Grundy v Wattyl Australia Limited [2002] FCA 1539

FEDERAL COURT OF AUSTRALIA

Grundy v Wattyl Australia Limited [2002] FCA 1539

BANKRUPTCY – annulment application – disputed claim of compromise of indebtedness the subject of sequestration order – affirmation by federal magistrate of sequestration order – bankrupt's appeal from federal magistrate's decision dismissed by federal court judge – no offer made by bankrupt to satisfy or secure liabilities of bankruptcy – earlier annulment application dismissed following dismissal of appeal.

Bankruptcy Act 1966 (Cth) ss 153A and 153B Federal Court of Australia Act 1976 (Cth) s 24 Grundy v Wattyl Australia [2002] FCA 615 cited Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480 cited PHILLIP GRUNDY v WATTYL AUSTRALIA LIMITED T/AS WATTYL (NSW) & SCOTT DARREN PASCOE N 7126 OF 2002

CONTI J 11 DECEMBER 2002 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 7126 OF 2002

BETWEEN: PHILLIP GRUNDY

APPLICANT

AND: WATTYL AUSTRALIA LIMITED T/AS WATTYL (NSW)

FIRST RESPONDENT

SCOTT DARREN PASCOE

SECOND RESPONDENT

JUDGE: CONTI J

DATE OF ORDER: 11 DECEMBER 2002

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the respondent's 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 7126 OF 2002

BETWEEN: PHILLIP GRUNDY

APPLICANT

AND: WATTYL AUSTRALIA LIMITED T/AS WATTYL (NSW)

