Coulton v Knobloch [2020] FCCA 2478 (4 September 2020)

Last Updated: 10 September 2020

FEDERAL CIRCUIT COURT OF AUSTRALIA

COULTON v KNOBLOCH

[2020] FCCA 2478

Catchwords: BANKRUPTCY – Application to review sequestration order made by registrar – service of originating process in proceedings leading to Local Court judgment on which bankruptcy notice based – Local Court judgment obtained by default – whether there is in truth and reality a real debt behind the judgment – review application dismissed.

Legislation: Bankruptcy Act 1966 (Cth), ss.44, 52 Federal Circuit Court of Australia Act 1999 (Cth), s.104 Federal Circuit Court (Bankruptcy) Rules 2016 (Cth)

Cases cited: Ali v Retail Decisions Pty Ltd [2012] FCA 1130 Ramsay Health Care Australia Pty Ltd v Compoton (2017) 261 CLR 132; [2017] HCA 28 Re Agrillo; Ex parte the Bankrupt (1977) 29 FLR 484 Totev v Sfar (2008) 167 FCR 193; [2008] FCAFC 35

Applicant:

MARK COULTON

Respondent:

ROLAND KNOBLOCH

File Number:

SYG 1713 of 2017

Judgment of:

Judge Barnes

Hearing dates:

21 October 2019 1 November 2019

Date for last Submission:

10 July 2020

Delivered at:

Sydney

Delivered on:

4 September 2020

REPRESENTATION

The Applicant:

In person

Counsel for the Respondent:

Mr Johnson

Solicitors for the Respondent:

Watson & Watson Solicitors

ORDERS

(1) The application for review filed on 5 January 2018 be dismissed.

(2) The sequestration order made on 5 October 2017 in relation to the estate of Mark Coulton be affirmed.

(3) The creditor’s costs of the application for review be taxed and paid from the estate of the bankrupt in accordance with the Bankruptcy Act 1966 (Cth).

FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY

SYG 1713 of 2017

MARK COULTON

Applicant

And

ROLAND KNOBLOCH

Respondent

REASONS FOR JUDGMENT

These Proceedings

1. This is an application for review of a sequestration order made by a registrar of this court on 5 October 2017 against the estate of Mark Coulton. At that time, Mr Coulton was in jail in Queensland. He was notified of the hearing date. He was not represented at, and did not participate in, the hearing of the creditor’s petition on 5 October 2017.
2. Mr Coulton lodged an application for review and an accompanying affidavit on 29 December 2017. The date of filing was the next working day for the registry, being 5 January 2018.
3. In that application Mr Coulton sought that the orders made by the registrar on 5 October 2017 (which included a costs order and a 21 day stay which, by that time, had expired) be “stayed or dismissed” to allow him to have the default judgment that was relied on as the basis for the bankruptcy notice set aside or dismissed by the Local Court.
4. Mr Coulton sought, and was granted, an extension of time within which to seek review of the sequestration order. He subsequently sought, and was granted, various adjournments of the hearing of his review application while he was in jail. Mr Coulton’s trustee in bankruptcy, Brian Raymond Silvia, prepared a report in accordance with the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth). In an affidavit of 5 June 2018 Mr Silvia reported that he had not received a statement of affairs from Mr Coulton.

Background

5. On 13 September 2016 Mr Knobloch obtained a default judgment against Mr Coulton in the Local Court of NSW in the sum of $88,230.72 inclusive of costs. A bankruptcy notice based on that judgment was issued on 6 March 2017. It was claimed that Mr Coulton owed Mr Knobloch $91,409.86 (which included interest since the date of the Local Court judgment). No issue has been raised in relation to service of the bankruptcy notice (on 10 March 2017). At the time of issue and service of the bankruptcy notice there was no existing stay of execution on the underlying Local Court judgment and no application had been made to set aside the judgment.
6. Mr Knobloch presented and filed a creditor’s petition based on this debt in this court on 2 June 2017. He relied on an act of bankruptcy on 31 March 2017 consisting of Mr Coulton’s failure to comply with the bankruptcy notice served on him on 10 March 2017 or to satisfy the court that he had a counter-claim, set-off or cross demand. Service of the petition, the affidavits relied on in support of the creditor’s petition and the existence of the act of bankruptcy are not disputed, except that Mr Coulton disputes his liability to Mr Knobloch.
7. As indicated, Mr Coulton, who was in jail at the time, did not participate in the hearing of the creditor’s petition on 5 October 2017. There had previously been some three adjournments while the matter was before the registrar, apparently at Mr Coulton’s request. The solicitors for the petitioning creditor wrote to Mr Coulton on 27 July 2017 advising him that by orders of that date they had been directed to notify him that any dispute concerning the Local Court judgment ought to be dealt with by the court where the judgment was obtained and that this should be done by application to the Local Court to set aside the judgment. He was informed that the petition was adjourned to 7 September 2017. There was a further adjournment on that date. The solicitors for Mr Knobloch again wrote to Mr Coulton, advising that they had been directed to notify him that the petition had been further adjourned until 2pm on 5 October 2017. The sequestration order was made on 5 October 2017.
8. It appears that the sequestration order was made in Mr Coulton’s absence on the assumption that he had had, but had not taken, the opportunity to file a notice of motion to set aside the Local Court default judgment.
9. There is no evidence of service on or notification to Mr Knobloch by Mr Coulton of any Local Court notice of motion prior to the making of the sequestration order. On 4 October 2017 Mr Hufton, the then solicitor for Mr Knobloch, conducted a search of the NSW Local Court Online Registry to see if Mr Coulton had filed an application to set aside the Local Court judgment. He swore an affidavit of debt in support of the sequestration order as to his search on 4 October 2017. He annexed a copy of screenshots from the NSW Online Registry website showing the history of documents filed and orders recorded as at that date in relation to Mr Knobloch’s Local Court action against Mr Coulton. Mr Hufton swore further affidavits of debt in the present proceedings. There is no record on the screenshots annexed to Mr Hufton’s affidavit of any notice of motion to set aside the default judgment. I accept Mr Hufton’s unchallenged evidence that his online search of the Local Court Online Registry on 4 October 2017 did not reveal any notice of motion filed by Mr Coulton to set aside the Local Court judgment or record of any future hearing date.
10. However, in support of his application for review Mr Coulton relied on an affidavit sworn by him on 21 November 2017. He annexed to that affidavit a copy of a notice of motion dated 8 September 2017 to set aside Mr Knobloch’s Local Court default judgment and a copy of a letter dated 10 September 2017 from him to the Local Court enclosing the notice of motion (apparently in an attempt to file such notice of motion). The copy of the letter bears a stamp indicating that it was received by the Local Court by mail on 18 September 2017. In his affidavit Mr Coulton also claimed that he wrote to the Federal (sic) Court seeking an adjournment of the hearing on 5 October 2017, but did not put any such letter in evidence. There is no evidence or claim that he notified Mr Knobloch or his solicitors of the filing of his notice of motion prior to the sequestration order being made on 5 October 2017.
11. In fact, on 27 September 2017 the Local Court listed Mr Coulton’s notice of motion on 26 October 2017 and ordered a stay of enforcement proceedings pending further order. Mr Coulton was not notified of this by the Local Court until letter of 9 October 2017. By that stage he had already been made bankrupt.
12. Mr Coulton claimed that he first became aware of the sequestration order on receipt of an affidavit of 24 October 2017 sworn by Mr Hufton for Mr Knobloch in response to the Local Court notice of motion. Mr Hufton attested that between the earlier creditor’s petition hearing date of 7 September 2017 and 5 October 2017 (the date of the sequestration order), neither his firm nor Mr Knobloch had become aware of any application by Mr Coulton to set aside the Local Court judgment or of the stay order.
13. Mr Coulton’s notice of motion was dismissed by the Local Court on 26 October 2017 because the sequestration order had already been made.

