Case: Rigg v Baker [2006] FCAFC 179 , 155 FCR 531
Outcome: cited
section has essentially two elements, namely the establishment of the state of satisfaction that a sequestration order ought not to have been made and, if that state of satisfaction is reached, thereafter an exercise of discretion: Rigg v Baker [2006] FCAFC 179 at [59] , [2006] FCAFC 179 ; 155 FCR 531 at 543 per French J. Those who seek an annulment carry a " heavy burden ": Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531 per O'Loughlin J; Evans v Hi-Fert Pty Ltd [2003] FCA 802 at [11] ; Samootin v Wagner [2008] FCA 1066 at [32] . It is for an applicant for annulment to bring himself within s 153B and to satisfy the Court that the sequestration order ought not to have been made: Pollock v Deputy Federal Commissioner of Taxation (1994) 94 ATC 4148 ; Rigg v Baker [2006] FCAFC 179 at [63] , [2006] FCAFC 179 ; 155 FCR 531 at 544 per French J (as His Honour then was). The standard of proof is that of the balance of probabilities: Edelsten v Deputy Commissioner of Taxation (Cth) (1986) 86 ALR 257. More recently, in Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 , Tracey J has undertaken a review of the authorities. His Honour there set forth as follows his results of that analysis: [12] These authorities establish a number of relevant propositions. They are: (1) An order can be made under s 153B(1) of the Act notwithstanding that the applicant has been discharged from bankruptcy; Re Oates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402. (2) An applicant who seeks an annulment of his or her bankruptcy "carries a heavy burden". It is incumbent on an applicant "to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant": Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531. (3) In determining whether or not a sequestration order "ought not to have been made" the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy [2001] FCA 639 ; (2001) 183 ALR 239 at 243; Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426. (4) A sequestration order "ought not to have been made" if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396. (5) The Court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422. (6) If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor's petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426. (7) The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy [2001] FCA 639 ; (2001) 183 ALR 239 at 243. (8) Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor's petition and attend the hearing at which the sequestration order was made: Re Williams (1968) 13 FLR 10 at 24 5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker [2006] FCAFC 179 at [79]; Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, "Annulment of Bankruptcy and Review of Sequestration Orders" (1993) 67 ALJ 761 at 766. When entertaining an appeal against a decision concluding that a sequestration order ought to be annulled pursuant to s 153B , French J (as His Honour then was) in Rigg v Baker [2006] FCAFC 179 , 155 FCR 531 observed: [64] Generally speaking the true facts, which if known to the person making the order may have led him or her to refuse the order, relate to the financial circumstances of the debtor. They may, however, extend to procedural issues: Maxwell-Smith v S &amp; E Hill ; In the matter of Maxwell-Smith [2004] FCA 840 at [20] (Moore J). [65] One basis upon which a creditor's petition may be dismissed is that the debtor has a cross claim against the creditor: Ling v Eurobrook (1997) 74 FCR 19 at 25. In St George Bank Ltd v Helfenbaum [1999] FCA 1337 , Sundberg J said (at 9): The existence of a cross-claim may be "a sufficient cause" within s 52(2)(b) for declining to make a sequestration order. It is for the debtor to establish the existence of "sufficient cause". He must establish that he has a real claim against the creditor that is likely to succeed. If the Court is satisfied that there is such a claim, and that its quantum is likely to equal or exceed the creditor's claim, it will not make a sequestration order. If the claim is likely to be less than the creditor's claim, the Court will require the debtor, if he is to avoid a sequestration order, to pay the difference between the judgment debt and the amount he is likely to recover on his claim. A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against a creditor ... or by pointing to the existence of current litigation against the creditor. While the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed. [66] A distinction has been drawn between a claim against the petitioner creditor which is likely to succeed and which would warrant refusal of a sequestration order and a "real claim" which has sufficient prospect to warrant the debtor being granted an opportunity to have it litigated. In the latter case an adjournment of the petition may be appropriate: In the matter of Jovanovic [1998] FCA 463 citing Re James, Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) (1994) 51 FCR 14 at 22 (Olney J). The existence of a cross-claim against the petitioning creditor which is likely to succeed may support the proposition that the sequestration order ought not to have been made and should be annulled. On the other hand the existence of a real claim which might have warranted adjournment would not necessarily support that conclusion. That is not to exclude the possibility that in appropriate circumstances the registrar or judge hearing the petition ought to grant an adjournment on the basis of a "real cross-claim". A distinction is thus to be drawn between a claim which is likely to succeed and a " real claim " which may warrant an adjournment but not such as to necessarily warrant a conclusion that the sequestration order ought not to have been made. The Appellant did not contend that the District Court claim was one which could be characterised as a claim " which is likely to succeed and which would warrant refusal of a sequestration order ". She did contend, however, that it remained a " real claim " &#8212; the Federal Magistrate having characterised it as an " arguable case ". It is not considered that the claim &#8212; however it may be characterised &#8212; provided any basis upon which it could be concluded that the Federal Magistrate making the sequestration order was " bound " not to have made it. It was not disputed that " procedural issues " may fall within s 153B: Rigg v Baker [2006] FCAFC 179 at [64] , [2006] FCAFC 179 ; 155 FCR 531 at 545. It may further be assumed for present purposes that, albeit inadvertently, the Appellant was denied procedural fairness in both April and September 2008. The denial of procedural fairness in September 2008 may provide a basis upon which it could be contended that the sequestration order ought not to have been made. Indeed the present case provides an instance of the ability in an application made pursuant to s 153B to consider all of the " true facts " as at the date of the making of the sequestration order: Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 at [20] . The Federal Magistrate may not have known why neither the Appellant nor her solicitor was present on 2 September. But the Magistrate who heard the annulment application knew the reason; as does this Court. Even so, reservation may be expressed as to whether or not &#8212; even in those circumstances &#8212; it should be concluded that he was " bound " not to have made the sequestration order.