CATCHWORDS BANKRUPTCY - Application for annulment of sequestration order - debtor not present or represented at hearing of petition - effect where debtor not given notice of hearing date - application of merger in bankruptcy - effect on debt where judgment set aside and later judgment given - effect of pending appeal against judgment Bankruptcy Act 1966 s 153B Corporations Law s 440J Taylor v Taylor (1979) 143 CLR 1 Refd Re Anasis Ex parte Total Australia Ltd (1985) 11 FCR 127 Refd Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 Refd Bayne v Blake (1909) 9 CLR 360 Refd In Re King & Beesley Ex parte King & Beesley [1895] 1 QB 189 Refd Wren v Mahony (1972) 126 CLR 212 Refd In Re Hayes Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216 Refd In Re Hanby Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 Cons Re Peter Douglas Baker Ex parte The Abovenamed v Pioneer Industries Pty Ltd No QB 1606 of 1995 Kiefel J Brisbane 11 August 1995 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QB1606 of 1995 RE: PETER DOUGLAS BAKER EX PARTE: THE ABOVENAMED Applicant AND: PIONEER INDUSTRIES PTY LTD Respondent JUDGE MAKING ORDER: Kiefel J. DATE OF ORDER: 11 August 1995 WHERE MADE: Brisbane MINUTES OF ORDERS THE COURT ORDERS THAT: 1. The bankruptcy be annulled. 2. The further hearing of the petition be adjourned to a date to be fixed by the Registrar following the conclusion of the Appeal in the Supreme Court of Queensland and for further directions by the Registrar. 3. The petitioning creditor be at liberty to apply in the event that the appeal is not prosecuted with diligence. 4. The costs of and incidental to the application including reserved costs be reserved pending the outcome of the Appeal. 5. The applicant and the respondent are to pay the trustee's costs in the administration to be taxed. 6. The trustee is granted liberty to apply. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QB1606 of 1995 RE: PETER DOUGLAS BAKER EX PARTE: THE ABOVENAMED Applicant AND: PIONEER INDUSTRIES PTY LTD Respondent CORAM: Kiefel J. DATE: 11 August 1995 PLACE: Brisbane REASONS FOR JUDGMENT On 12 July 1995 an order sequestrating the estate of Mr Baker was made by the Registrar on the petition of Pioneer Industries Pty Ltd ("Pioneer"). Mr Baker did not appear at the hearing and the Registrar had before him an affidavit of a process server deposing as to service of the petition, of the affidavits verifying the petition and of a letter from Pioneer's solicitors advising of the date for its hearing. That letter was necessary because the date nominated on the petition itself as the date for hearing had passed before service of the petition was effected and a new date had subsequently been allocated. Mr Baker seeks an order for annulment under s.153B of the Bankruptcy Act 1966 which provides: "153B. If the Court is satisfied 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, the Court may make an order annulling the bankruptcy." The principal basis advanced for the making of such an order was that Mr Baker was not advised of the date of hearing and was denied an opportunity to present his case and reliance was also placed upon the inherent jurisdiction of the Court to set aside or annul a sequestration order made in these circumstances: see Taylor v. Taylor (1979) 143 CLR 1 and Re Anasis; Ex parte Total Australia Ltd (1985) 11 FCR 127, 133. The bankruptcy notice served on 29 September 1994 referred to a debt for which a judgment had been entered on 8 September 1994 in the sum of $43,537.21. The debt said to be due to Pioneer by Mr Baker was said to arise under a guarantee given by him with respect to the debts of a company, Jamond Pty Ltd, of which he was director. That notice was not complied with. When that judgment was set aside in December 1994 Pioneer brought another application, in the same proceedings, for summary judgment, which was heard by the District Court in Brisbane on 31 January 1995 and a decision reserved. A petition which had by now been filed, but not served, was adjourned by Pioneer when it first came before the Registrar of this Court in February 1995. On 14 March 1995 judgment was entered in favour of Pioneer in the District Court for the sum of $20,658.57. An appeal from that decision was filed by Mr Baker in the Court of Appeal of the Supreme Court of Queensland sometime prior to late April 1995. The outline of argument filed in support discloses two bases. Another was raised in argument before me. It will be contended that administration of the company Jamond Pty Ltd commenced on 22 July 1994, the date when the plaint issued. That amounted to a step in enforcement of the guarantee which, by s.440J of the Corporations Law required leave and none was sought or granted. The additional ground which will be sought to be raised on appeal (but which would seem would require leave) is that the Deed of Company Arrangement later entered into, on 8 September 1994 affected the liability of the company Jamond Pty Ltd and therefore Mr Baker. The second ground in the outline