FEDERAL COURT OF AUSTRALIA Bernard v Valassis [2002] FCA 308 ERIC BERNARD v DENNIS VALASSIS N 7292 OF 2001 EMMETT J 12 MARCH 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7292 OF 2001 BETWEEN: ERIC BERNARD APPLICANT AND: DENNIS VALASSIS RESPONDENT JUDGE: EMMETT J DATE OF ORDER: 12 MARCH 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. the debtor pay the petitioner's costs of the petition up to and including 3 September 2001. 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 7292 OF 2001 BETWEEN: ERIC BERNARD APPLICANT AND: DENNIS VALASSIS RESPONDENT JUDGE: EMMETT J DATE: 12 MARCH 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I have before me an application by a petitioning creditor for the costs of a creditor's petition that was dismissed on 3 September 2001. It appears that there has been some dispute between the petitioning creditor and the debtor in the Residential Tenancy Tribunal of New South Wales. The details of that dispute are not entirely clear to me, but those details are not presently relevant. It appears that, as a result of that proceeding, a judgment for costs was obtained by the petitioning creditor against the debtor. That judgment was not paid, and formed the foundation of a bankruptcy notice ("the Bankruptcy Notice") issued at the behest of the petitioning creditor. 2 The debtor applied to the Court to set aside the Bankruptcy Notice, and the matter came before Beaumont J on 10 April 2001. On that day His Honour ordered that, upon the debtor, on or before 19 April 2001, paying to the solicitors for the petitioning creditor the sum of $7,519.95, the time for compliance with the Bankruptcy Notice be extended up to and including 12 June 2001. The sum of $7519.95 was to be held by the solicitors for the petitioning creditor in a trust account to abide the further order of the Court. Beaumont J stood the matter over for further mention on 12 June 2001, but reserved liberty to apply. However, pursuant to that liberty, on 19 April 2001, the matter was again before his Honour when the order of 10 April 2001 was varied by substituting 26 April 2001 for the date of 19 April 2001. 3 His Honour observed that the evidence before him suggested that the debtor owned real estate having a value in excess of $3 million, on which there were mortgages securing indebtedness in the sum of $750,000, thereby indicating a surplus in the order of $2.5 million. His Honour concluded that the debtor, on the evidence before him, was "not only solvent, but clearly solvent". His Honour observed, however, that the debtor had made no attempt to raise the small amount claimed in the Bankruptcy Notice. His Honour indicated that he was prepared to grant a further extension of time on the conditions just stated, but that time would be of the essence and that he did not propose to entertain any further extension. Accordingly, his Honour was prepared to extend the time for compliance with the condition until 26 April 2001. 4 When the matter came before His Honour on 12 June 2001 there was no appearance for the debtor. Counsel for the petitioner indicated that there had been compliance with the order and that the money had been paid into the trust account. In the absence of any appearance for the debtor His Honour dismissed the application to set aside the Bankruptcy Notice, with costs. 5 There is some dispute as to what happened on 12 June 2001 outside Court. In an affidavit sworn on 15 January 2002 Ms Margaret Ellen Olsen, a solicitor employed by the solicitors for the petitioner, said that on 12 June 2002 she received a telephone call from the debtor and a conversation ensued as follows: Debtor: "I am filing a motion to stay the judgment in the Local Court. You shouldn't have applied for judgment. Why did you apply for judgment?" Ms Olsen: "Dennis, you owe my client a lot of money and you never pay. Of course I applied for a judgment. It's the only way to make you pay the costs orders. By the way, why didn't you show up in court today?" Debtor: "What was in court? I didn't know any matter was in court." Ms Olsen: "The bankruptcy matter was before Beaumont J. Your application has been dismissed with costs. Now, are you going to let me access the funds in my trust account? I need your written authority to take the money, or do I have to bankrupt you?" Debtor: "I am not responsible for the costs. I am not agreeing to you having my money." Ms Olsen: "Fine. I'll get instructions to issue a creditor's petition." 6 Ms Olsen annexed to her affidavit a note, which she said she made at the time, in the following terms: "T/I Dennis Says he is obtaining a stay on Local Court judgment. We shouldn't have applied for judgment. Told him he missed hearing today. He said he didn't know about it. Asked if he had authorised me to use funds. Said not responsible. Won't pay costs of bankruptcy proceedings either." 7 The debtor filed no evidence in response to Ms Olsen's affidavit, but in the course of the hearing today, he said that he disputed that conversation. He then gave oral evidence in which he said that before 9am on 12 June 2001 he telephoned Ms Olsen, told her that he was very sick and that he would not be able to attend Court that day. He asked her to inform the Court and to ask the Court for an adjournment. He said that Ms Olsen responded saying, "I am not your solicitor. If you want to say anything you should speak to your solicitor." The debtor said that he subsequently spoke to Ms Olsen again and asked her what had happened. She said again that she was not his solicitor and he should speak to his own solicitor. There was no cross-examination of either party in relation to the disputed discussion, and it is difficult therefore to make a judgment as to what happened on that day. However, there was subsequent correspondence that may throw some light on what happened, which I shall mention shortly. 