The review

14. This court has power under s.104(3) of the Federal Circuit Court of Australia Act 1999 (Cth) to review the making of a sequestration order by a registrar. Such a review is a hearing de novo (see Totev v Sfar (2008) 167 FCR 193; [2008] FCAFC 35 at [9]- [15]). Hence the petitioning creditor must re-prove to the satisfaction of the court the matters required under s.52(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). In this case Mr Knobloch filed fresh affidavits of search and debt as well as additional affidavits in relation to the existence of the underlying debt and service on Mr Coulton of the originating process in the Local Court pursuant to an order for substituted service. Mr Coulton was also given, and took, the opportunity to file further affidavits.
15. Section 52 of the Bankruptcy Act is relevantly as follows:
    • (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.
    • ...
    • (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.

Procedural Fairness Issue

16. Mr Coulton relied on several matters in support of his application for review of the sequestration order.
17. Mr Coulton’s notice of motion to set aside the default judgment was received by the Local Court on 18 September 2017. The Local Court made orders on 27 September 2017. He claimed that he wrote to this court to advise that the Local Court had made an order to stay enforcement of the proceedings against him. However, as indicated, the only evidence of notification to Mr Coulton of the orders of 27 September 2017 is a letter from the Local Court dated 9 October 2017. On that basis any notification to this court of those orders would have been after the sequestration order was made.
18. More pertinently, while there were three adjournments of the hearing of the petition while the matter was before a registrar (apparently at Mr Coulton’s request), there is no evidence that prior to the listed hearing on 5 October 2017 Mr Coulton had informed the court that he had filed a notice of motion to set aside the default judgment in the Local Court (as distinct from indicating an intention to do so).
19. I note that there is also no evidence from Mr Coulton as to whether he sought, or was offered, an opportunity to participate in the hearing before the registrar on 5 October 2017 by telephone or video link. It would be of concern had he sought and not been afforded such an opportunity. However Mr Coulton has had the opportunity on review to raise any matters he wishes to rely on in opposition to the petition. He has been granted several requested adjournments. He participated in interlocutory hearings by telephone link prior to his release from jail. Subsequently he appeared in person.
20. On the evidence before the court in this respect and having regard to the matters referred to at [8]-[12] above and to the de novo nature of review of a sequestration order, these concerns about the conduct of the matter before the registrar do not establish that the sequestration order ought not to have been made within s.52(2)(b) of the Bankruptcy Act or satisfy me that the sequestration order should be set aside.

Service of the originating process

21. Mr Coulton took issue with the fact that the Local Court statement of claim was not served on him, but was served on his sister in April or May 2016 at a time when he claimed he was in England.
22. However, in an affidavit of 4 July 2018 Mr Knobloch attested to the fact that after process servers had been unable to serve the Local Court statement of claim of 22 February 2016 on Mr Coulton (and he had discussions with Mr Coulton, who said he was outside Australia, and with his sister in Sydney) he had obtained an order for substituted service. Mr Knobloch annexed to his affidavit a copy of a Local Court order of 28 April 2016 dispensing with the requirement of personal service and ordering that the statement of claim may be served on Mr Coulton’s sister at specified addresses (including an address in Sydney) and that it would be deemed to be served 14 days after compliance with the orders. Mr Knobloch also informed Mr Coulton of the statement of claim by Whatsapp message, to which Mr Coulton replied stating that he had put the matter in the hands of his solicitor.
23. I am satisfied that Mr Coulton was on notice of the Local Court proceedings, although he did not file a defence at that time. He had claimed that he was arrested in England in April or May 2016 and held in prison there until extradition to Australia in February 2017.
24. Mr Coulton acknowledged that the statement of claim was served on his sister and has not challenged the basis of the order for substituted service in any meaningful sense.
25. In so far as Mr Coulton maintains any issue as to service of the Local Court statement of claim in opposition to the creditor’s petition, such concern does not establish an irregularity in the Local Court proceedings such as to cause me not to be satisfied of the matters specified in s.52(1) of the Bankruptcy Act or satisfy me that for other sufficient cause a sequestration order ought not to have been made or that the sequestration order should be set aside.

