Alam v Cassaniti, in the matter of the Bankrupt Estate of Sam Cassaniti

[2007] FCA 598

FEDERAL COURT OF AUSTRALIA

Alam v Cassaniti, in the matter of the Bankrupt Estate of Sam Cassaniti
[2007] FCA 598

IN THE MATTER OF THE BANKRUPT ESTATE OF SAM CASSANITI

ANIS (ALSO KNOWN AS ANDREW OR TONY) ALAM (ALSO KNOWN AS ANIS EL-ALAM) AND BEVERLY DAWN ALAM (ALSO KNOWN AS BEVERLY DAWN EL-ALAM) v SAM CASSANITI

NSD 2147 OF 2006

LINDGREN J
10 APRIL 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2147  OF 2006

IN THE MATTER OF THE BANKRUPT ESTATE OF SAM CASSANITI

BETWEEN:

ANIS (ALSO KNOWN AS ANDREW OR TONY) ALAM (ALSO KNOWN AS ANIS EL-ALAM)
First Applicant

BEVERLY DAWN ALAM (ALSO KNOWN AS BEVERLY DAWN EL-ALAM)
Second Applicant

AND:

SAM CASSANITI
Respondent

JUDGE:	LINDGREN J
DATE OF ORDER:	10 APRIL 2007
WHERE MADE:	SYDNEY

THE COURT:

1. Makes a sequestration order against the estate of Sam Cassaniti;

2. Orders that the applicant creditors’ costs (including any costs reserved) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth);

3. Orders that under the Bankruptcy Regulations the applicant creditors give a copy of this sequestration order to the Official Receiver in Sydney within two days;

4. Notes that the date of the act of bankruptcy is 29 September 2006; and

5. Notes that a consent to act as trustee has been signed by Michael Jones of Jones Condon, Chartered Accountants, Level 13, 189 Kent Street, Sydney NSW 2000.

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	NSD 2147  OF 2006

IN THE MATTER OF THE BANKRUPT ESTATE OF SAM CASSANITI

BETWEEN:

ANIS (ALSO KNOWN AS ANDREW OR TONY) ALAM (ALSO KNOWN AS ANIS EL-ALAM)
First Applicant

BEVERLY DAWN ALAM (ALSO KNOWN AS BEVERLY DAWN EL-ALAM)
Second Applicant

AND:

SAM CASSANITI
Respondent

JUDGE:	LINDGREN J
DATE:	10 APRIL 2007
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1. This proceeding was commenced on 1 November 2006 by the filing of a creditor’s petition.  I will refer to the applicants as Mr and Mrs Alam.  They are creditors of the respondent, to whom I will refer as ‘Mr Cassaniti’.  The petition is based on a judgment debt in the Supreme Court of New South Wales in proceeding 4282/04.  The judgment was given on 27 May 2005 in the sum of $316,167.13.  A bankruptcy notice was served on Mr Cassaniti on 20 May 2006. 

Procedural background

1. In this Court the proceeding has already had a somewhat lengthy history for a bankruptcy matter, but nothing to approach the history of a proceeding involving the parties in the Supreme Court of New South Wales to which I will refer. 

2. Mr Cassaniti unsuccessfully applied in the Federal Magistrates Court of Australia to have the bankruptcy notice set aside: see Cassaniti v Alam [2006] FMCA 1320. The Federal Magistrate delivered judgment on the application to set aside the bankruptcy notice on 12 September 2006.

3. The petition was first before this Court on 22 November 2006.  On that date a Registrar directed Mr and Mrs Alam to file and serve the affidavit of service of the petition and other documents by 29 November 2006 and directed that any evidence in reply, if possible, be filed and served by midday on 4 December 2006.  The petition was adjourned by consent to 5 December 2006.  

4. Mr Cassaniti was and is confined at the Dawn DeLoas Correctional Centre, Silverwater Correctional Complex (‘the Centre’).  On 5 December 2006 orders were made dispensing with personal service of the petition and other documents, and providing for service on the Governor or Deputy Governor of the Centre and on Mr Cassaniti’s solicitor.  As well, the hearing date of the petition was amended to 19 December 2006.