FIRST RESPONDENT

SCOTT DARREN PASCOE

SECOND RESPONDENT

JUDGE: CONTI J

DATE: 11 DECEMBER 2002

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This proceeding is one of a series involving the appellant ("Mr Grundy"), the first respondent ("Wattyl"), and the second respondent ("Mr Pascoe"). Mr Pascoe is the trustee of Mr Grundy's bankrupt estate. Mr Grundy has appeared in person at all hearings which have taken place. The genesis of Mr Grundy's bankruptcy was the conduct by him of business as a painting contractor. He purchased paint and painting equipment from Wattyl, including in particular a spray paint unit. That unit was so deficient, Mr Grundy has asserted for some time, as to have caused Mr Grundy to lose about 3 "major jobs", for which the spray paint unit had been acquired, and to have caused damage to his reputation as a tradesman. 2 As a consequence of the asserted deterioration of his business, and the distress thereby occasioned to him, Mr Grundy claimed further that he became hospitalised with a heart condition, and received no financial income, other than social welfare, for about 3 months, until he was able to secure a technological teaching position at the Mirriwinni Gardens Aboriginal Academy. I should add that Mr Grundy has provided no documentary evidence of the losses of income and earnings to which he has made unspecific reference. 3 On the application of Wattyl, Mr Grundy was made bankrupt on 13 September 2001 by sequestration order of Registrar Tesoriero, based on a debt of $8,495.05 claimed by Wattyl. An appeal against the order for his bankruptcy was dismissed by Federal Magistrate Raphael on 13 March 2002, and his Worship affirmed the sequestration order on that day. Thereafter Mr Grundy lodged notice of appeal against the decision of Raphael FM to a single judge of this Court, pursuant to s 24 of the Federal Court of Australia Act 1976 (Cth). 4 On 2 April 2002, Mr Grundy commenced proceedings in the Court, by notice of motion filed on 2 April 2002, for an order '[t]hat the sale of 2A Mount Vincent Road Mount Vincent by the Trustee in bankruptcy be stayed pending the outcome of the appeal and that I be given all rights and access to property". A number of affidavits were filed by Mr Grundy in support of the notice of motion. On 14 May 2002, Moore J made the following orders in those proceedings (Grundy v Wattyl Australia [2002] FCA 615): "1. Until further order the proceedings under the sequestration order made on 13 September 2001 in relation to the estate of Mr Phillip Grundy be stayed insofar as it permitted or required the sale of 2a Mount Vincent Road, Mount Vincent. 2. Until further order the Trustee be restrained from selling the property. 3. Until further order and upon Mr Phillip Grundy giving an undertaking to vacate the property within 7 days of any judgment dismissing his appeal from the judgment of the Federal Magistrate of 13 March 2002, the Trustee permit Mr Phillip Grundy to enter and occupy the property until judgment in the appeal. 4. Cost of the stay application be costs in the appeal." 5 On 29 April 2002, Mr Grundy opened what may be described as a "second front" in his litigious response to Wattyl's bankruptcy proceedings brought against him, by making application for an order, pursuant to s 153B of the Bankruptcy Act 1966 (Cth) ("the Act"), for the annulment of his bankruptcy. The annulment application came on for hearing before me on 21 August 2002. 6 The claims for final relief made by the applicant in his application for annulment are reproduced below: "1. That the bankruptcy be annulled in full New Evidence being presented to the Court. 2. That all costs related to the said bankruptcy be borne by the Respondent Wattyl Australia and/or their legal representative Lamich & Co Solicitors. 3. They (sic) Mr Phillip Grundy and Mr William Lawrence Grundy Senior be compensated by the respondent/s for damages as detailed in Mr Phillip Grundy's Affidavit to the amount of $150,000.00 being for stress, anxiety, depression, loss of lifestyle, loss of employment, loss of income. Denial of basic human rights." 7 The claims for interlocutory relief made by the applicant in the same application are next reproduced below: "1. That Mr Phillip Grundy and Mr William Lawrence Grundy be given immediate access to Mr Phillip Grundy's property (home) at 29 Mt Vincent Road, Mt Vincent NSW 2323. 2. That all Mr Grundy's assets be freed by the Trustee Sims Lockwood immediately allowing Mr Grundy to make suitable arrangements to pay all creditors without further cost to Mr Phillip Grundy or his representatives." 8 The evidence placed before me at the hearing on 21 August 2002 comprised essentially the content of the following affidavits: * Mr Grundy – sworn 29 April 2002 * Mr Grundy's father – sworn 14 April 2002 * Mr Pascoe (the trustee in bankruptcy) – sworn 24 May 2002 * Mr Lamich (former solicitor for Wattyl) – sworn 24 May 2002. 9 Mr Grundy and his father sought by their respective affidavits to establish that at the first day's hearing of the bankruptcy proceedings on 9 August 2001, over which Registrar Hedge had presided, it was agreed between Mr Grundy and Mr Lamich in the Court's precincts that adjustments would be made to Wattyl's unpaid account for the spray gun, and perhaps for some additional goods also supplied, and that it would therefore not be necessary for Mr Grundy to attend the court at the next hearing of the same bankruptcy proceedings, which was thereupon scheduled for 13 September 2001. 10 Mr Lamich's account of the bankruptcy proceedings was that the same were indeed adjourned by Registrar Hedge until 13 September 2001, but only for the purpose of enabling Mr Lamich to obtain instructions from Wattyl, at Mr Grundy's request, as to whether it would make adjustments to Mr Grundy's account, by reason of the spray gun being allegedly defective, and by reason in any event of Mr Grundy having been allegedly invoiced at a higher price than earlier quoted by Wattyl, and that Mr Grundy did not attend the court on the adjourned date of 13 September 2001, as he should have done in the absence of a settlement of the dispute having occurred in the meantime. Mr Lamich's affidavit is silent as to whether or not he did obtain instructions from Wattyl in relation to Mr Grundy's proposal. Mr Lamich further said that Mr Grundy gave him the telephone number of Mr Grundy's home, and informed him that he (Mr Lamich) could notify Wattyl's response during the day to Mr Grundy's father, or during the evening to Mr Grundy in person. It was in the context of the absence of Mr Grundy from the Court on 13 September 2001 that Registrar Tesoriero made the sequestration order in relation to Mr Grundy's estate on that day. 11 The only documentary evidence as to what occurred in discussion between Mr Grundy and Mr Lamich is contained in Mr Lamich's written request for instructions sent on 13 August 2001 to his principals (who appear to have been a firm of mercantile agents), which, omitting the formal parts thereof, reads as follows: "The Bankruptcy Petition in this matter has been adjourned to 13 September 2001. Mr Grundy appeared in person, and we had a discussion with him outside the court. He said that he had two problems. The first was in relation to pricing, where he had been given quotes at a discount, and then when the invoices were issued from Blacktown, they were at retail prices. The second