Whether the creditor has proved that a debt amounting to $5,000 or more is still owing

26. In support of the creditor’s petition and on review Mr Knobloch relied on the debt that was the basis for the judgment of the Local Court, an agreement of 24 July 2015 described as relating to importation and distribution of alcoholic beverages and affidavit evidence as to Mr Coulton’s alleged breaches of that agreement and/or fraud and the fact that the claimed debt had not been paid and was still owing.
27. Mr Knobloch’s primary submission was that under the agreement Mr Coulton had procured goods (alcoholic beverages) for the parties to the agreement, but that the goods could not be sold in Australia as intended as they had passed their expiration date. It was suggested that, as pleaded in the Local Court statement of claim, such goods were unmerchantable and not fit for purpose and that they had to be and were destroyed at Mr Knobloch’s expense.
28. Mr Coulton did not address the specifics of Mr Knobloch’s claim, although he initially stated that if he had known that the goods were defective he could have contacted the manufacturer. He complained that Mr Knobloch had not promptly informed him of the “problem” with the drinks.
29. However Mr Coulton now disputes that the relevant agreement was the agreement of 24 July 2015 relied on by Mr Knobloch in the Local Court proceedings and asserts that “his” company sold the alcoholic beverages in question to what he describes as Mr Knobloch’s company on 6 April 2015. On this basis he claims that he is not personally liable to Mr Knobloch.
30. As indicated, the judgment that formed the basis for the bankruptcy notice and the creditor’s petition was a default judgment. There initially appeared to be an issue as to service of the Local Court statement of claim. The sequestration order was made in the absence of Mr Coulton at a time when he had in fact filed a notice of motion to set aside the default judgment in the Local Court. He claimed that he had sought an adjournment of the hearing before the registrar. He disputed liability, although the basis on which he did so was unclear. After a hearing as to whether there was sufficient reason to question the existence of a real debt behind the Local Court judgment, I determined that it was appropriate to go behind the judgment to determine whether in truth and reality a debt was owed by Mr Coulton to Mr Knobloch (see Ramsay Health Care Australia Pty Ltd v Compoton (2017) 261 CLR 132; [2017] HCA 28). The parties were given the opportunity to file further evidence.
31. Mr Knobloch’s evidence is that it had initially been agreed that Mr Coulton would buy and pay for alcoholic beverages intended for sale in Australia and would arrange importation into Australia. He explained that Mr Coulton had not purchased and paid for such drinks as had originally been proposed, so they agreed that he would give Mr Coulton money towards the cost of the goods and that Mr Coulton would buy the goods on behalf of the parties to the agreement and arrange importation into Australia (inclusive of duties, taxes and costs), as stated in the agreement of 24 July 2015. On this basis Mr Knobloch paid $34,000 to Mr Coulton’s Australian bank account between 4 August and 7 August 2015. According to Mr Knobloch, Mr Coulton was to contribute the same amount to the joint venture and was also to contribute $34,000 on behalf of Mr Christie (to whom Mr Coulton was said to be indebted) to purchase and import a container of alcoholic beverages of a “total cost” of $102,000.
32. The agreement relied on by Mr Knobloch to ground the debt that he claims he is owed by Mr Coulton is in the nature of a joint acquisition, importation and distribution agreement. It is not a sale of goods. It is as follows:
    • Energy Australia
    • 24/07/2015
    • Importation and Distribution Rights
    • Contract 2015 – 2016
    • Roland Knobloch, hereby agrees to acquire 33% of the importation and distribution rights for Xplosiv Energy in Australia from 24/7/2015.
    • In accordance with this agreement Roland Knobloch, will invest $34,000 AUD, Mark Coulton will invest $34,000 and Sam Christie will invest $34,000 which will represent for each invest[or] exactly 33.3% of the total cost for the first “trial” container (total value $102,000 AUD).
    • This contract will expire in 12 months upon which negotiation between the 3 parties; Mark Coulton and Josh Thomson t/a West Coast Trading (Z) LTD, Samuel Christie t/a The Christie Corporation and Roland Knobloch.
    • Mark Coulton and Josh Thomson, and will be charged with the purchasing, importation of all products and sales. They will be entitled to exactly 33.3% share in ownership and profits.
    • Samuel Christie will be charged with the sale and distribution of all products in Australia. He will be entitled to exactly 33.3% share in ownership and profits.
    • Roland Knobloch will be a “silent” investor. This position entails strictly financial investment and no operational involvement. This position at the conclusion of the first 12 months can be renegotiated to take a greater involvement in the daily operations if desired. He will be entitled to exactly 33.3% share in ownership and profits for as long as we import the Xplosiv energy Drinks into Australia.
    • It is the understanding that all parties will keep their original investment of $34,000 revolving to purchase another container when the first container has been sold and so on .Investors have the option to receive the profits from each container after the container has been sold.
    • Upon completion of all parties investment the container will be purchased and imported (all duties, taxes and costs inclusive). At this stage Samuel Christie will withdraw samples to circulate to relevant parties who have registered interest.
    • Signatures
    • Roland Knobloch
    • Samuel Christie
    • Josh Thomson
    • Mark Coulton
33. In the Local Court statement of claim Mr Knobloch relied on this agreement, whereby Mr Coulton (with Josh Thomson, who is said to be Mr Coulton’s son and who was not obliged to make any financial contribution under the agreement) agreed to be responsible for the purchasing and importation of “Xplosiv” alcoholic energy drinks for sale in the Australian market. Mr Knobloch claimed he paid Mr Coulton $34,000 towards acquisition and importation costs in relation to goods which were not of merchantable quality or fit for purpose as they had expired at the time of payment (which Mr Coulton had not told him) and that the goods could not be sold on the Australian market and that he suffered loss and damage. Mr Knobloch’s evidence is that Mr Coulton also failed to meet importation costs and duties and that he had to meet these costs and also the costs of destruction of the goods. He claimed he suffered loss and damage, including his investment, importation and destruction costs and loss of profit.
