FEDERAL COURT OF AUSTRALIA Ozer v Australian Liquor Marketers Pty Ltd [2001] FCA 1197 BANKRUPTCY – annulment – discretionary refusal to annul – conduct of bankrupt – primary judge's exercise of discretion not miscarried – appeal dismissed. Bankruptcy Act 1966 (Cth) s 153B Nazile Ozer v Australian Liquor Marketers Pty Ltd and Another N 159 of 2001 HEEREY, EMMETT and ALLSOP JJ SYDNEY 29 AUGUST 2001 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 159 OF 2001 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: NAZILE OZER APPELLANT AND: AUSTRALIAN LIQUOR MARKETERS PTY LIMITED FIRST RESPONDENT SCOTT PASCOE SECOND RESPONDENT JUDGES: HEEREY, EMMETT & ALLSOP JJ DATE OF ORDER: 29 AUGUST 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. the appeal be dismissed; and 2. the appellant pay the respondents' costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 159 OF 2001 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: NAZILE OZER APPELLANT AND: AUSTRALIAN LIQUOR MARKETERS PTY LIMITED FIRST RESPONDENT SCOTT PASCOE SECOND RESPONDENT JUDGES: HEEREY, EMMETT & ALLSOP JJ DATE: 29 AUGUST 2001 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: 1 This appeal is concerned with an application by the appellant, Nazile Ozer (Ms Ozer), for the annulment of her bankruptcy pursuant to s 153B of the Bankruptcy Act 1966 (Cth) (the Act). A judge of the Court has, on two occasions, declined to annul the bankruptcy. Ms Ozer now appeals to the Full Court for the second time against the second refusal of the primary judge to annul her bankruptcy. 2 On 26 October 1998 the first respondent, Australian Liquor Marketers Pty Limited (the Petitioner) served on Ms Ozer a creditor's petition under the Act. The act of bankruptcy on which the Petitioner relied was Ms Ozer's non-compliance, by 6 August 1998, with a bankruptcy notice that had been served on Ms Ozer on 16 July 1998. 3 The judgment relied on in the bankruptcy notice was a judgment in the sum of $10,734.80, which had been obtained by the Petitioner against Ms Ozer in the Local Court of New South Wales on 26 February 1998. Ms Ozer was served with the originating process in the Local Court on or about 22 August 1997. The Petitioner's claim in the Local Court was under a written guarantee allegedly given to the Petitioner by Ms Ozer on 3 January 1997. The guarantee was in respect of the payment for goods supplied by the Petitioner to Possam Holdings Pty Ltd, a company of which Ms Ozer was then a director. 4 Before 12 April 1999 the petition came before the Court on at least four occasions after its service on Ms Ozer on 26 October 1998. On 12 April 1999, the Court made a sequestration order in respect of the estate of Ms Ozer. Notwithstanding that she had notice in advance of each of the five occasions (at least) on which the petition was to be before the Court, Ms Ozer did not appear on any of them. By 14 April 1999, at the latest, Ms Ozer was aware that a sequestration order had been made against her estate and that the second respondent, Mr Scott Pascoe (the Trustee), had been appointed as trustee of her bankrupt estate. 5 On 19 May 1999, Ms Ozer applied to the Court for an order annulling her bankruptcy pursuant to s 153B. Section 153B provides as follows: "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." 6 Ms Ozer claimed that the sequestration order ought not to have been made because she had not been indebted to the Petitioner at the time when the Petitioner obtained its judgment against her in the Local Court. The primary judge was satisfied that the sequestration order ought not to have been made on 12 April 1999 because it was Ms Ozer's clear evidence that the written guarantee had not, contrary to appearances, been signed by her. Her evidence was to the effect that her brother, Mr Hakam Ozer, had forged her signature on the written guarantee. The primary judge therefore proceeded, for the purposes of the application for annulment, on the basis that Ms Ozer was not responsible under the written guarantee and that he was thus satisfied that the sequestration order ought not have been made. 7 However, the primary judge concluded that the conduct of Ms Ozer following the making of the sequestration order was such that, in the exercise of the discretion conferred on the Court under s 153B, he would not annul the bankruptcy. Accordingly, his Honour dismissed the application with costs. 8 Ms Ozer appealed to the Full Court and, on 20 March 2000, the Court ordered that the appeal be allowed and that the matter be remitted to the primary judge for reconsideration. The Full Court concluded that had his Honour been alerted to certain matters for which there was some evidence before him but in respect of which there had been no submissions, further enquiry would probably have been suggested before his Honour would have been prepared to characterise Ms Ozer's conduct in the manner that he did and, hence, exercise his discretion as he did. 9 Following a further hearing, which included further evidence adduced by Ms Ozer, the Petitioner and the Trustee, the primary judge, on 5 February 2001, ordered again that the application be dismissed with costs. Ms Ozer now appeals to the Full Court again from those orders. 