seeks to attack the primary affidavit filed in support of the application for a sequestration order, namely, that of Edward Sergio Zaza sworn 23 November 2009. In essence, Mr Swarbrick asserts that Mr Zaza is not entitled to make the affidavit in support of the creditor’s petition on behalf of the first, second and third applicants, Messrs Burge, Rogers and Warren. All of the evidence in support of that contention is hearsay and not admissible.[24] Further, even if it were admissible, in the absence of any attack on the right of Mr Zaza to swear the affidavit on behalf of the fourth, fifth and sixth respondents, the evidence is irrelevant because there are still creditors upon whose behalf Mr Zaza makes the application for the petition, including
    Mr Zaza himself.
15. Even if the evidence is relevant and admissible it still does not alter the fact that there are creditors on whose behalf the petition is validly brought, namely the fourth, fifth and sixth applicants: Bold Gold Investments Pty Ltd, Glen Peter Bosman and Mr Zaza himself, and in respect of the debt owed to them a sequestration order can be made. The Court notes, as Counsel for the applicants rightly pointed out, that the debt is jointly and severally owed to the applicants.
16. There is nothing in the attack upon Mr Zaza’s authorisation to make the affidavit in support of the petition on behalf of the first, second and third applicants which constitutes “other sufficient cause” warranting dismissal of the petition under s.52(2)(b) of the Bankruptcy Act.
17. The alleged criminal conviction in 2004 of the third applicant has no bearing on whether or not there is a debt owing, or upon other matters which the creditors are required to prove. Assuming that the alleged criminal conviction referred to is the same as that raised in Swarbrick, it was, in any event, irrelevant to the issues determined in the Intellectual Property Litigation which gave rise to the Costs Order.[25]
18. The matters relating to the alleged criminal conviction of the third applicant do not therefore constitute “other sufficient cause” to warrant dismissing the petition under s.52(2)(b) of the Bankruptcy Act.

Conclusion

19. In the circumstances set out above the creditors petition will be granted, and a sequestration order will issue. The applicant creditors’ costs should be paid out of the estate of the Respondent in accordance with the Bankruptcy Act. The date of the act of bankruptcy is 3 June 2009.

I certify that the preceding 19Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !nineteennineteen (19) paragraphs are a true copy of the reasons for judgment of Lucev FM

Associate: S. Gough

Date: 18 December 2009

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[1] “Notice of Opposition”.
[2] “Mr Swarbrick’s Affidavit”.
[3] [2009] FMCA 985 (“Swarbrick”).
[4] Swarbrick v Burge & Ors (2004) 138 FCR 353; [2004] FCA 813 (“Swarbrick – Federal Court”).
[5] Burge & Ors v Swarbrick (2005) 149 FCR 193; [2005] FCAFC 257 (“Swarbrick – Federal Court Appeal”).
[6] Burge & Ors v Swarbrick (2007) 232 CLR 336; [2007] HCA 17 (“Swarbrick – High Court”). Collectively, the previous proceedings in the High Court and the Federal Court will be described as the “Intellectual Property Litigation”. (Footnote in original quote).
[7] Swarbrick at para.2 per Lucev FM. See also paras.34-41 of Swarbrick for an outline of the issues related to the phrase “a work of artistic craftsmanship” in ss.10 and 77(1) of the Copyright Act 1968 (Cth) that were in issue in the Intellectual Property Litigation. The respondents in Swarbrick are the applicants in these proceedings, and Mr Swarbrick, the applicant in Swarbrick, is the respondent in these proceedings. The order of the Deputy District Registrar is hereinafter referred to as “Costs Order”.
[8] Swarbrick at para.111 per Lucev FM.
[9] “Bankruptcy Act”.
[10] Bankruptcy Act, s.47(1); Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.4.02 (“FMC (Bankruptcy) Rules”).
[11] FMC (Bankruptcy) Rules, r.4.04(1)(a) and (2).
[12] FMC (Bankruptcy) Rules, r.4.04(1)(b).
[13] FMC (Bankruptcy) Rules, r.4.06(2).
[14] FMC (Bankruptcy) Rules, r.4.06(3).
[15] FMC (Bankruptcy) Rules, r.4.06(4).
[16] Bankruptcy Act, s.52(2).
[17] Bankruptcy Act, s.52(2)(a).
[18] Bankruptcy Act, s.52(2)(b).
[19] Re Sanders (2003) 1 ABC(NS) 408; [2003] FCA 1079 (“Re Sanders”); affirmed on appeal in Sanders v Knudsen & Yates trading as the Hargreaves Practice [2004] FCAFC 305 at para.14 per Whitlam, Branson and Sackville JJ.
[20] Re Sanders; Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145.
[21] Re Sanders.
[22] Notice of Opposition, paras.1-3.
[23] Mr Swarbrick’s Affidavit, paras.2-7.
[24] Evidence Act 1995 (Cth), s.59(1).
[25] See Swarbrick at paras.28 and 32-43 per Lucev FM.