34. Mr Knobloch also pleaded fraud in his Local Court statement of claim on the basis of a document which appeared on its face to be an invoice of 15 July 2015 from The Melchers Group B.V. (Melchers) (the Dutch manufacturer of the alcoholic beverages) for €61,056 addressed to “West Coast traders Ltd”. Mr Coulton also variously described “his company” as West Coast Traders, West Coast Traders Ltd, West Coast Traders (z) Ltd or West Coast Traders (Z) Ltd. It was the vehicle through which he acquired the goods from Melchers, but was not a party to the agreement of 24 July 2015. This invoice was presented to Mr Knobloch for clearing and processing the goods through Customs in Australia. Mr Knobloch claimed that it was falsified. It was pleaded that in fact Mr Coulton paid Melchers €5,700 (apparently intended to be €5,760) for expired alcoholic beverages. This deception was said to have caused Mr Knobloch to suffer loss and damage, including incurring importation costs and loss of a profit said to have been promised by Mr Coulton.
35. In support of the present claim that Mr Coulton failed to comply with his obligations under the agreement of 24 July 2015 such as to give rise to a debt due to Mr Knobloch, reliance was placed on various matters. It was claimed that Mr Coulton had failed to pay importation duties, taxes and costs as provided for in the agreement and hence that he (Mr Knobloch) had to meet those costs of $14,358.35 net. He provided copies of invoices and emails from the customs agent, All Ports International Logistics Pty Ltd (All Ports), in relation to these expenses. Such non-payment was not disputed by Mr Coulton.
36. More fundamentally, when the container of cans of alcoholic beverages shipped in mid-September 2015 arrived in Australia in late November 2015, it was discovered that they had passed their expiry date on 2 March 2015 (as stamped on the cans). Mr Knobloch submitted that these goods could not be sold (to bars and/or restaurants) for ultimate sale to consumers as provided for in the agreement of 24 July 2015. It was not clear whether he made this submission as a matter of law or (if they could legally be sold) in light of the saleability of a container of alcoholic beverages that had passed their expiration date nearly nine months prior to their arrival in Australia. Mr Knobloch first became aware of the fact that the goods had expired in late 2015 when Mr Christie collected one pallet of the cans from Customs (after Mr Knobloch had paid importation costs and also duty on the pallet) to show sample drinks to potential purchasers (as provided for in the agreement of 24 July 2015).
37. In addition to the $14,358.35 paid by Mr Knobloch for importation costs that were to have been paid by Mr Coulton, he also incurred expenses of $10,023.39 to have the shipment of alcoholic beverages destroyed (as shown in the All Ports invoices) after it was discovered that the imported alcoholic beverages had passed their expiration date.
38. Mr Knobloch put in evidence copies of email correspondence with All Ports in relation to the consequences of the fact that after the goods arrived in Australia and one of 24 pallets was released by Customs (after payment by Mr Knobloch of duties thereon) it was discovered that the cans had expired. This claim was also supported by evidence of a photograph of a sample and email correspondence of Mr Knobloch and All Ports about destruction and disposal of the goods at an approved facility. All Ports advised Mr Knobloch in March 2016 of receipt of a certificate of destruction, a refund of Customs duty he had paid on the single pallet that had been released and remission of duty on the other pallets. Mr Knobloch’s calculation of the importation costs he paid before discovering that the goods had passed their expiration date excludes the refund of duty and tax he received from Customs and the ATO on proof of the destruction of the goods.
39. Mr Knobloch’s evidence is that Mr Coulton had emailed to the shipper, Bollinger Shipping Agency, a document which appeared to be an invoice on a letterhead of the manufacturer, Melchers, issued to “West Coast traders Ltd” dated 15 July 2015. Mr Knobloch was copied in to this email which attached the invoice. The invoice stated that it was for the purchase of “X-plosiv Energy” alcoholic canned drinks in an amount of €61,056. Mr Knobloch used this invoice for Customs clearance in Australia.
40. However when Mr Knobloch contacted Melchers (after he discovered that the goods had expired) he learnt that Mr Coulton had in fact purchased already expired drinks from Melchers for a price significantly less than the price of €61,056 that had been represented to him by Mr Coulton on this invoice.
41. I accept Mr Knobloch’s unchallenged evidence that in December 2015 he telephoned Melchers and raised with a representative the fact that the stock appeared to be out of date. He asked the representative to check the invoice details. In response, the representative advised that the details provided by Mr Coulton and in the invoice held by Mr Knobloch for €61,056 (that is, the invoice sent to the shipper by Mr Coulton which appeared to be on Melchers letterhead) did not match their records. He advised that although the invoice number was the same as an invoice in Melchers’ records and the goods were the same, the price was different, as they had sold Mr Coulton the alcoholic beverages on 7 September 2015 at a “very” discounted price of €5,760 because the goods had expired. Melchers later advised Mr Knobloch by email of 12 March 2017 that the invoice for €61,056 did not come from them and attached a copy of the invoice of 7 September 2015 for €5,760. Copies of both invoices are in evidence. The 7 September 2015 invoice disclosed the fact that the goods had passed their best before and expiry date.
42. Melchers’ email to Mr Knobloch of 12 March 2017 is as follows:
    • Dear Roland,
    • In regards to your problem with West Coast Traders we can inform you as follows:
    • In 2015 Mark Coulton (West Coast traders) contacted us with the request if we had any out of date stock. I said to him yes we do and agreed to sell him out of date samples ex-works for € 5.760 as per attached invoice. West Coast Traders paid us in full for this order.
