FEDERAL COURT OF AUSTRALIA A&S Powerseller Pty Ltd v Kovacic [2020] FCA 459 File number: VID 1287 of 2019 Judge: KERR J Date of judgment: 7 April 2020 Date of publication of reasons: 8 April 2020 Catchwords: BANKRUPTCY AND INSOLVENCY – application for review of Registrar's decision to make sequestration order – whether "other sufficient cause" under s 52(2) of the Bankruptcy Act 1966 (Cth) for dismissing creditor's petition – no "other sufficient cause" established – application dismissed Legislation: Bankruptcy Act 1966 (Cth) s 52 Cases cited: Doggett v Commonwealth Bank of Australia [2019] FCAFC 19 Wren v Mahoney [1972] HCA 5; 126 CLR 212 Date of hearing: 7 April 2020 Date of last submissions: 3 April 2020 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 33 Solicitor for the Applicant: Ms Allamby of MST Lawyers Counsel for the Respondent: Mr Kovacic appeared in person ORDERS VID 1287 of 2019 BETWEEN: A&S POWERSELLER PTY LTD Applicant AND: ZORAN KOVACIC Respondent JUDGE: KERR J DATE OF ORDER: 7 APRIL 2020 THE COURT ORDERS THAT: 1. The Respondent's application for review of the decision of Registrar Ryan to make a sequestration order dated 6 February 2020 be dismissed. 2. The Respondent pay the costs of the Applicant in the sum of $2,470.00. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) KERR J: 1 On 6 February 2020, Judicial Registrar Ryan in the exercise of the power of this Court ordered that the Respondent's estate be sequestrated. This is an application for review of that order. It was filed on 27 February 2020. For the reasons that follow, I refuse that application. I earlier made an interlocutory order that proceedings under that sequestration order be stayed until my hearing of the matter. Having regard to the conclusions I have reached, I decline to extend that stay. 2 I am satisfied that the formal preconditions required for Registrar Ryan to have made a sequestration order pursuant to the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) were complied with. On 2 September 2019, the Mr Kovacic had been personally served with an official copy of a bankruptcy notice. That notice had identified the basis of the debt the Applicant claimed the Respondent owed as being a default judgement made by the Dandenong Magistrates' Court on 25 February 2019, in proceeding J13101693 A&S Powerseller Pty Ltd v Zoran Kovacic. The asserted debt not having been paid, Mr Kovacic was subsequently served with a Creditor's Petition on 5 December 2019. The Creditor's Petition was returnable on 23 January 2020. 3 When this matter first came before Registrar Ryan on 23 January 2020 it was adjourned at the request of A&S Powerseller Pty Ltd for a hearing on 6 February 2020. When the matter then came before Registrar Ryan on that date, Mr Kovacic made an oral application for an adjournment. In his affidavit dated 27 February 2020 (the First Affidavit), read in support of his application for review, Mr Kovacic deposes at [22] that he advised Registrar Ryan that he needed an adjournment because he wanted to make an application to the Dandenong Magistrates' Court to set aside the default judgement. Mr Kovacic deposes that he told Registrar Ryan that he had not been served with a copy of the complaint, and that he had not comprehended that a default judgement had been issued against him until the day before that hearing. Mr Kovacic also deposes that he had been disadvantaged in making submissions because he had been required to attend the Sunshine Magistrates' Court on the same day. He had thus had to participate in the hearing before Registrar Ryan from that location by mobile telephone. 4 Registrar Ryan did not adjourn the hearing. Instead, it is uncontentious that after hearing submissions from the parties he made a sequestration order as had been sought by the Applicant. 5 A review of the decision of a Registrar is to be heard and determined de novo. It is a review of the decision: not of the reasons. 6 That principle has more than usual significance in this case. That is because on 11 February 2020, following the making of the sequestration order but before Mr Kovacic filed his application for review in this Court, Mr Kovacic filed an application in the Dandenong Magistrates' Court seeking a rehearing of proceeding J13101693 (A&S Powerseller Pty Ltd v Zoran Kovacic). That application was listed for hearing on 6 March 2020. 7 In filing that application, Mr Kovacic stated as his reason for not having appeared at the original hearing: I was not aware, notified or served with the original statement of claim and as a consequence I was unaware until a week ago when I contacted the registry to obtain further details and a copy of the paperwork related to this matter after a friend explained to me what had happened and the procedure in obtaining a default judgement in my absence and what I should do about it. 8 In an affidavit "in objection of the Respondent's application" affirmed on 25 March 2020 and read in this matter, Ms Allamby (a lawyer acting on behalf of A&S Powerseller Pty Ltd) deposes that she had appeared in opposition to that application. It was heard by Magistrate Burns. It was refused. 