contested the findings that the guarantee was up to an amount of $75,000.00 or, if that amount had not been inserted when it was signed by Mr Baker, as he alleged, it stood as unlimited. In either case it involves questions of construction of the guarantee document either alone or with other documents supplied prior to its execution. It was argued on behalf of Pioneer that leave to appeal is necessary since, firstly, the order is interlocutory and, secondly, the notice of appeal was not served within the time required by the Rules. The first contention is based upon a technical view of the terms of the order made and not the effect of it. The problem has arisen in the past. It may require amendment of the Notice of Appeal, but I fail to see that there is much substance in it. It is noteworthy that, since April 1995 Pioneer has not moved to strike out the appeal nor to require the question of leave to be argued as a separate point. Later in that month the Deputy Registrar of the Court of Appeal wrote to the parties setting out a timetable for the taking of steps towards hearing of the appeal. The last step was to be taken in June 1995. I take it however that there have been delays in that process but, again, they have not been such as to cause Pioneer to take any steps concerning the appeal in consequence. At about 5.00 pm on 23 June 1995 Mr Baker was served with some documents by a process server appointed by Pioneer's solicitors. There is now no dispute that he was served with the petition and accompanying affidavits. He says that he scanned the documents given to him, rang his solicitor and faxed all that he had received to his solicitor. He did not see, amongst the documents, a letter advising of the date for hearing. He thought that the documents related to the proceedings concerning the disputed guarantee and says that he commented to the process server that he could not understand why steps were being taken while the matter was subject to appeal and that the process server made a brief comment. The solicitor says he received the documents by facsimile transmission at about 5.15 pm. Mr Baker says that he then placed the copies received by him in a file. The following Monday he took those documents to his solicitor. His solicitor says that the letter was not amongst the documents faxed or brought in by Mr Baker. Both Mr Baker and the process server were cross examined before me. The affidavit filed by the process server was that relied upon on the hearing of the application for a sequestration order. No further affidavit was filed concerning the circumstances surrounding service. Counsel for Pioneer contended that Mr Baker's evidence should be regarded as unreliable since he has, at times, denied the receipt of evidence which later could be shown to have been delivered to him. Cross-examination disclosed that Mr Baker has, from time to time, confused documents in the proceedings in the Courts and the date upon which they were served and that he has not always acted upon the receipt of documents. For instance he did not appear pursuant to a summons for judgment which was served at the same time as the District Court plaint. He says that he relied upon the advice contained within the plaint that he had twenty eight days within which to defend the proceedings. Lawyers are of course quick to conclude in such circumstances that, at the least, Mr Baker should have been alert to the need for advice. But even if I were to consider that he should have been put upon enquiry, I am unable to conclude from such a history that Mr Baker ought not be accepted when he says that the letter was not served upon him particularly when there is, as I shall refer, no evidence by the process server which compels the conclusion that he was. It is to be recalled that Mr Baker had by this time filed an appeal and was apparently pursuing it at the time these documents were served and it is hard to accept that, had he known of the date for the hearing of the petition, he would not have arranged for representation. He is a certified accountant and tax agent whose position would be jeopardised by the making of an order for sequestration. It is curious that Mr Baker's solicitor, having been provided with documents issuing from the Court but with an expired date for hearing, did not think to contact the creditor or, to the point, the Court. He says that he contacted his agents in Brisbane on 27 June 1995 asking whether an appearance ought to be filed. The communication produced also shows that he sought general advice as to the steps being taken by Pioneer with respect to the petition. It appears he had noticed that there was a debt of a different amount now relied upon in support of the petition, since he appears to have been of the view that some amendment or reissuing of the petition would follow. He spoke to them again on 29 June 1995 and asked them to look into the matter, but nothing seems to have been done. He says that he expected a new date to be allocated by the Court and to receive advice