5. Service was effected in accordance with the directions.

6. On 13 December 2006 Mr Cassaniti filed a notice of intention to oppose the petition, generally on the grounds of a denial of insolvency, and a set off, counter-claim or cross-demand against Mr and Mrs Alam.

7. The proceeding was again before the Court on 19 December 2006.  On that date, by consent, Mr Cassaniti was ordered to file and serve any affidavits on which he relied on or before 9 February 2007, and the proceeding was adjourned to 13 February 2007.

8. On 13 February 2007 the proceeding was referred for allocation to a judge’s docket and was adjourned to 21 February 2007 at 9.30 am before the docket judge for directions.  The Registrar noted that Mr Cassaniti intended to serve a solvency report which was expected to be available within four weeks, that is, by mid to late March 2007.  However, the Registrar indicated that the solvency report should be made available as soon as possible.  Mr Cassaniti was ordered to pay Mr and Mrs Alam’s costs of the appearance on 13 February 2007 as agreed or taxed. 

9. On 21 February 2007 I fixed the petition for hearing today at 10.15 am and directed Mr Cassaniti to file and serve his affidavit evidence by Friday, 23 March 2007, and Mr and Mrs Alam to file and serve any affidavit evidence in reply by 4 April 2007.  Mr Cassaniti has not complied with the direction and has applied for an adjournment today.

Application for adjournment

1. The grounds of Mr Cassaniti’s application for an adjournment cover quite a large territory and concern the history of the proceeding in the Supreme Court of New South Wales and also the difficulty that Mr Cassaniti has had because of his incarceration at present.  A detailed affidavit of Michael Garvin, the solicitor for Mr and Mrs Alam, recounts the history of the Supreme Court proceeding from its commencement on 2 August 2004 to 28 July 2006.  It is clear that Mr Cassaniti, on many occasions, failed to take steps required of him in that proceeding.

2. There is before the Court a report of Robert Smith, a Chartered Accountant, setting out the results of his investigations to date on the question of solvency of Mr Cassaniti.  Mr Smith appears to have done all that he could do having regard to the lack of factual information provided to him.  He states in his accompanying affidavit that he has not been able to complete his work, as his father, who had been sick for some time and was in hospital, passed away on 22 March 2007. 

3. Importantly, however, in his report Mr Smith states that in preparing his report he has relied on certain ‘significant assumptions’ and gives a heavily qualified opinion.  The following is a relevant extract from the summary contained in Mr Smith’s report:

   ‘Analyses performed

   6.I examined the assets and other resources available to the Respondent to determine those that could be used to pay debts that are presently due and payable.  I determined the value of the assets and other resources that are available.

   7.I examined the debts of the Respondent to determine those that are presently due and payable.  I determined the amount of those debts that are presently due and payable.

   8.I determined the surplus of assets and other resources available to pay those debts presently due and payable.

   Significant assumptions

   9.In arriving at my qualified opinion, I have made the following significant assumptions:

   a)I assumed that either Reliance Financial Services Pty Ltd, a related entity of the Respondent or David Cassaniti and Gino Cassaniti, cousins of the Respondent, would advance the Respondent $500,000 on terms that would not require repayments to commence until some time after the Respondent was released from incarceration (the Respondent is presently incarcerated for taxation offences against the Commonwealth).

   b)I assumed that either Reliance Financial Services Pty Ltd or David Cassaniti and Gino Cassaniti have the financial resources to advance the $500,000.

   c)I assumed the Commonwealth would defer its proceeds of crime claim of $400,000 until after the Respondent’s appeal to the High Court of Australia was decided.

   d)I assumed the Respondent’s appeal of the ATO [Australian Tax Office] default judgment of $700,000 for unremitted Group Tax would stay enforcement of that judgment.  I assumed there was some merit in the Respondent’s appeal.

