FEDERAL COURT OF AUSTRALIA Symons v Bateman [1999] FCA 658 BANKRUPTCY – sequestration order – creditor's petition – application to set aside sequestration order made in absence of applicants – Trustee claiming entitlement to remuneration – appropriateness of order under O 35 r 7 – alternative procedure under s 153B – annulment – incidental protective provision s 154. Federal Court Rules O 35 r 7 Bankruptcy Act 1966 s 153B, s154 Daskalovski v The Austral Brick Company Pty Ltd (unrep Fed Court 23 June 1998) followed DAVID HUGH SYMONS and THAM SYMONS v MALCOLM JAMES BATEMAN and GEOFFREY AUBREY LOPEZ W 7017 OF 1999 FRENCH J 17 MAY 1999 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W7017 OF 1999 BETWEEN: DAVID HUGH SYMONS and THAM SYMONS Applicants AND: MALCOLM JAMES BATEMAN First Respondent GEOFFREY AUBREY LOPEZ Second Respondent JUDGE: FRENCH J DATE OF ORDER: 17 MAY 1999 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The application is adjourned to a date to be fixed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W7017 OF 1999 BETWEEN: DAVID HUGH SYMONS and THAM SYMONS Applicants AND: MALCOLM JAMES BATEMAN First Respondent GEOFFREY AUBREY LOPEZ Second Respondent JUDGE: FRENCH J DATE: 17 MAY 1999 PLACE: PERTH REASONS FOR DECISION ON CONSENT AND ASSOCIATED ORDERS 1 On 8 February 1999 sequestration orders were made against David Hugh Symons and Tham Symons on the petition of Malcolm James Bateman. The act of bankruptcy relied upon was the Symons failure to comply with a Bankruptcy Notice issued by Mr Bateman. The Bankruptcy Notice, which was served on 11 September 1998, made demand for payment of a judgment debt, being damages for defamation which had been assessed against the Symons in the Supreme Court at $32,612.18. That assessment which followed upon a summary judgment was made by Anderson J on 18 August 1998. 2 The creditor's petitions were filed and served on 22 October 1998. On their first return date of 23 November 1998 they were adjourned to 21 December 1998. At that time there were applications pending in the Full Court by the Symons seeking review of a Master's decision refusing their application for leave to appeal against the judgment and for an extension of time within which to appeal. According to Mr Metaxas, who represents the Symons, he was told by Mr Goodlet, representing Mr Bateman, on 16 December 1998 that there was to be an "armistice" until the Full Court of the Supreme Court dealt with the applications for review of the Master's decision. It should be noted there was other litigation pending between the parties at this time which is not necessary to refer to for present purposes. 3 According to Mr Metaxas on the morning of 20 December 1998, which was a Sunday, he spoke by telephone to Mr Goodlet and asked if Mr Bateman was proceeding with the bankruptcy petitions on the following day. According to him Mr Goodlet said "No, the armistice is on". On 21 December the creditors petitions were adjourned to a later date for hearing. 4 On 8 February 1999 the petition came on again before the Registrar. Mr Bateman, who is a legal practitioner, appeared in person and there was no appearance for the Symons. In the event a sequestration order was made against the estates of Mr and Mrs Symons. George Aubrey Lopez of Melsom Robson, Chartered Accountants, was appointed as trustee. Two days later having become aware of the sequestration orders, Mr Metaxas wrote to Mr Bateman asserting that the order had been obtained in breach of an agreement between himself and Mr Goodlet. He invited Mr Bateman to consent to an order setting aside the sequestration order. It appears from the materials before me that there may have been different understandings held by Mr Metaxas and Mr Goodlet as to what they had agreed. It is unnecessary for present purposes to resolve that controversy. 5 On 12 February 1999 the present application was commenced in which the Symons seek orders pursuant to O 35 r 7(2) that the sequestration orders made in respect of them be set aside on the grounds that: "1. the orders were made in the absence of the applicants; 2. the orders were obtained by fraud; 3. the respondent's petitions against the applicants are an abuse of the processes of the Court." The application refers to the sequestration orders having been made on 9 February when it appears from the Court record that they were made on 8 February 1999. 6 When the matter came on for hearing today, the Court was informed by counsel for the Symons and for Mr Bateman that an agreement had been reached for the making of a consent order setting aside the sequestration orders pursuant to O 35 r 7(2). It was proposed that there be no order for costs and that Mr Bateman's creditor's petition against the Symons in W7120 of 1998 be adjourned. It was intimated that the question whether the petition proceeds or not may turn on the outcome of the review application before the Full Court. 