10 In his first decision, the primary judge proceeded on the basis that, after becoming a bankrupt on 12 April 1999, Ms Ozer had attempted, on 4 July 1999, to obtain credit in a sum in excess of $3,000 from St George Bank ("the Bank") without informing the Bank that she was then a bankrupt. His Honour took the view that he should not exercise the discretion conferred on him by s 153B to make an order annulling the bankruptcy of a person who had engaged in such conduct. 11 The first Full Court considered that it was a significant matter that the primary judge's attention had not been drawn at the hearing to the fact that, before Ms Ozer had attempted to obtain credit from the Bank, her solicitor had served on the Bank notice of her application for an order annulling her bankruptcy. It was that matter that led the Full Court to conclude that, had the primary judge been alerted to that notice, further enquiry would probably have been suggested before his Honour was prepared to exercise the discretion as he did. 12 In his second decision, the primary judge accepted Ms Ozer's evidence to the effect that it was her belief, on 12 July 1999, by reason of her knowledge of the solicitor's service on the Bank of her annulment application, that the Bank knew that she had the status of a bankrupt. His Honour also accepted that Ms Ozer had adverted to that belief in the course of her attempt to obtain credit from the Bank and had relied on it as the reason for not telling the Bank about her status. Finally, his Honour was also satisfied that Ms Ozer knew on 12 July 1999 that she was obliged to tell the Bank when attempting to obtain credit from it that she then had the status of a bankrupt. 13 Those findings, however, did not cause his Honour to alter in any significant way his view of the seriousness of Ms Ozer's conduct on that day. His Honour concluded that Ms Ozer could not justifiably proceed on the basis that the Bank believed on 12 July 1999, albeit correctly, that Ms Ozer remained a bankrupt. Accordingly, his Honour again declined, in reliance on Ms Ozer's conduct in relation to the Bank, to make an order annulling the Bankruptcy. 14 However, his Honour also, although he considered it was unnecessary for him to deal with other discretionary matters before him, proceeded to say something of one of those other matters. The other matter concerned a payment made by Ms Ozer on the day on which the sequestration order was made to her brother Mr Ali Ozer of the sum of $10,450. 15 At the time of the sequestration order, Ms Ozer was a customer of CitiBank. On 6 April 1999, six days before the making of the sequestration order, Ms Ozer obtained an increase of $40,000 in her line of credit. On the day of the sequestration order, she drew down $10,450 of that increase. At that time, Ms Ozer owed Mr Ali Ozer $80,000. She drew a cheque on her new line of credit in the sum of $40,000, which she delivered to Ali Ozer. However, it appears that, because of her bankruptcy, CitiBank declined to pay the cheque. 16 However, it also appears that Ms Ozer also gave Ali Ozer a cheque for $10,450, whether at the same time as the $40,000 cheque or otherwise is not clear from the evidence. The cheque for $10,450 was paid by CitiBank on 12 April 1999. How that payment was treated as between Ali Ozer and Ms Ozer was the subject of conflicting evidence before the primary judge. One account was that it had been treated as reducing the indebtedness of Ms Ozer to her brother. Another, subsequent, account was that it had been a gift from her to her brother. 17 Ms Ozer acknowledged to the primary judge that she had understood, from things said to her both by the Trustee and by her own legal representatives, the importance and seriousness of the accurate preparation of a statement of affairs pursuant to s 54(1) of the Act. In spite of that understanding, however, Ms Ozer included no reference in her statement of affairs to the payment of $10,450 that she made to her brother. She claimed in the statement of affairs that she still owed her brother $80,000. That claim was false if the payment had reduced her indebtedness to him by the sum of $10,450. Further, she made no mention in her statement of affairs of any gift to her brother of the amount of the payment. That is something that she was required to do if the payment had been a gift from her to him. Thus, on either of her accounts as to how the payment had been treated, her statement of affairs was defective in a significant respect. 18 Ms Ozer was cross-examined regarding the payment of $10,450. She was asked why she did not mention the payment in her affidavit and said, inter alia: "It's been nearly two years, I been gone through socially, emotionally, psychologically, so I got into me and then trustee didn't ask me the $10,000, I didn't know its really big deal because these things happened before to my bankruptcy and at that time I was made wrongfully bankruptcy, I didn't sign, I didn't know I had been bankruptcy, OK, that's my answer, I didn't know I was bankruptcy. I did a cheque, the Trustee didn't bring up as a question. If they did ask me I would have told them. I would have told them truthfully I gave $10,000 to my brothers, I did this. At that time I was confused, I was frustrated, I just didn't understand any legal issue and how could I remember everything in that meeting in that time." The reference to a meeting was a reference to a meeting that Ms Ozer had with the Trustee in connection with the finalisation of her statement of affairs. 