   e)I assumed the Respondent could satisfy the Court that the ATO assessments totalling $6.4 million were presently not due and payable by virtue of an objection or a reasonable argument for their exclusion from his due and payable debts.

   f)I assumed the David Cassaniti loan and the Gino Cassaniti loan (those pre-dating the proposed advance noted above) are presently not due and payable.

   g)I assumed the Respondent’s cross-claim against Comin Enterprises Pty Ltd has some merit and on that basis that there is presently nothing due and payable under the mortgages over 197 and 199 Waterloo Rd, Greenacre NSW.

   h)I assumed the relevant solicitor and barrister representing the Respondent in his High Court appeal were not pressing for payment of the legal fees owed in respect of his appeal against conviction to the New South Wales Court of Criminal Appeal.

   i)I assumed the Applicants’ judgment debt was limited to the principle judgment and interest that had accrued thereafter, in total, approximately $400,000.

   Qualified opinion and short reasons

   Qualification

   10.I have to qualify my opinion on the basis that there are matters of which I have insufficient information to give a definitive opinion.

   11.These matters include:

a)The merits of the Respondent’s cross-claim against Comin Enterprises Pty Ltd which, if successful, would purportedly negate an obligation to pay the mortgages on 197 and 199 Waterloo Rd, Greenacre.

b)The Respondent’s ability to charge his unencumbered 20%  interest in the property at 168-172 George St, Windsor NSW.

c)The terms of the proposed unsecured/secured loan advance of either Reliance Financial Services Pty Ltd, a related entity of the Respondent, or David Cassaniti and Gino Cassaniti, cousins of the Respondent.  I was not briefed with any evidence concerning either Reliance Financial Services’ or David Cassaniti’s and Gino Cassaniti’s ability to fund such an advance.

d)The agreement with the Commonwealth to defer enforcement of its proceeds of crime claim has not yet been extended until the appeal to the High Court of Australia has been decided (assuming the application for leave to appeal is successful).

e)I have not sighted any documentation to confirm that the ATO judgment for $700,000 has been stayed by virtue of an appeal I was informed was underway.

f)I have not sighted any legal advice or objection to the ATO’s notice of assessments and therefore I am uncertain as to whether the amount of $6.4 million is presently due and payable.  I have assumed it is not on the basis that the Respondent can satisfy the court of his assertion to that effect.

g)I have not received confirmation from David Cassaniti or Gino Cassaniti that their loans to the Respondent are presently not due and not payable.

h)I have not received confirmation from the relevant solicitor and barrister that they are presently not pressing the Respondent for payment of their legal fees.

i)I was not briefed with details of the exact amount presently due and payable to the Applicants pursuant to their judgment obtained against the Respondent.

Qualified opinion

12.In view of the foregoing qualifications and significant assumptions, in my opinion the Respondent has sufficient resources to meet his debts as and when they became due and payable as at 10/04/2007.

Reasons

13.The Respondent has access to an unsecured/secured loan facility of $500,000.  The Respondent’s debts that are presently due and payable are limited to the judgment debt of the Applicants in these proceedings.  That judgment debt amounts to approximately $400,000.  Therefore, the Respondent’s ability to pay his debts exceeds the debts that are presently due and payable.’

1. Mr Smith’s report turns largely on the following matters:

   ·    Mr Cassaniti has told him that he, Mr Cassaniti, expected to be able to borrow $500,000 from Reliance Financial Services Pty Limited, or, in the alternative, from his cousins, David Cassaniti and Gino Cassaniti;

   ·    Mr Cassaniti has a cross-claim pending in the Supreme Court proceeding which is the subject of a stay, the amount of which will exceed the amount of the judgment debt owed to Mr and Mrs Alam;

   ·    Mr Cassaniti has a 20 per cent interest in a property at 168 – 172 George Street, Windsor (there is no evidence of the value of this property, although Mr Cassaniti told Mr Smith that it was worth $1,000,000 and that his interest was therefore worth $200,000); and

   ·    Mr Cassaniti has a 50 per cent interest in vacant lands at 197 and 199 Waterloo Road, Greenacre, which are the subject of a dispute between him and the mortgagee, Comin Enterprises Pty Ltd (Mr Cassaniti asserts that he has a cross-claim against the mortgagee and that for this reason he has not been paying the mortgage instalments).

