Australian Executor Trustees Limited v Dimitrovski
[2013] FCCA 2213
•9 December 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| AUSTRALIAN EXECUTOR TRUSTEES LIMITED v DIMITROVSKI | [2013] FCCA 2213 |
| Catchwords: BANKRUPTCY – Creditor’s petition – notice of objection – whether judgment debt upon which petition founded subject of appeal proceedings – whether to grant adjournment – whether to make sequestration order. |
| Legislation: Powers of Attorney Act 2003 (NSW) s.12(1) |
| Proprietary Limited v McPhee [2007] FMCA 1939 Ahern v DCOT (1987) 76 ALR 137 |
| Applicant: | AUSTRALIAN EXECUTOR TRUSTEES LIMITED ACN 007 869 794 |
| Respondent: | GEORGE DIMITROVSKI |
| File Number: | SYG 2053 of 2013 |
| Judgment of: | Judge Raphael |
| Hearing date: | 9 December 2013 |
| Date of Last Submission: | 9 December 2013 |
| Delivered at: | Sydney |
| Delivered on: | 9 December 2013 |
REPRESENTATION
| Solicitors for the Applicant: | Gadens Lawyers |
| Solicitors for the Respondent: | Gilbert M Johnstone & Co |
ORDERS
A Sequestration Order be made against the estate of George Dimitrovski.
The Applicant’s costs (including any reserved costs) be taxed and paid from the estate of the Respondent in accordance with the Act.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
THE COURT NOTES THAT
The date of the act of bankruptcy is 5 March 2013
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2053 of 2013
| AUSTRALIAN EXECUTOR TRUSTEES LIMITED ACN 007 869 794 |
Applicant
And
| GEORGE DIMITROVSKI |
Respondent
REASONS FOR JUDGMENT
There comes before me today the hearing of a petition for the sequestration of the estate of George Dimitrovski, presented on 2 September 2013, and the hearing of a notice of opposition to that petition filed on 5 December 2013. The notice of opposition is in the following form:
“George Dimitrovski, Respondent, intends to oppose the Creditor’s Petition on the following grounds:
1. The Judgement on which the Creditor’s Petition filed in these Proceedings is based is currently the subject of an Appeal to the Supreme Court of New South (sic), Court of Appeal, Case Number 2013/00153380 (Court of Appeal Proceedings).
2. The Court should exercise its jurisdiction to adjourn the Hearing of the Creditor’s Petition until a date after the Court of Appeal proceedings are determined.”
It is generally accepted by courts exercising bankruptcy jurisdiction that where a debtor has instituted appeal proceedings against the judgment which constitutes the primary debt and that appeal is an appeal as of right, then the court will be hesitant to proceed to sequestrate and will, in the usual course of events, adjourn the petition until after the appeal decision has been made known: Glentham Proprietary Limited v McPhee [2007] FMCA 1939 and the cases therein cited, in particular, Ahern v DCOT (1987) 76 ALR 137.
On the basis of the wording of the notice of opposition, it would appear that the court should follow these cases and adjourn the matter. Particularly as the appeal referred to is set down for hearing in the New South Wales Court of Appeal on 21 February 2014. However, things are not quite as they appear.
The situation, as the court understands it from perusing the exhibits to an affidavit of Kylie Anne Rae sworn on 6 December 2013 and an affidavit of George Dimitrovski affirmed on 5 December 2013, is this.
Mr Dimitrovski and his father wished to purchase a hotel in the Illawarra. They needed finance in order to purchase the hotel. The finance they required exceeded the amount of the purchase price of the hotel. In order to obtain the finance, the company, which was the vehicle for the purchase, had to borrow from two lenders. The applicant in these proceedings is the second of those two lenders. It required a considerable security. It required not only a charge against the property being purchased but also charges against the company and another company associated with Mr Dimitrovski and his father. It required personal guarantees from Mr Dimitrovski and his father.
Most relevantly for these proceedings, it required a mortgage over certain properties that were owned by Mr George Dimitrovski’s grandmother. His father was the donor of a power of attorney from the grandmother who, at the time, was a resident in an old people’s home. As her attorney, Mr Kosta Dimitrovski mortgaged those properties and signed a personal guarantee binding his mother.
The purchase of the hotel was not a successful enterprise. Payments under the loan became due and in arrears. In 2011 the applicant sought orders in the Supreme Court of New South Wales for possession of Mrs Dimitrovski’s properties and enforcement of all the guarantees, including that given personally by Mr George Dimitrovski. By this time, Mrs Dimitrovski had died, and George and his father were her executors.
On 4 May 2011 judgment for possession and for payment of the outstanding moneys under the loan agreement was granted to the applicant. The judgment required Mr George Dimitrovski, as third defendant, together with the other defendants, to pay the applicant $3,312,182.01. That judgment was not appealed and that is the judgment upon which the bankruptcy notice and now the petition was based.
The judgment that has been appealed is one given by Pembroke J in the equity division of the New South Wales Supreme Court on 19 April 2013. It was a judgment refusing to set aside the judgment for possession. In the proceeding before his Honour, it was alleged that the mortgage of land owned by Mrs Dimitrovski was given in breach of the provisions of section 12(1) of the Powers of Attorney Act 2003 (NSW). This Act provides relevantly:
“Prescribed power of attorneydoes not generally confer authority to confer benefits onattorneys
(1) Aprescribed power of attorneydoes not authorise anattorneyto execute anassuranceor other document, or to do any other act, as a result of which a benefit would be conferred on theattorneyunless theinstrumentcreating the power expressly authorises the conferral of the benefit.