    • Then you contacted me from Australia on 14^th December 2015 by phone and enquired about this shipment. You informed us that Mark Coulton provided you with an invoice which was also used for customs broking in Australia for the shipment in question. After forwarding me this invoice by email we examined it and informed you that this invoice was fraudulently altered because the letterhead was faded, the amount was incorrect and we never shipped or instructed any forwarder to ship out of date stock to Australia. Furthermore we never received any payment in the amount of € 61,056.00 because we never sent that invoice.
    • If you have any further questions then let us know.
    • Best regards,
    • Pieter Vonk
43. Both invoices show a Sydney address for “West Coast traders Ltd”. Mr Knobloch’s evidence is that an ASIC search in March 2016 did not reveal such a company. Mr Coulton’s evidence is that West Coast Traders (Z) Ltd is a company registered in Zanzibar of which he is director.
44. The basis on which Mr Coulton opposed this claim has changed significantly over time. In support of his Local Court notice of motion to set aside the default judgment, Mr Coulton acknowledged that he and Mr Knobloch had entered into an agreement dated 24 July 2015 to “purchase/ship” a container of alcoholic energy drinks from the Netherlands. According to Mr Coulton’s notice of motion, Mr Knobloch was to invest $34,000 and he was to invest $64,000 to purchase a container of drinks to be shipped to Sydney and that on arrival Mr Knobloch was to sell the container for $200,000 and return the initial investment plus a profit of $64,000 to Mr Coulton and of $34,000 to Mr Knobloch. Mr Coulton claimed that the container was shipped “as agreed” and arrived in Sydney in about December 2015. He complained that from that time until April 2016 when Mr Knobloch served the statement of claim on Mr Coulton’s sister, Mr Knobloch had not indicated to him that there was any problem with the container or that he intended to issue the Local Court statement of claim.
45. This is largely consistent with Mr Knobloch’s evidence (except in relation to who was to sell the goods in Australia) and the agreement of 24 July 2015 (allowing for the fact that Mr Coulton was to contribute $34,000 and also $34,000 on behalf of Mr Christie). Further, Mr Knobloch paid $34,000 into Mr Coulton’s Australian bank account by bank transfer in early August 2015.
46. In his notice of motion Mr Coulton did not dispute any other aspect of Mr Knobloch’s claims of breach of the contract of 24 July 2015 and/or fraud. He did not dispute that the agreement in question was the agreement of 24 July 2015 to which he and Mr Knobloch were parties.
47. There is no evidence or suggestion that Mr Coulton raised any claim that the relevant contract was a contract other than that of 24 July 2015 while the creditor’s petition was before the registrar or when he sought review of the sequestration order.
48. Mr Coulton’s written “defence” to this claim (filed in these proceedings on 9 November 2018 after I decided to go behind the Local Court judgment) was that West Coast Traders (Z) Ltd had issued an invoice to Eastern Building and Maintenance, said to be a company associated with Mr Knobloch, on 15 July 2015 which he claimed was used to clear and process the container of alcoholic beverages through Customs. He asserted that the container was “shipped as agreed” and that Mr Knobloch did not complain to him about it or reveal that he was filing a statement of claim until April 2016, but rather told him that he was in the process of selling the drinks. He took issue with the fact that there was no independent certificate of inspection to allow compensation from the supplier if the goods were defective and with service of the Local Court statement of claim. He claimed that Mr Knobloch had been deceptive in claiming that the invoice of 15 July 2015 used for clearing and processing the container through Customs was issued by Melchers, rather than West Coast Traders. He claimed that “Mr Knobloch or Eastern Building and Maintenance owes me or West Coast Traders” $56,000 on the invoice of 15 July 2015 and two thirds of the represented profit on selling drinks. There was no reference to any earlier contract in the defence.
49. However, in his affidavit of 5 September 2019 Mr Coulton claimed that he and Mr Knobloch had agreed on 6 April 2015 that West Coast Traders would ship alcoholic beverages to Mr Knobloch’s company and that Mr Knobloch and his company (rather than Mr Coulton) would be responsible for Customs obligations, permits, fees or storage and would pay West Coast Traders (Z) Ltd $35,000 AUD deposit and “the balance” (of a total amount said to be 61,056 euros) when the drinks were sold. He also relied on the invoice said to have been issued by West Coast Traders (Z) Ltd as seller to Eastern Building and Maintenance as buyer dated 15 July 2015 for goods at a price of €61,056 which referred to payment of a deposit of $35,000 to the seller’s account. He nonetheless acknowledged that there was a contract of 24 July 2015 in relation to importation and distribution. He complained about Mr Knobloch’s delay in informing him that the goods were defective. He suggested the goods were not out of date.
50. At the hearing on 21 October 2019 Mr Coulton sought, and was granted, leave to rely on an affidavit he swore on 20 October 2019 to which was annexed what he claimed was an (unsigned) copy of the contract dated 6 April 2015 between his company, West Coast Traders (z) Ltd, and what he described as Mr Knobloch’s company, Eastern Building and Maintenance, for the sale of alcoholic beverages for €61,056 (which was the amount shown on both the 15 July 2015 invoice said to have been issued by West Coast Traders and also the invoice of that date on Melchers letterhead, which Melchers informed Mr Knobloch was not genuine). In his affidavit Mr Coulton claimed that the contract of 6 April 2015 was the contract under which the goods referred to in Mr Knobloch’s Local Court statement of claim were sold by West Coast Traders (z) Ltd to Mr Knobloch’s company.
51. The asserted contract annexed to Mr Coulton’s affidavit provided for execution by email, facsimile or signature. Also annexed was what was said to be a copy of an email from Mr Knobloch to Mr Coulton of 6 April 2015 stating that he accepted the terms and conditions of the contract “for my company Eastern Building and Maintenance” and that he had signed and sent a copy of the contract to West Coast Traders in London.