7 The Symons and Mr Bateman were therefore ad idem on the orders proposed. However the Trustee sought orders preserving his entitlement to remuneration and costs. He suggested that a preferable order might be an order annulling the bankruptcy under s 153B of the Bankruptcy Act 1966. Counsel for Symons asserted that it had been made clear to the Trustee from very shortly after the sequestration order was made that they would be seeking to set aside the order and that no steps should be taken in the bankruptcy pending the determination of that application. While this was not contested from the Bar Table by counsel for the Trustee, there was no evidence before me as to the extent to which the Trustee had embarked upon the administration of the estate. Counsel for the Symons asserted that the Trustee was claiming an entitlement to some $2,000 by way of Trustee's remuneration. 8 The Symons in the present case have brought their application under O 35 r 7 of the Federal Court Rules. It would have been open to them to bring an application for annulment of the bankruptcy under s 153B 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 Official Receiver, the Court may make an order annulling the bankruptcy." 9 In such a case, where the administration of the estate has commenced, there are protective provisions in respect of steps taken by the Trustee which are found in s 154. The first two sub-sections of which provide: "154(1) If the bankruptcy of a person (in this section called "the former bankrupt") is annulled under this Division: (a) all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made or done; and (b) the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee; and (c) subject to subsections (3), (6) and (7) the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt. (2) If the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction." The other subsections of s 154 are not relevant for present purposes. 10 There is no such provision attaching to the setting aside of a sequestration order pursuant to O 35 r 7. In this case the Trustee suggests that if the order sought by the Symons and Mr Bateman is made then there should be ancillary orders made which have the effect of s 154 in relation to the position of the Trustee and such steps as the Trustee has taken. 11 I have serious reservations about the power of the Court to make orders of the kind that the Trustee proposes as an incident of an order under O 35 r 7. This throws up the issue addressed in passing by Emmett J in Daskalovski v The Austral Brick Company Pty Ltd (unrep Fed Court 23 June 1998). In that case his Honour heard and determined an application for an order that a sequestration order be set aside pursuant to O 35 r 7. The basis of the application before his Honour was that the petition had not been served personally on the debtor. He was satisfied that that was the case and that the sequestration order ought not to have been made. However instead of setting aside the sequestration order under O 35 r 7 his Honour made an order pursuant to s 153B annulling the bankruptcy. In so doing he observed: "I should add that I would have been satisfied that the Court has jurisdiction and power pursuant to Order 35 Rule 7 to make an order setting aside the sequestration order made in the absence of the Debtor in circumstances where the Debtor was not served with the petition. However, it seems to me inappropriate to make an order under that rule where the estate has already been administered in bankruptcy, as is the case here. The Act, and the rules made under the Act which have now been incorporated into the Federal Court Rules, provide for the protection of creditors in the event of an order being made under section 153B. There is no similar regime applicable specifically for the setting aside of an order or a judgment pursuant to Order 35 Rule 7. That is not to say that, in an appropriate case, the power contained in Order 35 Rule 7 ought not to be exercised. However, such a power would normally be exercised in circumstances where the matter comes before the Court very soon after the order has been made and before there has been any administration in bankruptcy pursuant to a sequestration order." 12 I agree, with respect, with his Honour's observations. I could not conclude on the materials before me at the moment that the Trustee was obliged by the notice given by Mr and Mrs Symons to hold his hand in relation to the administration of the estate. There is no evidence of the extent to which the Trustee has actually undertaken work on the administration of the estate and the extent to which there may be a need for the application of s 154. However, on the basis of the Trustee's contention and until that matter of fact is resolved I do not think it appropriate to make the consent orders which are sought. I would need to be persuaded that an order under O 35 r 7 would be appropriate where the estate has been administered. In the circumstances I propose to adjourn this matter to an early date to be fixed to enable the parties to consider their position and whether some other form of order, perhaps relying on s 153B, can be agreed. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French . Associate: Dated: 17 May 1999 Counsel for the Applicant: Ms K. Vernon Solicitor for the Applicant: Arthur Metaxas & Co Counsel for the First Respondent: Mr R. Le Miere QC Solicitor for the First Respondent: Batemans Counsel for the Second Respondent: Mr D.W. Thompson Solicitor for the Second Respondent: Phillips Fox Date of Hearing: 17 May 1999 Date of Judgment: 17 May 1999