Note: This subsection restates a rule of the general law. Accordingly, whether the conferral of a benefit on an attorney is expressly authorised by a prescribed power of attorney is to be determined by reference to the general principles and rules of the common law and equity concerning the interpretation of powers of attorney.”
It was alleged that Kosta Dimitrovski received a benefit from the dealings with his mother’s property which would invalidate those dealings.
In further complication of the procedural position, George Dimitrovski, as executor of his grandmother Trena, had commenced proceedings in the Supreme Court New South Wales under case number 2012/280051 against the applicant and his father, seeking orders and declarations that the mortgage be set aside. And consequent upon that, that the order for possession obtained in the proceedings which have previously been referred to also be set aside.
Pembroke J declined to make an order in the interlocutory application that was made pursuant to rule 36.15 of the Uniform Civil Procedure Rules 2005 (NSW) which would have had the effect of setting aside the order for possession. His Honour’s reasons for that decision are based upon his belief in the importance of the finality of judgments. At [23] his Honour says:
“The defence based on the Powers of Attorney should have been raised before the judgment for possession was given on 4 May 2011. The application to set aside the judgment should have been made ‘as soon as it comes to [the] defendant’s attention’ Australian Regional Credit Pty Ltd v Rukavina [2010] NSWSC 1466 at [39]. Prompt action to set aside a judgment is necessary to satisfy the demands of commerce and to maintain the interests of justice. In this case, there has been a complete failure in that regard. The only possible excuse for not doing so is the omission of all lawyers retained on behalf of Kosta and George, except the last, to perceive the point that is now relied upon. I am afraid that is not good enough.”
His Honour continued at [25]:
“The dismissal of the application to set aside the judgment for possession has a correlative result in the Equity proceedings. It prevents the validity of the mortgage based on the alleged contravention of the Powers of Attorney Act, being raised in those proceedings. It would be invidious if the point that I have shut out because of the defendants’ conduct, could be raised by them in separate proceedings. The judgment for possession given on 4 May 2011 was predicated on the validity of the mortgage. My decision to refuse George’s application to set aside the judgment for possession, is also predicated on the validity of the mortgage. There would be a fundamental inconsistency if I allowed George to proceed with his challenge to the mortgage in the Equity proceedings, having regard to my decision in the possession proceedings in the Common Law Division.”
It should be noted immediately, as emphasised by Mr Wells who appears on behalf of the applicant, that at no time has any attempt been made to set aside the judgment for the money sum. The proceedings which are the subject of the appeal all relate to setting aside the mortgage. The position of Mr Dimitrovski is one of an independent guarantor, unless it could be suggested that the invalidating of the mortgage and guarantee by the grandmother constituted a release which would have a rolling effect upon other guarantors. Mr George Dimitrovski in his personal position as a debtor is not in any way affected by those proceedings. Nowhere in any of the proceedings that I have seen is it indicated that the invalidating of the Trena mortgage would have the effect referred to. It was also not put by Mr Koski, who acts on behalf of Mr Dimitrovski, until after the matter was raised in arguendo by myself.
In these circumstances, I do not believe that the usual rule applies. Even if the appeal is successful, I cannot see what effect it will have upon the judgment debt. I also note that the appeal is brought by Mr George Dimitrovski as executor of the estate of his grandmother. As such, it is brought in his capacity as a trustee in respect of property which does not form part of his bankrupt estate. Making him bankrupt today will not prevent him (other than financially) from continuing with those proceedings.
I decline to grant Mr Dimitrovski the adjournment he seeks, and propose to proceed to hear the petition itself. Upon perusing the document necessary to satisfy myself of the requirements of s.52 of the Bankruptcy Act 1966 (Cth),[1] I noted that the affidavit of service of the bankruptcy notice as originally filed did not contain the copy of the judgment annexed to the bankruptcy notice. There was handed up and filed in court a further affidavit of the process server which had been sworn on 1 October 2013 annexing a copy of the bankruptcy notice, which itself annexed a copy of the judgment. That was received without objection. The affidavit of service of the petition which is required to include an affidavit of service of the bankruptcy notice also contained the affidavit which annexed the bankruptcy notice without the judgment. Again, this was admitted without objection. In my view, it is appropriate in those circumstances to apply s.306 (1) of the Act and excuse any apparent invalidity in that affidavit of service of the petition. I am satisfied that the respondent committed the act of bankruptcy alleged in the petition. I am satisfied that the proof of the other matters required by s.52 of the Act.
[1] The ‘Act’.
I make a sequestration order against the estate of George Dimitrovski. I order that the applicant’s costs, including reserved costs if any, be taxed and paid from the estate of the respondent in accordance with the Act. Under the Bankruptcy Regulations, a copy of the sequestration order be given to the official receiver in Sydney within two days. The court notes that the date of the act of bankruptcy is 5 March 2013.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Judge Raphael
Associate:
Date: 17 December 2013
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