Lawman v Queensland Building Services Authority [1999] FCA 1021

FEDERAL COURT OF AUSTRALIA

Lawman v Queensland Building Services Authority [1999] FCA 1021 RAYMOND MICHAEL LAWMAN v QUEENSLAND BUILDING SERVICES AUTHORITY Q 7077 of 1999

KIEFEL J BRISBANE 28 JULY 1999

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q 7077 OF 1999

BETWEEN: RAYMOND MICHAEL LAWMAN

Applicant

AND: QUEENSLAND BUILDING SERVICES AUTHORITY

Respondent

JUDGE: KIEFEL J

DATE OF ORDER: 28 JULY 1999

WHERE MADE: BRISBANE

THE COURT ORDERS THAT: 1. The application for annulment is dismissed. 2. The respondent Authority's costs of and incidental to the application are to be taxed and paid out of the bankrupt's estate. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q 7077 OF 1999

BETWEEN: RAYMOND MICHAEL LAWMAN

Applicant

AND: QUEENSLAND BUILDING SERVICES AUTHORITY

Respondent

JUDGE: KIEFEL J

DATE: 28 JULY 1999

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 On 19 September 1996, the Queensland Building Services Authority ("the Authority") obtained a determination of the Queensland Building Tribunal against Mr Lawman in the sum of $10,740.67 and that determination was later lodged with the District Court of Queensland pursuant to the Queensland Building Services Authority Act 1991. On 28 May 1997, a bankruptcy notice issued against Mr Lawman in the sum of $11,043.49. A copy of it was not produced in these proceedings. There were some delays in serving it. When contact was made with Mr Lawman he explained to the Authority that he had a contract due to settle soon which would enable payment to be made. Mr Lawman is a land developer. Payment was not made. 2 On 11 November 1998, a meeting was held with the Authority. It had been convened at the request of Mr Lawman's solicitors through the Office for the Minister for Fair Trading. There was discussion about Mr Lawman's financial position. It is said, by the Authority, that it concluded on the basis that if he could not pay the sum due to it he would undertake an arrangement under Part X of the Bankruptcy Act 1966. Mr Lawman's understanding of the matter, however, was that he was to produce a program to show he could pay the monies. In any event the bankruptcy notice was not complied with and a creditor's petition issued. It was first mentioned on 2 December 1998 and adjourned. 3 In January 1999, Mr Lawman was told by his then solicitors that, to avoid bankruptcy, he would have to pay the sum of $16,781.25, the amount the Authority claimed to be due to it. That amount included the debt and interest, together with its costs in the bankruptcy proceedings. On 4 February 1999, Mr Lawman attended upon Mr Scott of his former solicitors and gave him the sum of $14,000.00, he says, with specific instructions to pay the sum to the Authority. Mr Scott, according to the Authority, telephoned them and tried to settle the matter for $14,000 and during that conversation he spoke variously of Mr Lawman having sums available between $12-14,000. The next day, 5 February 1999, Mr Lawman obtained an adjournment to 19 February on the basis that he had $14,000 to pay. He says that he appeared on that day and asked for time to pay the extra $2,781.25. On 11 February 1999 Mr Lawman says that Mr Scott advised him that the sum of $14,000 had been paid over to the Authority. The Authority however say that negotiations continued with Mr Scott but that it refused to accept any sum less than $16,781.25 not to proceed with the petition. 4 Mr Lawman says that he telephoned his solicitor on 18 February 1999 and advised that he would come to his office the following morning. He was aware that the petition was due to be heard on the morning of 19 February. He says that he attended at the solicitor's office with the sum of $2,781.25 in cash and that the solicitor then telephoned the Authority at its Sunshine Coast offices, which were closer to the solicitor's office. His intention was to attend and pay the balance monies. 5 In Brisbane, the Authority's solicitor attended at its office there and its staff ascertained, by computer search, that no payment had been received from Mr Lawman. The affidavit of debt was sworn on that basis. The solicitor, on return to his office, discovered that $14,000 had been received from Mr Lawman's solicitor under cover of a letter simply advising that a cheque for that amount was enclosed. It is not difficult to infer that he believed that it was being tendered in full settlement. He attempted to ring Mr Scott, but was unable to speak to him and left a message that the moneys were not accepted. He attended Court that morning. There was no appearance for Mr Lawman and a sequestration order was made. No mention was made of the $14,000. 6 It is not clear whether Mr Scott explained to the person at the Authority's Sunshine Coast office that he had the balance of the claim, nor is it apparent when he spoke to him, although it may have been too late. Mr Lawman says that his solicitor told him the attempt at payment was rejected, but it is unclear whether the Authority's position only with respect to the $14,000 was being relayed. It is not clear that those in a position to decide in the Authority even came to hear of an offer of both the $14,000 and the $2781.25. The solicitor, Mr Scott, was not called by Mr Lawman and the Authority's subpoena directed to him was not answered because of a dispute concerning conduct money. 7 The records of the Court Registry disclose that a facsimile transmission was received from Mr Scott at 10.33 am on 19 February 1999 and that an officer replied by facsimile, advising that a sequestration order had been made shortly after 9.30 am. Mr Lawman did say, in evidence, that his solicitor advised him, after the conversation with the Authority, that it was in any event too late. 8 The Authority lodged its proof of debt in the sum of $44,940.98 on 1 March 1999. This figure reflects a number of other claims against Mr Lawman, but which were not the subject of proceedings against him, he says. 9 Mr Lawman seeks an annulment of the sequestration order made on 19 February 1999 on two bases: the first relates to the petitioning creditor's demand for payment of the sum of $16,781.25 which, it is said, was not justified as it involved a claim for costs in the proceedings which had not been the subject of taxation. As a result, it is submitted, pressure was put upon the debtor to provide that sum in order to have the petitioning creditor seek dismissal of the petition. It is not however suggested that either the bankruptcy notice or the petition suffered from any defect. The new solicitors for Mr Lawman submit that the Court should find that the creditor made an improper use of the Court's processes and the sequestration order should be set aside on account of that conduct. In particular the provisions of s 51 of the Bankruptcy Act 1966, which provides that the prosecution of a creditor's petition up to and including the making of a sequestration order shall be at the expense of the creditor, is relied upon. Secondly, it is submitted that Mr Lawman was, at the time his estate was sequestrated, solvent. 