19 She was cross-examined further on that topic as follows: "On 12 May 1999, when you met with Mr Pascoe, you had the opportunity of telling him that you did not owe Mr Ali Ozer $80,000 but that you had paid him $10,450 just before your bankruptcy? – I don't remember, sorry, that. What I am putting to you is that you had the chance to tell Mr Pascoe the true position on 12 May, when you had a meeting with him? – Sir, wasn't it – It wasn't a question, firstly. Secondly, that $10,000 was – happened before my bankruptcy. ……………………………… Well, at the first meeting with the Trustee on 12 May you agreed with me that he asked you about the $80,000, do you agree? – Who asked me? The Trustee? – Yes he did. And you didn't tell him that you had paid him $10,450 to your brother on 12 April 2000? – It wasn't a question. The question was, viz, did I pay anything to my brother in that $80,000? I would have remembered, I would have said, yes I did pay more than $10,000 to my brother. It would have been $70,000 at that time." 20 Ms Ozer was also shown the last page of her statement of affairs dated 28 April 1999. She agreed that she had signed it and was directed to question number 46 which was in the following terms: "List all assets worth more than $10,000 sold, transferred, given away, or otherwise disposed of by you in the last two years." Ms Ozer agreed that she had written "NA" and that that meant not applicable. Ms Ozer was asked whether she agreed that the payment of $10,450 should have been shown in answer to question 46. Her response was: "Yes, I didn't know I needed to add it there and Trustee didn't mention it, didn't ask me any question, didn't question me." 21 Ms Ozer said that the Trustee went through the document with her because she had a difficulty in filling out the form and they went through each question. However, she said that she could not remember whether she was asked a question by the Trustee in terms of question 46. 22 In his reasons, the primary judge referred to that evidence. His Honour said that he did not accept that it was a satisfactory explanation for Ms Ozer's failure to refer to a transaction that she was most unlikely to have forgotten in the short time since it had occurred and that was plainly relevant to her statement of affairs, regardless of which of her accounts about the treatment of the payment was accepted. 23 His Honour observed that, if Ms Ozer had justifiably believed at the time of completing her statement of affairs that the Trustee was already aware of the existence of the payment and of all of the circumstances surrounding it, she gave no evidence of such a belief. Nor did she give any evidence of any grounds of such a belief. His Honour found that the Trustee did not know of the existence of the payment at the time of the completion by Ms Ozer of her statement of affairs and could hardly have raised it with her. It was not until some considerable time after Ms Ozer had completed her statement of affairs that the Trustee first became aware of the existence of the $10,450 payment. Even then, he knew nothing of either the identify of the payee or the other circumstances surrounding the payment. Even when the Trustee requested information on those matters from Ms Ozer through her solicitor, her solicitor, in effect, refused to disclose the payee's identity to the Trustee. The solicitor then knew from Ms Ozer that the payee had been Ali Ozer and his Honour, quite properly, assumed that the solicitor's refusal was in accordance with his instructions. It was not until Ms Ozer gave oral evidence before the primary judge that it transpired, in cross examination, that Ali Ozer was the payee. 24 Under s 54 of the Act, where a sequestration order is made, the person against whose estate it is made must, within 14 days from the day on which he or she is notified of the bankruptcy, make out and file a statement of his or her affairs and furnish a copy of the statement to the trustee. Under s 6A(2) a reference in the Act to the statement of affairs is a reference to a statement that is in the form approved and published in the Gazette. There is no reason to doubt that the statement of affairs signed by Ms Ozer was in the approved form. 25 Under s 265(1)(b) a bankrupt must, to the best of his or her knowledge and belief, fully and truly disclose to the trustee particulars of any disposition of property made by him or her within the period of two years immediately preceding the date on which he or she becomes a bankrupt. Such a requirement is clearly intended to assist a trustee in the consideration of dispositions that might be affected by ss 120 or 122 of the Act. 26 Under s 120(1) a transfer of property, which would include a payment of money, by a person who later becomes a bankrupt to another person is void against the trustee in bankruptcy of the transferor if the transfer took place in the period beginning five years before the commencement of the bankruptcy and the transferee gave no consideration for the transfer. Under s 120(3) the transfer is not void against the trustee if the transfer took place more than two years before the commencement of the bankruptcy and the transferee proves that, at the time of the transfer, the transferor was solvent. 