52. Eastern Building and Maintenance is a business name (not a company). Mr Knobloch’s evidence is that he had never seen the asserted contract of 6 April 2015 before it was filed in these proceedings. He also claimed he had never seen the email which purported to be from him and had no record of it in his electronic files.
53. Mr Coulton’s evidence is that at the time of his arrest (in 2016) Lincolnshire Police had seized the signed contract of 6 April 2015 and had not returned it to him. There is no evidence of execution of any such contract on behalf of West Coast Traders (z) Ltd.
54. Moreover, there is no evidence of payment by Mr Knobloch “by TT Telegraphic Transfer” of $35,000 “to seller’s [i.e. West Coast Traders (z) Ltd] account” as provided for in the asserted contract dated 6 April 2015. Rather, in August 2015 Mr Knobloch transferred $34,000 to Mr Coulton’s Australian bank account as provided for in the agreement of 24 July 2015.
55. In support of the Local Court notice of motion Mr Coulton explained that he had been arrested by United Kingdom Police in April 2016 and had been in Wandsworth prison until February 2017 and then in prison in Queensland from February 2017. However his claim at that time was not that the Lincolnshire Police had seized a copy of a contract of 6 April 2015, but rather that he did not have access to material held by the Australian Federal Police which he said showed the absence of any complaint by Mr Knobloch from December 2015 to April 2016 and statements by Mr Knobloch that he was in the process of selling the container of drinks. He asserted that Mr Knobloch had been deceptive in not raising the issue of a problem with the drinks on receipt of the container in December 2015 or prior to the commencement of the Local Court proceedings in February 2016.
56. Thus, Mr Coulton’s response to Mr Knobloch’s claim that he breached the contract of 24 July 2015 is now based on an assertion that the contract in relation to the goods referred to in the Local Court statement of claim was in fact a contract of 6 April 2015 for the sale of the goods by West Coast Traders (z) Ltd to Eastern Building and Maintenance, so that he had no personal liability to Mr Knobloch.
57. Counsel for Mr Knobloch raised a number of issues in relation to whether the documents attached to Mr Coulton’s affidavit of 20 October 2019 (including the 6 April 2015 contract) were fraudulent, having regard to various matters including the late raising of the claim, physical features of the documents and inconsistencies with other evidence. There is strength in these submissions, but (as was acknowledged by counsel for Mr Knobloch) it is not necessary for present purposes to determine that issue. Mr Knobloch did not rely on the agreement of 6 April 2015 as the basis for the asserted debt, either in the Local Court or in this court. The contract Mr Knobloch relies on and which was the basis for the judgment debt, is the agreement of 24 July 2015 (as Mr Coulton acknowledged in his notice of motion filed in the Local Court).
58. It is not disputed that the agreement of 24 July 2015, which is in the nature of a joint venture, was entered into by Mr Knobloch and Mr Coulton and two other parties. I am satisfied that the agreement of 24 July 2015 dealt with the entirety of the arrangement between the parties that is said to give rise to the debt claimed to be due to Mr Knobloch from Mr Coulton and that alcoholic beverages were acquired by Mr Coulton from Melchers on behalf of the parties to the agreement and shipped to Australia (albeit that he used the vehicle of West Coast Traders to buy and ship the goods). These were the goods that were to be sold in Australia pursuant to the agreement of 24 July 2015.
59. The agreement of 24 July 2015 is separate from any prior arrangement that might, or might not, have been entered into by West Coast Traders (Z) Ltd, although I do again note that there is no evidence or suggestion that Mr Knobloch (or Eastern Building and Maintenance) paid West Coast Traders (Z) Ltd $35,000 as provided for in the asserted contract of 6 April 2015. Mr Knobloch did suggest that originally Mr Coulton was to buy and pay for beverages, but that when he did not do so, they agreed that Mr Knobloch would invest $34,000, thus contributing to the costs of purchase. This is consistent with the agreement of 24 July 2015 and the evidence of transfer of $34,000 to Mr Coulton’s bank account.
60. Mr Knobloch was not challenged substantially in cross-examination on anything relating to the facts and matters underlying the dispute based on the agreement of 24 July 2015, in particular in relation to the invoices and sourcing of the product. As counsel for Mr Knobloch pointed out, the asserted obligations of Mr Coulton under the agreement of 24 July 2015 were confirmed in various documents. In cross-examination Mr Coulton acknowledged receipt of Mr Knobloch’s payment of $34,000.
61. While in the Bill of Lading the consignor of the goods was described as West Coast Trading Ltd and the consignee as Eastern Building and Maintenance, it was Mr Coulton personally who was a party to and signed the agreement of 24 July 2015. In accordance with that agreement, Mr Knobloch paid his $34,000 investment into Mr Coulton’s Australian bank account between 4 August and 7 August 2015 as evidenced by copies of electronic bank transfers. Mr Coulton chose to acquire and ship the goods the subject of the agreement of 24 July 2015 by using the name West Coast Traders Ltd as appears on the Bill of Lading dated 15 September 2015 (not, I note, West Coast Traders (z) Ltd which he now says sold such goods to Eastern Building and Maintenance on 6 April 2015). Eastern Building and Maintenance was described as consignee or buyer in documents which apparently emanated from Mr Coulton. This does not displace Mr Coulton’s obligations under the agreement of 24 July 2015 to be responsible for purchasing and importation costs on behalf of the venturers of a container of cans of Xplosiv energy drinks to the total cost of $102,000 for sale and consumption in Australia. He failed to perform his obligations, thus breaching the contract.