2. In the Supreme Court proceeding the stay on the cross-claim arose out of a failure on the part of Mr Cassaniti to prosecute the proceeding and to comply with directions of the Court.  The directions were made at a time when Mr Cassaniti was not in prison, and there is no satisfactory evidence as to why the directions were not complied with.  An application by Mr Cassaniti to lift the stay on the cross-claim failed.

3. While I appreciate that it is a serious thing to proceed with the hearing of a creditor’s petition over an application for an adjournment, my firm view is that there has been a gross failure by Mr Cassaniti to comply with directions of the Supreme Court and his cross-claim is likely to remain stayed for the foreseeable future.  Moreover, the evidence of the solvency of Mr Cassaniti is speculative in the extreme.

4. An adjournment for a period of, say, four weeks, would not improve his position.

5. Mr Allen, counsel for Mr Cassaniti, has said all that can be put in favour of an adjournment and I agree with him that an adjournment should not be refused simply by way of a punishment for failure to comply with directions in the Supreme Court proceeding, but that is not what is happening; non-compliance with those directions shows why I do not place much weight on the pendency of the cross‑claim in the Supreme Court.

6. I am not persuaded that an adjournment should be granted and accordingly, the application for the adjournment is declined.

The substantive hearing

1. The act of bankruptcy relied upon is a failure by Mr Cassaniti to comply with the bankruptcy notice that was served on him on 20 May 2006.  The period fixed in the notice for compliance with it was 21 days after service of the notice.

2. Counsel for Mr Cassaniti relies on two ‘technical’ grounds, submitting (correctly) that bankruptcy is an area in which the Court must ensure that there is strict compliance with the legislative requirements before the serious step is taken of making a sequestration order.

3. Section 47(1) of the Bankruptcy Act 1966 (Cth) (‘the Act’) provides:

   ‘A creditor’s petition must be verified by an affidavit of a person who knows the relevant facts.’

4. Section 52(1) of the Act provides:

   ‘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.’

5. There may have been at one point some misunderstanding during the hearing as to whether counsel for Mr Cassaniti was contending that there had not been ‘verification’ as required by s 47(1), or ‘proof’ as required by s 52(1). Counsel emphasised that he was relying on alleged non-compliance with s 47(1), and that the verification to which that subsection is directed relates to the time of the presentation of the petition. It is, however, s 52(1) that addresses the position at the hearing.

6. Section 47(1) requires that a creditor’s petition be verified by an affidavit of a person who knows the relevant facts. It may be that no single person knows all the relevant facts, and that more than one affidavit is required in order to satisfy the provision. Section 52(1)(a) requires that the matters stated in the petition be proved at the hearing, and provides that the Court may accept the affidavit or affidavits verifying the petition as sufficient. Clearly, on the hearing the Court may accept other evidence, either alone or in addition to the affidavit or affidavits verifying the petition, as proving the matters stated in the petition.

7. Mr and Mrs Alam relied on the affidavits that accompanied the petition when it was presented, as they were entitled to do under para (a) of s 52(1).

8. At one stage counsel for Mr and Mrs Alam contemplated supplementing those affidavits by leading oral evidence. While such evidence could not have overcome non-compliance with s 47(1), as noted above a petitioning creditor is not confined to the s 47(1) affidavit or affidavits for the purpose of proving the matters stated in the petition as required by s 52(1)(a).

9. Counsel for Mr Cassaniti foreshadowed an objection to the adducing of oral evidence on the hearing.  In the event, the proposal to lead oral evidence was not pursued.

10. I have reached the conclusion that the s 47(1) affidavits verified the petition (s 47(1)) and therefore constituted proof of the matters stated in the petition (s 52(1)(a)).