with respect to it. The process server had received the materials to be served some days before they were in fact served. No one has however deposed to the fact that the critical letter, that dated 13 June 1995, was forwarded to the process server. It is also not without importance here that he was provided by Pioneer's solicitors with a typed affidavit of service of the petition, which would require him only to fill in the date and time of service together with the address at which service had been effected. That first paragraph of his affidavit also set out all of the materials so served and included reference to the letter. It then went on to set out his evidence as to the conversations which took place on service of the documents, which of course had not yet occurred. The account given by Mr Baker of these conversations is more extensive than what was an obvious anticipation of the minimum necessary to be said by a process server when effecting service of documents. The materials before me do not disclose whether Pioneer's solicitors forwarded the affidavit by way of guidance, but the contents of it tend to suggest that was not the case. These affidavits are important. The evidence contained in them is relied upon by the Court and Registrars. It may be in order for solicitors to draft an affidavit listing the documents which the process server has been requested to serve and permitting the other details, as to time and place of service, to be inserted. Even so, a solicitor would need to ensure that the process server has checked what was in fact served against the contents of that affidavit. But I think it is quite another thing to anticipate conversations and set them out as if that is all that has passed. The result may be inaccurate evidence and in some cases false or misleading. Such a practice is to be deprecated. There are other means by which process servers can be reminded of what it is necessary to establish. If it is done by these means I would think the temptation to sign it off as the conversation which passed will, in many cases, be too great. In this case the process server apparently swears some 100 affidavits per week and each afternoon sits down to his desk to "sign" affidavits of service. There is nothing to suggest that he had a system or practice whereby he recorded what was in fact served and then checked that off against what had been recorded in the affidavit. Nor did he record in any way what was in fact said. He says that he recalled the occasion of service upon Mr Baker, as he had been unable to effect service at his residential address. That may be so, but it tells me nothing as to what was in fact served. His conviction that he had served the letter, it was revealed in cross-examination, was based only upon his belief that he was familiar with what documents it was usual to serve in these cases. This might extend to bankruptcy notices, petitions and affidavits. It provides however no basis for a conclusion that the letter was served. In the circumstances I am not satisfied that Mr Baker was in fact served with the letter. The likelihood is that he was not. A denial of the right to be heard is so fundamental that the party so denied is entitled to orders effecting a rehearing, unless there is no question to be tried, nothing genuinely in dispute: see Re Anasis 133. For the reasons given by Burchett J. in Anasis (134-5) annulment is appropriate to get rid of the order of sequestration. The fact of the pendency of the appeal at the time of the hearing of the petition would, if it had been known to the Registrar, itself have been a sufficient basis not to order sequestration then and there: Ahern v. Deputy Commissioner of Taxation (1987) 76 ALR 137, 148 provided of course the appeal was based on genuine and arguable grounds. Whilst I appreciate that here Pioneer's legal representatives considered the appeal procedurally flawed, the better course where an order for sequestration is nevertheless pursued, would be to draw the fact of the appeal and arguments relating to it to the attention of the Court or Registrar. From a petitioning creditor's point of view, it may be well to consider that, in the event that an appeal is successful, annulment may in any event follow and with orders for costs against the creditor. The matters to be argued on appeal concern questions of law and construction. Those involving provisions of the Corporations Law were outlined in some detail by counsel for the applicant. Pioneer did not seek to address their merits and it was not necessary to do so. They are matters proper for adjudication on appeal. The issue concerning the limit, if any, to be attributed to the guarantee is complicated by what might be conflicting accounts. At one point in material filed in the District Court, Mr Baker said the maximum amount of the "indemnity" was $20,000, which as Pioneer points out is close to the amount of the debt relied upon to found the petition. In the outline of argument in the appeal however, it is said that no agreement as