62. Mr Coulton claimed he used an invoice dated 15 July 2015 from West Coast Traders issued to Eastern Building and Maintenance to ship the goods. However there is evidence that an email account in the name of West Coast Traders emailed the shipper on 30 September 2015 with a copy of an invoice for €61,056, which was apparently the invoice purportedly issued to West Coast Traders by Melchers on 15 July 2015. Mr Knobloch was copied in to this email. In any event, I accept that this purported Melchers invoice was provided to and used by Mr Knobloch in relation to Customs broking in Australia for the shipment in question. Consistent with this, when he discovered that the goods had passed their expiration date, Mr Knobloch contacted Melchers. I accept that Melchers informed Mr Knobloch that this invoice of 15 July 2015 was not a genuine invoice and that in fact it had sold expired drinks to Mr Coulton (in September 2015) for €5,760. These were the goods that were shipped to Australia by Mr Coulton in purported compliance with the agreement of 24 July 2015.
63. Mr Knobloch conceded that, as Mr Coulton asserted, on discovering that the goods had passed their expiry date he did not immediately raise with Mr Coulton the fact that the alcoholic beverages had expired and could not be sold as intended. Mr Knobloch acknowledged that he had reassured Mr Coulton during the period from December 2015 until April 2016 (when he was able to serve the Local Court statement of claim pursuant to the order for substituted service) that cans from the shipment were being sold and payments were being received. He explained that this was for the purpose of preventing Mr Coulton from “going to ground, keeping Mr Coulton engaged in communication” and “identifying the means by which Mr Coulton might be served with the Statement of Claim” in the Local Court proceedings which were commenced in February 2016. Contrary to Mr Coulton’s initial assertion in response to the Local Court statement of claim, this has not been shown to have given rise to a counter-claim, set-off or cross demand by Mr Coulton against Mr Knobloch. The goods were not sold and Mr Coulton does not have a claim for a share of “profits”. In any event, Mr Coulton no longer maintains such a claim. His sole defence to the contractual claim is that the relevant contract was that of 6 April 2015, not 24 July 2015, which I do not accept.
64. As Mr Knobloch acknowledged, the contract of 24 July 2015 was not a sale of goods by Mr Coulton (or West Coast Traders) to him. It was in the nature of a joint venture, under which Mr Coulton had an obligation to purchase alcoholic beverages for sale in Australia on behalf of the joint venturers and to ship those goods and meet the importation costs to a total cost of $102,000. However Mr Coulton purchased expired alcoholic beverages from Melchers on 7 September 2015 for only €5,760. He shipped these goods to Australia in the name of West Coast Traders. According to Mr Knobloch, such goods could not be sold in Australia as they had expired. Even if, having passed their expiry date, such goods could theoretically be sold (on which there is no evidence), Mr Coulton did not perform his obligations under the agreement of 24 July 2015 towards which Mr Knobloch had contributed $34,000. Before he discovered that the goods had passed their expiration date, Mr Knobloch met importation costs and paid duties that had not been paid by Mr Coulton. He subsequently incurred destruction costs. He lost any anticipated profit. Mr Knobloch submitted that, at the least, he was entitled to the amount of his investment under the contract of 24 July 2015.
65. In the Local Court statement of claim Mr Knobloch had also claimed that, in the alternative, Mr Coulton had fraudulently represented to him that he had paid €61,056 for the goods to the original supplier (Melchers), when in fact he had paid €5,700 (according to Melchers, €5,760). It was contended that this deception amounted to fraud, in that Mr Coulton had falsified the supply invoice and lied about paying for the goods as agreed, which had caused Mr Knobloch to suffer loss and damage. The invoice in question shows such a purchase from Melchers on 15 July 2015. While there is no evidence that Mr Knobloch was told by Mr Coulton of any such purchase from Melchers before entering the agreement of 24 July 2015, Mr Knobloch relied on that invoice when the goods arrived in Sydney. In fact Mr Coulton had purchased (though the vehicle of West Coast Traders) expired alcoholic beverages for €5,760 on 7 September 2015 and shipped those goods.
66. In submissions counsel for Mr Knobloch did not elaborate on the claim of fraud or address the law in that respect. It was contended that even if Mr Knobloch faced obstacles in establishing fraud having regard to the strict requirements for pleading fraud and the standard of proof, there was, nonetheless, in truth and reality a debt which exceeded the amount necessary to ground a creditor’s petition based on the above matters and Mr Coulton’s breach of the agreement of 24 July 2015, in circumstances where it was not in dispute that Mr Knobloch had paid $34,000 to Mr Coulton in August 2015 in accordance with the contract of 24 July 2015 and Mr Coulton had not carried out his contractual obligations under the agreement. It was also suggested that Mr Knobloch would be entitled to return of this money on a restitutionary basis following acceptance of repudiation of the agreement.
67. Mr Coulton did not respond to these aspects of Mr Knobloch’s submissions. He relied entirely on his submission that the relevant contract was a contract for the sale of goods by West Coast Traders (z) Ltd to Eastern Building and Maintenance in April 2015. I do not accept this claim. Even if there was such a contract, the goods in question were not in fact sold to Eastern Building and Maintenance (or Mr Knobloch) by West Coast Traders (z) Ltd or by Mr Coulton. Mr Knobloch did not purchase the goods. They were acquired on behalf of the joint venture by Mr Coulton.
68. Mr Knobloch has satisfied me that in truth and reality there is a debt due to him sufficient to ground the creditor’s petition based on the agreement of 24 July 2015 (see Ali v Retail Decisions Pty Ltd [2012] FCA 1130). Under that agreement Mr Coulton undertook to invest $34,000, Mr Christie was to invest $34,000 (to be contributed on his behalf by Mr Coulton) and Mr Knobloch $34,000. Mr Coulton’s obligation was to arrange and meet the costs of purchasing and importing specified alcoholic beverages for the venturers for sale in Australia to a total cost of $102,000. Mr Christie’s obligation was sale and distribution of these products in Australia. Mr Knobloch was described in the agreement as a “silent” investor who was intended to make a financial investment with no operational involvement.