11. In issue were grounds 1-4 of the petition which are as follows:

    ‘1.The respondent debtor owes the applicant creditor the amount of $316,167.13 under a Judgment given in the Supreme Court of NSW in proceedings 4282/04 on 27 May 2005, arising from monies held in trust on behalf of the creditor but appropriated by the debtor.

    2.The applicant creditor does not hold security over the property of the respondent debtor.

    3.At the time when the act of bankruptcy was committed, the respondent debtor:

(a)was personally present in Australia;

(b)was ordinarily present in Australia;

(c)had a dwelling house or place of business in Australia;

4.The following act of bankruptcy was committed by the respondent debtor within 6 months before the presentation of this petition:

A bankruptcy notice was served on the debtor on 20 May 2006.  The debtor’s application to set aside the bankruptcy notice pursuant to sub-sections 41(6A) and 41(7) of the Bankruptcy Act 1966 was dismissed on 29 September 2006.  The respondent debtor failed to comply on or before 29 September 2006 with the requirements of the bankruptcy notice served on 20 May 2006, or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.’

1. The first ground relied on by Mr Cassaniti is that para 4 of the petition is not verified. The second ground is that two affidavits, one by each applicant sworn today, are not in proper form to prove, as s 52(1)(c) requires, the fact that the debt on which Mr and Mrs Alam rely is still owing. I will deal with the second ground first.

2. Each of the applicants has made an affidavit today in which each says that he or she is the first or second applicant as the case may be and is authorised to swear the affidavit by the other applicant.  Each affidavit then continues:

   ‘2.I have personal knowledge of the facts deposed herein.

   3.The amount of $316,167.13 owing by the debtor, Sam Cassaniti, in this matter, to the applicants under a Judgment of the Supreme Court of New South Wales, Sydney Registry dated 27 May 2005 in proceedings 4282 of 2004 is still due and wholly outstanding.’

1. Counsel for Mr Cassaniti submits that para 3 states a conclusion rather than underlying facts. I disagree. It will be noted that para 3 conforms generally to the wording of s 52(1)(c) (para 3 uses ‘is still due and wholly outstanding’ rather than s 52(1)(c)’s ‘still owing’, but nothing turns on this). Properly understood, para 3 is to the effect that the judgment debt of $316,167.13 has not been paid or otherwise discharged to any extent. To prove a negative by stating only primary facts would probably be an impossibility since it would be necessary to identify all of the innumerable hypothetical sets of primary facts by which a debt might be paid or discharged, and to say of each that it had not occurred. It is different when one is proving a positive.

2. Moreoever, the terms of para (c) of s 52(1) themselves seem to invite the view that there is a ‘fact’ ‘that the debt or debts on which the petitioning creditor relies is or are still owing’.

3. I do not think that para 3 in the respective affidavits of Mr and Mrs Alam fails to meet the requirement of s 52(1)(c) of the Act.

4. The first ground relied on by Mr Cassaniti is, I think, more substantial, although I have come to the view that it also fails.

5. The petition was accompanied by the following affidavits:

   ·    Affidavit of Anis Alam sworn 27 October 2006

   ·    Affidavit of Beverly Alam sworn 27 October 2006

   ·    Affidavit of Kenneth James Ramshaw sworn 7 June 2006

   ·    Affidavit of Michael Garvin sworn 27 October 2006.

6. Each of the affidavits of Mr and Mrs Alam stated that the statements contained in paras 1, 2 and 3 of the petition were, within the deponent’s knowledge, true. Counsel accepts that those affidavits satisfied s 47(1) in relation to paras 1, 2 and 3 of the petition. It is in relation to paragraph 4 that an issue has arisen.

7. It can be seen that the first sentence of para 4 (quoted above at [30]) states that a bankruptcy notice was served on Mr Cassaniti on 20 May 2006.  The affidavit of Mr Ramshaw verifies that statement.