27 Under s 122 of the Act, the transfer of property by a person who is insolvent in favour of a creditor is void against the trustee in the debtor's bankruptcy if the transfer had the effect of giving the creditor a preference, priority or advantage over other creditors and was made in the period that relates to the debtor and was made in the period beginning six months before the presentation of the petition. 28 If the payment to Ali Ozer was a gift, s 120 may have been applicable to it. If the payment was in part of reduction of the debt, s 122 may have applied to it. Ms Ozer gave no satisfactory evidence of her financial position at any relevant time. Thus, the payment was a matter of significance so far as the unsecured creditors of Ms Ozer were concerned. Lack of knowledge on the part of the Trustee of such a payment would clearly be prejudicial to unsecured creditors, who may be deprived of the benefit of the recovery of the amount of the payment from Ali Ozer under either s 120 or s 122. 29 The primary judge found that Ms Ozer's explanation for the failure to disclose the payment to Ali Ozer was unsatisfactory. That is to say, the evidence indicated that Ms Ozer was aware of the obligation to disclose the payment to her Trustee. The payment could not have slipped her recollection, having occurred on the day of the sequestration order. His Honour concluded that, if the failure to disclose the payment to Ali Ozer in her statement of affairs had been the only "adverse conduct" relied on to oppose the annulment, that conduct would have led his Honour to refuse the application for an order annulling her bankruptcy. Thus, his Honour would have exercised his discretion against annulment on the basis of the payment to Ali Ozer alone and without regard to the conduct involving the Bank. His Honour would, for that reason alone, have declined to annul the bankruptcy. 30 In considering the application under s 153B of the Act, the primary judge had a discretion, even though he was satisfied that the order ought not to have been made, to decline to annul the bankruptcy. His Honour, of course, based his decision on Ms Ozer's conduct in relation to the Bank. However, even if the Full Court concluded that his Honour's exercise of discretion had miscarried in relation to that matter, it is clear that, if the matter were remitted to the primary judge again, his Honour would reach the same conclusion, based on the failure to disclose the payment to Ali Ozer. 31 If this Full Court were to conclude that the exercise of discretion on the basis of the failure to disclose the payment in the statement of affairs would be sufficient to justify his Honour's exercise of discretion, it would be unnecessary for this Full Court to consider the significance of the conduct concerning the Bank. Further, there would then be no utility in referring the matter to the primary judge again, since his Honour would reach the same conclusion based on the non-disclosure in the statement of affairs. 32 The Full Court was invited by counsel for Ms Ozer, in the event that it reached a conclusion that the exercise of discretion by the primary judge had miscarried, to exercise the discretion rather than remit the matter to the primary judge. It is possible that the Full Court, in exercising the discretion afresh, would come to a different conclusion in relation to the non-disclosure to the Trustee. In that event, it would still be necessary to remit the matter to the primary judge to consider the other matters that his Honour did not consider having regard to the conclusion that he had reached in relation to the conduct involving the Bank and the non-disclosure. On the other hand, if the exercise of discretion by the Full Court reached the same conclusion as his Honour, the appeal would fail. 33 His Honour concluded that Ms Ozer had not acted frankly in her dealings with the Trustee. That absence of frankness was prejudicial to the interests of creditors. There is nothing in his Honour's findings and conclusion to indicate that, had his Honour based his decision on the non-disclosure in the statement of affairs, that exercise of the discretion by his Honour would have been erroneous. If this Full Court were to exercise the discretion afresh, we would, on the basis of the non-disclosure in the statement of affairs and the unsatisfactory state of the evidence as to Ms Ozer's present financial position, decline to annul her bankruptcy. 34 It follows that the appropriate order is that the appeal be dismissed with costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Full Court. Associate: Dated: 29 August 2001 Counsel for the Applicant: Mr M Watts Solicitor for the Applicant: Mr J Kells Counsel for the 1st Respondent: Mr M Stevens Solicitor for the 1st Respondent Abbott Tout Counsel for the 2nd Respondent Mr B Skinner Solicitor for the 2nd Respondent: Gordon & Johnstone Date of Hearing: 10 August 2001 Date of Judgment: 29 August 2001