9 Ms Allamby deposes at paragraph [36] of her affidavit that when Mr Kovacic asked Magistrate Burns why his application had been refused, the Magistrate had remarked that he had found the Respondent's evidence to be untrue. 10 On 3 April 2020, Mr Kovacic filed a second affidavit in this Court (the Second Affidavit). It is in evidence, and has been read in this review. In the Second Affidavit, Mr Kovacic alleges that Ms Allamby deliberately misled Magistrate Burns by perpetuating a story that it was agreed between A&S Powerseller Pty Ltd and himself that he had issued personal cheques (later dishonoured) in purported payment for goods that had been supplied to him. He contends that it was clear that Magistrate Burns had already made up his mind, and was biased. 11 Mr Kovacic however confirms the substance of Mr Allamby's evidence that Magistrate Burns did find that Mr Kovacic's evidence could not be accepted. Mr Kovacic himself deposes (at paragraph [44] of the Second Affidavit) that when he had asked Magistrate Burns why he had declined his application he was told it was because "he did not believe my affidavit but believed Ms Allamby's". 12 At [48] of the Second Affidavit, Mr Kovacic deposes that he remains committed to making a further "fresh application" to the Dandenong Magistrates' Court for a rehearing. 13 I decline to be drawn into the correctness or otherwise of the decision of the Dandenong Magistrates' Court to refuse Mr Kovacic's application. For the purposes of these proceedings, that decision is relevant only insofar as it addresses and resolves the contention that Mr Kovacic had advanced before Registrar Ryan and originally pressed in his application to this Court as a ground of review: namely that he should have been granted an adjournment prior to the making of a sequestration order to permit him to apply to that court for that purpose. Hearing this review de novo, I proceed on the basis that whatever may have been the position before Registrar Ryan it has been established there is a regular, albeit default, judgment of that court that Mr Kovacic owes a debt to A&S Powerseller Pty Ltd in the sum claimed by it. 14 However, that is not dispositive of the duty of this Court. 15 Section 52(1) of the Bankruptcy Act provides: (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. 16 Section 52(2) then provides: (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition. 17 Thus, when a person's sequestration is sought, it remains open to the Court to look behind the form of a judgment should there be reason to doubt the truth and reality of the debt upon which his or her sequestration order has been sought: see Wren v Mahoney [1972] HCA 5; 126 CLR 212 per Barwick CJ at 224-225. 18 A narrow construction of the expression "other sufficient cause" is not to be applied. As the Full Court of this Court noted in Doggett v Commonwealth Bank of Australia [2019] FCAFC 19 (Doggett): 32. Any doubt regarding the breadth of that proposition was dispelled by the recent decision of the High Court of Australia in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; 261 CLR 132 (Ramsay) where the plurality (Kiefel CJ and Keane and Nettle JJ) held: 68. For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability. 69. In Petrie v Redmond, Latham CJ, with whom Rich and McTiernan JJ agreed, said that the Bankruptcy Court: "is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice. … Also the court looks with suspicion on consent judgments and default judgments. … The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule." 70. The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney v Brien. The passage was explicitly concerned with consent judgments and default judgments. As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment. 71. In the present case, the unexplained failure by Medichoice and Mr Compton to present and rely upon evidence of the kind on which the "reconciliation" is based before the trial in the Supreme Court is consistent with the possibility that the present was such a case. To say this is not to say that a suspicion of inadequate representation is of itself sufficient to give rise to a question worthy of investigation by a Bankruptcy Court. But in this case, there was evidence before the primary judge which, while it remained uncontradicted, was apt to suggest that the debt was not truly owing; and as noted above, the primary judge did not consider that this evidence was not adduced in good faith. If it were the case that this evidence was not adduced by reason of a failure on the part of Mr Compton or those representing him and Medichoice in the Supreme Court to present their case on its merits that failure should not enure to the disadvantage of persons who were not parties to those proceedings. Third parties, such as Mr Compton's creditors, should not have been prejudiced by the making of a sequestration order with that question unresolved. (Footnotes omitted.) 