10 The applicant pointed to cases where the costs of the issue of the bankruptcy notice were claimed as part of the debt due in the bankruptcy notice, and where it was held to be wrongly claimed. This is not such a case. I take it that the bankruptcy notice referred to a sum to which the Authority was then entitled. It is not submitted to the contrary. 11 There is nothing, in my view, to suggest the Court's processes were invoked or continued for an improper purpose. There is not a causal connexion between the conduct complained of and the making of the sequestration order. What the applicant is really saying is that it was wrong of the petitioning creditor to seek the costs associated with the bankruptcy proceedings as the price for its co-operation in having the petition dismissed. It does not amount to a legal wrong, such as might invalidate the proceedings, as the demand was not made in them, which was the direction of the applicant's first-mentioned contention. All that occurred here was a claim for settlement inclusive of the costs which would in any event be ordered to be paid out of the debtor's estate on the making of a sequestration order. The applicant was at all times entitled to tender payment of the debt the subject of the proceedings, to remove a necessary basis for the making of a sequestration order under s 52(1), but had he done so he would have had an order for costs of the proceedings made against him. The Authority, in requiring the additional monies was seeking to overcome the uncertainty which might attend the payment of costs. There is nothing improper in that course and it could not be said to have been the motivation for the Authority continuing with the proceedings. It had clearly formed the view, in November 1998, that Mr Lawman could not pay his debts. That opinion seems to me to have been correct. 12 That is not to say that the Authority's solicitors are to be excused from failing to mention the cheque for $14,000 having been forwarded. I accept that they determined that if accepted the Authority's position with respect to costs might be compromised. They did not accept it and forwarded it later in the day on 19 February to the trustee appointed by the Court. They were however appearing before the District Registrar on a hearing where there was no appearance for Mr Lawman and the matter should have been mentioned. An inquiry might then have been made through the Registry of Mr Lawman's solicitor. But this default does not provide a ground now for the annulment of the sequestration order. I cannot be satisfied that the situation would have been any different, had an enquiry been made at the time the petition was heard, because of the uncertainty surrounding the sequence of events and because the District Registrar would not have been obliged to take this course, given the history of the matter. I am further satisfied that Mr Lawman was not solvent at that time. 13 The trustee has filed two reports which disclose an estimated deficiency of liabilities over assets of some $1.8M. The applicant contends that this does not take account of any surplus value in the properties subject to development. It is then further submitted for Mr Lawman that a more "commercial" view should be taken of the time necessary for realisation of the properties and that they required, for instance, special marketing over a longer period. In reality, in my view, this amounts to a concession that the properties were not readily saleable and were likely to be difficult to sell. Mr Lawman was at 19 February 1999 unable, utilising those assets, to meet his debts as they fell due and therefore insolvent: Sandell v Porter (1966) 115 CLR 666, 670. It was not a position of temporary liquidity. Mr Lawman had exhausted his own cash reserves by November 1998 and was dependent upon his loan facilities to pay for the projects, but they could not cover other debts due. For those he needed to look to future sales, which appeared uncertain in time. In the meantime, he could not pay them. 14 Mr Lawman says in evidence that he was unable to pay the sum claimed by the Authority in November 1998, when the meeting took place to discuss that matter. The total debt owing to unsecured creditors is now ascertained as totalling $374,812.71. Putting aside those whose debts are disputed, in whole or in part, just over $200,000 was due by Mr Lawman to those creditors in January 1999. He says that he was awaiting the sum of $50,000 by way of drawdown on the loan facility when he was made bankrupt. That sum would, in the normal course he says, have paid for many of the trade suppliers listed. Allowing for those identified, which come to about $49,000 there remains some $20,615.00 of unsecured creditors not accounting for the sum claimed by the Authority at $44,374.49. Mr Lawman said that he had no other monies available to him after November 1998. In January it was then the case that he was unable to meet his debts as they fell due. By 19 February the position had worsened, as the drawdown had not eventuated such as would enable some of the unsecured creditors to be paid, apparently as a result of the issue of the bankruptcy notice. 15 The application for annulment will be dismissed and the respondent Authority's costs of and incidental to the application should be taxed and paid out of the bankrupt's estate. It is not necessary to make an order for costs with respect to the trustee. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.