69. I accept Mr Knobloch’s evidence (supported by documentary evidence) that pursuant to the agreement of 24 July 2015 he paid Mr Coulton $34,000, that Mr Coulton breached the contract in failing to perform his obligation to acquire saleable goods and pay importation costs for the goods in compliance with the agreement to the agreed total cost of $102,000. I accept, having regard to the documentary evidence, that the actual goods shipped, supposedly in performance of Mr Coulton’s obligations under the agreement of 24 July 2015, had passed their expiry date prior to the time at which they were purchased (let alone shipped). Mr Knobloch met importation costs of over $14,000 which Mr Coulton had not met. At the very least, these costs are recoverable by Mr Knobloch as loss or damage caused by Mr Coulton’s breach of the agreement.
70. Mr Knobloch then discovered that the goods had no value. In addition to importation costs, Mr Knobloch paid over $10,000 for the costs of destruction of the alcoholic beverages in a Customs approved facility. It appears that as the consignee, Mr Knobloch had to meet the costs of destruction to obtain a refund of duty he had paid on the sample pallet that had been released and remission of duty and tax on the other pallets that would otherwise have been payable. Mr Knobloch claims that he also lost the whole of his investment and expected profit because Mr Coulton failed to perform his contractual obligations in breach of the agreement. It is not necessary, for present purposes, to determine the extent to which such other loss said to have been suffered by Mr Knobloch is recoverable.
71. I am satisfied that the judgment debt represents a real debt of more than $5,000 based on Mr Coulton’s breach of the agreement of 24 July 2015 and the loss and damage suffered by Mr Knobloch as a result. That is so, whether or not there may be issues in relation to the pleading or proof of fraud or the claim in restitution raised only in general terms in submissions. Nothing in Mr Coulton’s complaints about Mr Knobloch’s conduct in not informing him of the problem with the goods until service of the Local Court statement of claim is such as to relieve him of his obligations under the agreement of 24 July 2015 to acquire goods, ship and meet importation costs to a total cost of $102,000.
72. The debt relied on satisfies the requirements of s.44 of the Bankruptcy Act. It accrued before the date of the act of bankruptcy. I am satisfied that there is a debt due which is, at the least, over $14,000 and exceeds the then applicable statutory minimum of $5,000 necessary to ground a petition. I note that it is not essential that the debt relied on now be exactly the same as the debt relied on to create the act of bankruptcy or even to found the petition. There was a real debt on which judgment could have been obtained based on the cause of action which gave rise to the judgment debt. I am also satisfied that on 31 March 2017 Mr Coulton committed the act of bankruptcy alleged in the petition.
73. While Mr Coulton raised no issue in this respect, I have had regard to the fact that there was a stay of execution of the Local Court judgment at the time the sequestration order was made. The stay ceased when Mr Coulton’s notice of motion was dismissed on 26 October 2017. However it did not, and does not, affect the fact that the underlying debt was owed at the relevant time for the purposes of s.52(1)(c) or amount to other sufficient cause in s.52(2)(b) of the Bankruptcy Act. Section 44 of the Bankruptcy Act does not require that the debt be one in relation to which execution has not been stayed at the time of presentation of the petition or at the date of the hearing (see Re Agrillo; Ex parte the Bankrupt (1977) 29 FLR 484 and cf. s.40(1)(g) in relation to the issue of a bankruptcy notice).
74. I am satisfied with proof of the matters stated in the petition, with the service of the petition and the fact that a debt sufficient to ground the petition on which the petitioning creditor relies is still owing. Hence I am satisfied with proof of the matters required under s.52(1) of the Bankruptcy Act.
75. Mr Coulton was given the opportunity to put on evidence addressing the issue of whether he was able to pay his debts within s.52(2)(a) of the Bankruptcy Act. He did not do so. There is no evidence that he has filed a statement of affairs with his trustee in bankruptcy. There is no evidence as to Mr Coulton’s financial affairs, any assets or income. Although he told the court that he may be able to find someone to pay his debts for him, there was no evidence in that respect before the court. The trustee’s report reveals that he had received three proofs of debt. Apart from the debt claimed by Mr Knobloch, the report reveals debts of over $97,000 to two other creditors and also that as Mr Coulton had not filed income tax returns since 2001 there may well be further liabilities to the ATO. On the evidence before the court I am not satisfied that Mr Coulton has established that he is able to pay his debts as provided for in s.52(2)(a) of the Act.
76. I am not satisfied that other sufficient cause within s.52(2)(b) of the Act has been established as a basis for exercising the court’s discretion in this case. As discussed above, I have borne in mind that Mr Coulton was made bankrupt at a time when he had in fact filed a motion to set aside the Local Court default judgment. The notice of motion was based solely on a claim that Mr Knobloch was “deceptive” in not raising with him the fact that the goods the subject of the agreement of 24 July 2015 had expired before he started the Local Court proceedings. On the bases contended for by Mr Coulton, he has not satisfied me of other sufficient cause such that the sequestration order should be set aside.
77. For the sake of completeness, I note that while there was no submission in this respect by Mr Coulton, this is not a case in which I am satisfied that it is appropriate to annul the bankruptcy. At the time of the hearing Mr Coulton had not completed and submitted the statement of affairs required under s.54 of the Bankruptcy Act. The trustee in bankruptcy has attested to the existence of two other creditors in an amount of over $97,000 and a potential income tax debt. Mr Coulton has admitted to non-compliance with his obligation to notify his trustee in bankruptcy of his current residential address. He has not established that he is able to pay all his debts as and when they fall due, which suggests that he may remain “insolvent” (see ss.5(2) and (3) of the Bankruptcy Act).
78. The review application should be dismissed and the sequestration order made by the registrar affirmed. Mr Knobloch’s costs of the review should be taxed and paid from Mr Coulton’s bankrupt estate.

I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of Judge Barnes

Associate:

Date: 4 September 2020