8. The second sentence of para 4 states that Mr Cassaniti’s application to set aside the bankruptcy notice was dismissed on 29 September 2006.  The affidavit of Mr Garvin, the solicitor for Mr and Mrs Alam, verifies that statement.

9. In relation to the third sentence in para 4, counsel for Mr and Mrs Alam relies on the combined effect of the two affidavits of his clients and the affidavit of their solicitor, Mr Garvin, all sworn on 27 October 2006.  As noted above, the affidavits of Mr and Mrs Alam sworn 27 October 2006 verify paras 1, 2 and 3 of the petition which were set out above.  By verifying para 1, to the effect that Mr Cassaniti still owed them the sum of $316,167.13, Mr and Mrs Alam were giving evidence that he had not complied with the bankruptcy notice by paying or otherwise discharging that debt.

10. Paragraphs 2 and 3 of Mr Garvin’s affidavit made on 27 October 2006 are as follows:

    ‘2.On 27 October 2006 I did duly search the records maintained by the Federal Court of Australia and the Federal Magistrates Court of Australia.  Such search revealed that since service of the Bankruptcy Notice the Respondent has only filed one application relating to the Bankruptcy Notice, Federal Magistrates Court Proceedings SYG1599/2006 (“FMC Proceedings”).  I represented the Applicants herein in those proceedings, which were proceedings to set aside the Bankruptcy Notice pursuant to sub-sections 41(6A) and 41(7) of the Bankruptcy Act 1966.  Annexed hereto and marked “A” is a true copy of the Order dated 29 September 2006 in those proceedings, by which the proceedings were, on that day, dismissed.

    3.Apart from the FMC proceedings, the Respondent Debtor has not in either Court filed any such affidavit of counter-claim, set off or cross demand as is referred to in the Bankruptcy Notice, and has filed no application to either Court to set aside or to extend the time for compliance with the Bankruptcy Notice.’

11. Annexure A referred to in para 2 of Mr Garvin’s affidavit is a copy of an order of the Federal Magistrates Court of Australia made on 29 September 2006 dismissing Mr Cassaniti’s application to set aside bankruptcy notice number 1740 of 2006, and ordering Mr Cassaniti to pay the costs of Mr and Mrs Alam as agreed or otherwise taxed in accordance with the Bankruptcy Rules 2006 (Cth).  Paragraph 3 of Mr Garvin’s affidavit verifies the latter part of the third sentence of para 4 of the petition.

12. In sum, the affidavits of Mr and Mrs Alam, by verifying para 1 of the petition also verify the first part of the third sentence of para 4 of the petition, and the affidavit of their solicitor, Mr Garvin, verifies the second part of that third sentence.

13. There is a further point to which I should refer.  Mr Garvin’s affidavit of 27 October 2006 bears the heading at the top of the front page ‘Affidavit Verifying Paragraph 4 of the Creditor’s Petition’ while the affidavits of Mr and Mrs Alam of that date bear the heading, ‘Affidavit Verifying Paragraphs 1 –  3 of the Creditor’s Petition’.  I do not think that the fact that the affidavits were headed in this way means that on the hearing Mr and Mrs Alam are confined to Mr Garvin’s affidavit for proof of the matters stated in para 4 of the petition.

Conclusion

1. The only two grounds that were relied upon by Mr Cassaniti have not succeeded.

2. I am satisfied that Mr Cassaniti committed the act of bankruptcy alleged in the petition and I am satisfied with the proof of the other matters required by s 52(1) of the Act. 

3. A sequestration order should be made.

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:        27 April 2007

Counsel for the Applicants:	Mr S Golledge
Solicitor for the Applicants:	Uther Webster & Evans
Counsel for the Respondent:	Mr D Allen
Solicitor for the Respondent:	Hancocks Solicitors
Solicitor for the Commissioner of Taxation, a supporting creditor:	Ms V Pecenpetelovska, Australian Government Solicitor
Date of Hearing:	10 April 2007
Date of Judgment:	10 April 2007