to a limit was ever reached. The former account may be explicable as argumentative and not as a statement of fact. It is not in any event capable of resolution by me. The applicant also sought to prove that he was, at the time of the order for sequestration, able to meet his debts. This was said to furnish another basis for the making of an order for annulment. It may have, although on the view I have taken as to his entitlement to be heard, given the dispute about the debt, it is not required. The present material does not in any event permit of a firm conclusion with respect to his current circumstances. There is absent a detailed list of periodical personal expenditure and a proper explanation as to his entitlement to recourse to other assets or funds. Counsel for the applicant also submitted to prove that there was not in fact a debt upon which Pioneer could rely to support the petition and, since this might affect orders for the rehearing of the petition, I have considered the matters raised. It was submitted that the debt under the guarantee merged in the judgment of 8 September 1994, creating a higher obligation. That judgment was however set aside. The debt or obligation created by it was, then, not available to support an order for sequestration in July 1995. And, the argument proceeds, since merger had extinguished the debt arising under the guarantee it could not be relied upon by Pioneer. It was then submitted that there was in existence, at the time of the hearing of the petition, a debt of $20,658.57 "based" on a judgment made on 14 March 1995 but that it was different from that referred to in the bankruptcy notice which referred to the judgment of 8 September 1994 for $43,537.21. The argument for Pioneer did not however analyse the debt that lay behind the later judgment. As a matter of principle it is difficult to see what place merger has in the bankruptcy process. Griffiths CJ. doubted that it could have any place in Bayne v. Blake (1909) 9 CLR 360, 363 and In Re King & Beesley Ex parte King & Beesley [1895] 1 QB 189, 191 Vaughan Williams J. held that, for the purposes of a petition in bankruptcy a judgment is not taken to have extinguished the debt so that it ceases to exist. In Wren v. Mahony (1972) 126 CLR 212, 224 Barwick CJ., in speaking of the discretion a bankruptcy Court has to accept or not accept the judgment, said: "The judgment is never conclusive in bankruptcy. It does not always present itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment." It seems to me that, with respect, the argument does not recognise that the later judgment was with respect to the same debt, that arising under the guarantee. When the first judgment was set aside, the District Court action simply continued and the debt arising under the guarantee was proved, although to a sum less than that claimed. The judgment of 14 March 1995 was the result. The affidavit material filed by Pioneer on the hearing of the petition relied on the debt for which that later judgment had been given, that arising under the guarantee. In the process however an act of bankruptcy had been committed when Mr Baker did not comply with the bankruptcy notice founded upon the earlier judgment. The judgment remained current throughout that period. It was not suggested that it was not a valid judgment of the District court (as to which see the observations of Street J. in Re Hayes Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216, 218). What occurs subsequently does not undo an act of bankruptcy and it remains available to be relied upon by a petitioning creditor: Re Hanby Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378, 381, who must however also prove the existence of the debt. Gibbs J. in Re Hanby (381) went on to hold that the debt could be established by a further judgment or compromise of the proceedings even if the original judgment had been set aside after the act of bankruptcy had been completed. There his Honour was concerned with a later judgment following a compromise and which was for a different, lesser sum than the earlier judgment and held that the petitioning creditor was entitled to a sequestration order. I order that the bankruptcy be annulled. I adjourn the further hearing of the petition to a date to be fixed by the Registrar following the conclusion of the appeal in the Supreme Court of Queensland and for further directions by the Registrar. I grant liberty to apply in the event that the appeal is not prosecuted with diligence. I will hear argument as to costs, including those already incurred by the trustee, if any, in the administration to date. I certify that this and the preceding eleven pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel. Associate Date: 11 August 1995 Counsel for the applicant: Mr J Kimmins Solicitors for the applicant: John Burrell and Co. Counsel for the respondent: Mr R Lilley Solicitors for the respondent: Sly & Weigall Cannan & Peterson Date of Hearing: 3 August 1995 Place of Hearing: Brisbane Date of Judgment: 11 August 1995