33. The breadth of what might constitute "other sufficient cause" extends beyond fraud, collusion and miscarriage of justice. It must be accepted that a decision, for example made in per incuriam of a binding decision or a statutory rule which makes a debt unenforceable, there would be sufficient cause to do so. It is not unknown for a critical statutory provision to be overlooked in proceedings. For example, albeit in a different context, see Fingleton v The Queen [2005] HCA 34; 227 CLR 166, where a critical statutory provision was not drawn to attention until well after very serious consequences had been brought to bear on a former Chief Magistrate of Queensland. 34. However the High Court's reasoning is not a warrant for the automatic re-litigation of propositions not advanced in the principal proceedings. A merely colourable point that may have been taken in prior litigation but was not will not, in our opinion, suffice to put in issue whether there "is in truth or reality" a debt upon which a person's sequestration has been sought. 19 However, while a narrow construction is not to be applied, a judgment debtor carries the onus of establishing that there is "other sufficient cause". Consistently with what was said in Doggett at [34], a merely colourable point or a contention so wanting in plausibility as to not warrant weight being placed upon it will be insufficient to put in issue whether there "is in truth or reality" a debt upon which a person's sequestration has been sought. 20 I therefore turn to evaluate the contentions and evidence relied on by Mr Kovacic to make good the proposition that notwithstanding the default judgement that has been entered against him, in truth or reality he is not indebted to A&S Powerseller Pty Ltd. In respect of that contention, I apprehend him to have advanced three propositions. 21 First, he asserts that the contract for goods supplied upon which A&S Powerseller Pty Ltd sued was not between himself and that company. Rather, it was between the Applicant company and ZNR Transport Pty Ltd. 22 Mr Kovacic is the sole member and director of ZNR Transport Pty Ltd. His case is that when purchasing the camper, he had informed a person whose name he does not recall then representing A&S Powerseller Pty Ltd (trading as "Mars Campers") that he had wanted it for business purposes. He gave evidence in that regard that this was why he had subsequently tendered a cheque for $15,499.00 drawn on ZNR Transport Pty Ltd's account as payment for the camper. Asked by Ms Allamby in cross-examination to explain to what business purpose he had proposed to put the camper, he said that it would have been used to permit him and his employees and drivers to rest after hard work. 23 It is uncontentious that Mr Kovacic did tender a cheque drawn on ZNR Transport Pty Ltd's account as payment for the camper. It is equally uncontentious that that cheque was dishonoured. I otherwise reject the evidence of Mr Kovacic as not rising to that degree of plausibility as to establish sufficient cause to find that in truth or reality he did not owe a debt to A&S Powerseller Pty Ltd. 24 In that regard: (a) It is uncontentious that the camper was supplied as an "on road" purchase. That is, it was to be fully kitted out and registered with VicRoads prior to ownership being transferred. The tax invoice for the supply of the camper by A&S Powerseller Pty Ltd was issued in the name of "Zoran Kovacic": Second Affidavit, Annexure ZK-16. (b) The road registration for the trailer was completed in Mr Kovacic's own name. Mr Kovacic does not dispute that he had provided his driver's licence for that purpose. (c) Mr Kovacic's account of a business purpose for a camper is inherently implausible, given that he gave evidence that he had attended Mars Campers with his 6 year old son. That suggest a domestic, rather than a business purpose. The implausibility of what he asserts to have been the business purpose on the purchase is also significant given that in his First Affidavit Mr Kovacic annexes a report from a clinical psychologist to the effect that since April 2018 he has had no work capacity: First Affidavit, Annexure ZK-9. Mr Kovacic bought the camper in October 2018, at a time when that certificate was applicable. (d) Mr Kovacic does not dispute that as early as 25 February 2019, he had been served with a summons to attend for an oral examination (Affidavit of Ms Allamby, Exhibit JMA-5). He did not attend as summonsed. (e) Other than the asserted conversation with an unidentified staff member of Mars Campers, Mr Kovacic does not suggest that he claimed that the contract had not been between him and A&S Powersellers Pty Ltd until after the proceedings before Registrar Ryan. (f) There is no such assertion in any of the correspondence sent by Mr Katsakis, acting on his authority, to the solicitors acting for A&S Powersellers Pty Ltd when seeking their agreement for staged repayments: Second Affidavit, Annexure ZK-18. 25 For those reasons, I find that the account given by Mr Kovacic is a recent invention upon which no weight can be placed. 26 Second, Mr Kovacic asserts that the camper that A&S Powerseller Pty Ltd provided was unfit for the purpose for which it had been supplied. Thus, he submits, even assuming that it was Mr Kovacic rather than ZNR Transport Pty Ltd who had purchased the camper, he was entitled to refuse payment for it until it was rectified or replaced. 