8 On 18 June 2002, a creditors' petition was filed, based on the act of bankruptcy committed by reason of the failure to comply with the Bankruptcy Notice. The debtor filed notice of intention to oppose the petition. The grounds were as follows: "(1) I have assets of $2,000,000. (2) I am over 71 years of age with several health problems. (3) The applicant's legal representative owed to the respondent and to the Court a duty to act honestly and with candour and in breach of that duty failed to act honestly and misled the court." 9 The affidavit in support of those grounds, filed on 10 July 2001, outlined in some detail the history of the dispute between the parties and various appearances in the Supreme Court of New South Wales, the Local Court of New South Wales, applications to the High Court and appearances in the Residential Tenancy Tribunal. No mention was made of the fact that the amount claimed in the creditors' petition was held in the trust account of the petitioner's solicitors. 10 The first return day of the petition was 16 July 2001. On that day the debtor signed an authorisation for the petitioner's solicitors to withdraw from their trust account the moneys that had been paid in pursuant to the order made by Beaumont J on 18 April 2001. The hearing of the petition was adjourned until to 20 August 2001, with directions to the debtor to file and serve affidavits on which he proposed to rely on by 6 August 2001 and to the petitioner to file affidavits in reply by 13 August 2001. 11 A note by the Registrar indicates that, at the hearing on 16 July 2001, the debtor said that the money had been paid into the trust account and that he had given authority, that day, for it to be paid out and that, as a result, the debtor should not be required to pay the costs of the petition. A direction was given that there would be argument on the costs at the next hearing. 12 On 20 August 2001, the hearing of the petition was adjourned to 3 September 2001. On 3 September 2001, there was no appearance for the debtor when the matter was called. On the application of the petitioner, the petition was dismissed and an order was made that the debtor pay the petitioner's costs of the petition. That order was entered on 3 September 2001. However, on 21 September 2001 the debtor applied by notice of motion for the order for costs to be vacated. In the notice of motion, the debtor said that the petitioner's legal representatives owed a duty to act honestly and with candour and that they had failed to do so. The notice of motion referred to the intention of the debtor to give evidence and to tender an appeal book in proceedings in the Court of Appeal of New South Wales. The notice of motion also contained an assertion that the debtor was ill on 3 September 2001. 13 That motion came before the Court on 9 October 2001 when it was adjourned to 23 October 2001. On 23 October 2001 Branson J ordered that the order for costs be set aside pursuant to Order 35 rule 7(2)(a) on the basis that the debtor was absent. The matter was then returned to a Registrar to deal with the costs of the motion. On that date, however, the matter was stood over to 23 November 2001 still unresolved. On 23 November 2001, Registrar Segal gave directions for the filing of affidavits. The debtor was ordered to file and serve any affidavits by 21 December 2001 and the petitioner was to file any affidavits in reply by 1 February 2002. The matter was listed for hearing on 7 February 2002. On that day the matter was stood over again to 28 February 2002. On 28 February 2002 the matter was stood over to today. 14 The only question argued before me today concerns the costs of the petition and not the costs of any of the other proceedings. As I have said, it is difficult to form a firm view in the absence of the testing of the evidence given by the parties. However, it is significant, in my view, that there was no response to Ms Olsen's affidavit of 15 January 2002 until today. There is correspondence before me to indicate that on 20 August 2001 the debtor was informed that, when the matter came on for hearing on 3 September 2001 the petitioner would be seeking an order for costs of the petition. 15 The debtor asserts that he was ill and was unable to attend court on 3 September 2001 and for the purposes of the present application I will accept that that was so. Nevertheless, on balance, I consider that it is more likely than not that there was a discussion along the lines deposed to by Ms Olsen to the effect that on 12 June 2001 she informed the debtor that, in the absence of an authority for the payment out of the money that had been paid in pursuant to Beaumont J's order, a creditor's petition would be filed. 16 In the circumstances, it was not unreasonable for the petition to have been filed. An act of bankruptcy had occurred. It was not until the first return of the petition that the amount of the debt was paid pursuant to the authority that was then given. At the time when the petition was filed, the debt was still unpaid, notwithstanding that there was a fund held in the creditor's trust account. In the circumstances I am satisfied that it was not unreasonable to file the petition and that it is appropriate therefore that the debtor should pay the respondent's costs of the petition up to and including the day of its dismissal on 3 September 2001. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 20 March 2002 Solicitor for the Applicant: Ms M Olsen Solicitor for the Respondent: The respondent appeared in person Date of Hearing: 12 March 2002 Date of Judgment: 12 March 2002