problem was with the Alesco spray gun which, when he tried to use it with acrylic paint, did not spray, but tended to spit. He said he has tried on a number of occasions to discuss the matter with your representative, Graham De Silva, without success. Could you please advise in relation to both these matters." The content of that request for instructions demonstrates, objectively speaking, that no arrangement was reached in the precincts of the Registrar's court on 9 August 2001, contrary to Mr Grundy's affidavit evidence. Consequently Mr Grundy had no grounds for believing that he did not need to attend the adjourned hearing on 13 September 2001. Mr Lamich's affidavit does not disclose any communication on his part to Mr Grundy as to the outcome of whatever instructions he presumably received in response to his letter of 13 August 2001 to his client, and it may therefore be assumed that he did not further communicate with Mr Grundy. It is I think a matter for regret that Mr Lamich did not do so, but his omission to do so clearly did not excuse Mr Grundy from attending at Court, in his own interests, on the adjourned hearing date. 12 Mr Pascoe's affidavit discloses the following circumstances, following upon his appointment as trustee of Mr Grundy's bankrupt estate on 13 September 2001: (i) On 19 September 2001, he notified Mr Grundy of the sequestration order of 13 September 2001, and of his appointment as trustee, and sent to Mr Grundy a statement of affairs for completion. (ii) On 16 October 2001, he wrote again to Mr Grundy as follows, omitting formal parts: "I refer to my letter dated 19 September 2001. A copy is enclosed. I have not yet received your Statement of Affairs and Warning Notice. I advise that you are not automatically discharged until three years after you file your Statement of Affairs. By continuing to ignore this requirement under the Bankruptcy Act you will remain bankrupt for an indefinite period. The following action may now be taken by me without further notice to you: · Application to the Federal Court of Australia for a summons pursuant to section 81 of the Bankruptcy Act 1966 ("the Act") to be served on you requiring your attendance at a public examination before the Registrar of the Federal Court of Australia. · Objection to Discharge extending your bankruptcy to eight years from the date you file your Statement of Affairs. · Referral to the Insolvency & Trustee Service of Australia for failure to file a completed Statement of Affairs with the Official Receiver and a copy to me as your trustee within 14 days of receipt of notification of your bankruptcy. I advise that a penalty of $550 plus the costs of the application is incurred pursuant to section 54(1) of the Act. If you have any queries in relation to the above please telephone Mike Studman of my office." (iii) On 5 November 2001, he wrote again to Mr Grundy, no statement of affairs having yet been forthcoming, which included the following: "I refer to my letter dated 16 October 2001 a copy of which is enclosed. I have not yet received your Statement of Affairs and Warning Notice and have no alternative than to commence realisation of your assets in order to pay the creditor(s), costs and fees of your bankrupt estate. Both the petitioning creditor and their solicitors deny your version of events leading up to the making of the Sequestration Order. I note you were in attendance before the Court on 9 August 2001 when the matter was adjourned until 13 September 2001, being the date you were declared bankrupt. The matter was not, as you previously indicated to Mike Studman of my Sydney office, adjourned generally. Furthermore you have not taken any demonstrable steps to have the Order set aside nor have I been served with any Appeal papers." Thus it appears that Mr Grundy did get in touch with Mr Pascoe's office some time after 16 October 2001, and prior to 5 November 2001, and claimed (on the telephone) that the bankruptcy court proceedings held on 9 August 2001 were stood over generally, a version at odds with what appears in his affidavit evidence summarised in [9] above, where he speaks in effect of his knowledge of the adjourned hearing date of 13 September 2001, albeit on his asserted basis, which I have rejected, that he thought he was not required to be present at that adjourned hearing. (iv) On or about 23 November 2001, Mr Pascoe received from Mr Grundy a statement of affairs, which turned out to have been significantly incomplete in terms of the assets which were required to be disclosed. 13 I formed the view, after the conclusion of the proceedings before me, and after learning subsequently that an appeal was shortly to be heard by Downes J from the decision of Raphael FM of 13 March 2002 (see [3] above), that I should postpone decision-making upon the present annulment application until after the conclusion of that appeal. My reason was that if Mr Grundy was to be successful on his appeal, there would be no bankruptcy order remaining susceptible to annulment. 14 On 28 November 2002, Downes J dismissed Mr Grundy's appeal (Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480), his Honour finding no error on the part of Raphael FM. In his reasons for judgment, his Honour traced comprehensively the history of the dispute. Plainly no error is discernible in those reasons, and no material was placed before me from which I could be satisfied, as required by s 153B of the Act, that the sequestration order ought not to have been made. Moreover no offer has been made by Mr Grundy to satisfy or secure his Wattyl indebtedness, and the trustee's costs of bankruptcy administration, or at least any significant part thereof. What Mr Grundy has sought is in effect the restoration of the status quo prevailing prior to his bankruptcy, in order that he could negotiate to discharge such of his debts as he would consider to be fair and appropriate to him. Mr Grundy has thus obviously not sought annulment upon the basis of payment by him of all debts proved in his bankruptcy (s 153A). 15 In [31] of the reasons for judgment of Downes J, his Honour made the following observations: "I should also mention that it is a sad aspect of this case that although the amount of the debt upon which the sequestration order was made was little more that $8,000.00 it seems that the costs of the Bankruptcy are now of the order of $60,000.00. When one takes into account that the total amount of unsecured debts of the appellant are only slightly in excess of $20,000.00 the resulting situation seems quite unfortunate. A system of bankruptcy administration which can lead to costs significantly more than the total debts of the bankrupt, particularly where the bankrupt has assets worth more than his debts, does not appear to be serving the ends of justice. I can only say that if any of the charges levied in connection with the administration are unreasonable there are no doubt bases upon which they can be challenged. However, these are not matters for me." The matters to which his Honour has referred are necessarily of concern to myself. However in the light of the contents of the affidavit evidence of Mr Pascoe referred to in [12] above, I think that it must be concluded that Mr Grundy has at least largely contributed to the trustee's costs and expenses by his own conduct. 16 The application must be dismissed with costs. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.