27 For similar reasons as I have discussed above, I find Mr Kovacic's account that he had sought to return the camper to Mars Campers the day after he had collected it – after rain had entered it and soaked a mattress – to be a recent invention. Mr Kovacic does not assert there to have been any such defect in any of the extensive correspondence that was exchanged between him or his representative and the lawyers acting for A&S Powerseller Pty Ltd prior to these proceedings. Mr Kovacic does not suggest that he made any complaint to a consumer affairs organisation. He offers no explanation of why he concluded that the repairs (assuming, without accepting the truth of his account) would have him cost many thousands of dollars such that the camper was wholly unfit for his purposes. I reject his evidence in those regards. 28 Third, I take Mr Kovacic to submit – albeit faintly – that he was in a position of special disadvantage by reason of his physical and mental condition such that A&S Powerseller Pty Ltd should be denied the right to enforce its contract against him. 29 Mr Kovacic advances that proposition in paragraph [3B] of his "proposed defence" (Second Affidavit, Ex ZK-21). I have sufficiently dealt with the substance of his other proposed defences in my reasons above. What he submits at paragraph [3B] is as follows: 3B. Further and alternatively, if the Defendant did enter into an agreement with the Plaintiff (which is not admitted but specifically denied), he was under a special disability in dealing with the Plaintiff by reason of the following facts and circumstances: (a) Mr Kovacic was born in Serbia and came to Australia with his family in 1999 after being subjected to very difficult conditions as a result of the wars at that time in this region, his father was actively involved in the war and as a youngster he had to assume a protecting role over his mother and siblings which has had a lasting and detrimental impact on his psychological health in later years; (b) Mr Kovacic while having functional English for everyday purposes is unfamiliar with many everyday words used in the English language and is often prone to misinterpreting the subtle nuisances [sic], of more complex matters; (c) Mr Kovacic is on the whole unfamiliar with commercial transactions and financing documentation; (d) If there was an agreement signed which is not admitted but denied ,he was not advised to seek the advice of a lawyer or other independent person about the signing of or given the opportunity to do so; (e) No explanation was given to Mr Kovacic by the Plaintiff as to what he may have been signing; (f) Mr Kovacic suffered greatly both physically and mentally since his involvement in a car accident as a passenger in January, 2018 and as a consequence is under the care of several Doctors including a Clinical Psychologist Mr Kenna Rahmonovic who has assessed Mr Kovacic as having a Major Depressive Disorder, Generalised Anxiety Disorder and PTSD. (g) The injuries sustained as a result of the Motor Vehicle accident in early 2018 has meant that Mr Kovacic struggles with everyday life and the pressures of life in general as a father and husband and in providing for his family. Mr Kovacic often feels confused with extreme stress and anxiety and as a result can become confused and has trouble interpreting documentation such as legal documentation such as contracts and agreements and their implications. 30 Critically however, Mr Kovacic in his "proposed defence" does not assert – and there is no evidence before me to suggest – that he made known any of the asserted circumstances of his special disability to the sales staff at Mars Campers. While it is speculation on my part, it might be reasonable to infer that had he made those circumstances known the purchase might not have been approved. In any event, there is nothing to suggest that the sales staff were put on notice. It was not a transaction (such as a guarantee of another's liability) the nature of which should have put those dealing with Mr Kovacic on notice that they should refer him to seek independent legal advice. It was a routine transaction for the purchase of consumer goods of the kind usually purchased for recreational purposes: a camper. 31 I reject the proposition that on the facts of this case Mr Kovacic's assertion of having been subject to a special disability is a reason not to confirm Registrar Ryan's decision to make a sequestration order. I note in that regard that Mr Kovacic does not suggest that he lacked legal capacity to contract. 32 I dismiss Mr Kovacic's application. In consequence, the interim order I earlier made staying proceedings under that sequestration order until this hearing has no further operation. 33 After my delivering these reasons, Mr Kovacic accepted that he could not resist a lump sum order for costs calculated according to scale as Ms Allamby sought in the sum of $2,470.00. I will order accordingly. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kerr. Associate: Dated: 8 April 2020