Byrt v Stratti

[2009] FMCA 1322

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BYRT & ORS v STRATTI [2009] FMCA 1322

BANKRUPTCY – Creditors petition – amendment of petition – where failure to conduct title search over respondent’s property led to incorrect statements regarding the existence of security over the property – whether sequestration order should be granted.

COSTS – Effect of delay in filing amended petition.

Bankruptcy Act 1966 (Cth), ss.44(4), 52, 54

Re Finn and Another; Ex Parte Finn and Another v Amoco Australia Limited and Another (1981) 58 FLR 54
Michael Kwiatek & Anor Ex Parte; Big J Limited v Paul Anthony Pattison (As Trustee of the Estates of the Bankrupts) [1989] FCA 363
Udowenko v Rasevi Pty Limited [2006] FCA 1217
Re Burgess; Ex Parte Council of the Shire of Snowy River (1961) 19 ABC 139

First Applicant: EDWARD BYRT

Second Applicant: IAN COLGRAVE

Third Applicant: MICHAEL KELLEDY

Fourth Applicant: GAVIN LEYDON

Fifth Applicant: BRENDAN MURRAY

Sixth Applicant: GREGORY TYE

Seventh Applicant: JOHN WARD

Eighth Applicant: JOHN WELLINGTON

First Supporting Creditor: RODNEY JOHN KENT

Respondent: TROY STRATTI

File Number: SYG 1886 of 2009

Judgment of: Raphael FM

Hearing date: 21 December 2009

Date of Last Submission: 21 December 2009

Delivered at: Sydney

Delivered on: 21 December 2009

REPRESENTATION

Counsel for the Applicant: Mr J Johnson

Solicitors for the Applicant: Langes

Counsel for the Respondent: Mr R Marshall

Solicitors for the Respondent: Gillis Delaney

ORDERS

1. A Sequestration Order be made against the estate of TROY KENNETH STRATTI.

2. The costs of preparation of the amended petition, the costs associated with service of the amended petition and the costs of today, including the costs of the video conferencing and all disbursements including counsel’s fees, shall be taxed and paid from the estate of the Respondent in accordance with the Act.

3. Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.

THE COURT NOTES:

1. The date of the act of bankruptcy is 9 July 2009. 

2. A Consent to Act as Trustee has been signed by Andrew Aravanis and has been lodged with the Official Receiver in Sydney.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1886 of 2009

EDWARD BYRT

First Applicant

IAN COLGRAVE

Second Applicant

MICHAEL KELLEDY

Third Applicant

GAVIN LEYDON

Fourth Applicant

BRENDAN MURRAY

Fifth Applicant

GREGORY TYE

Sixth Applicant

JOHN WARD

Seventh Applicant

JOHN WELLINGTON

Eighth Applicant

RODNEY JOHN KENT

First Supporting Creditor

And

TROY STRATTI

Respondent

REASONS FOR JUDGMENT

1. This is the hearing of a petition seeking a sequestration order against the estate of Troy Kenneth Stratti. The application now proceeds on the basis of an amended creditor’s petition that was filed in Court on 15 December 2009. The case has a lengthy and unhappy history in which the application has been adjourned on several occasions in the finally fruitless hope that payment would be made. On 15 December 2009 I heard counsel for the applicant providing me with the formal evidence which I would need to be satisfied of the matters required by s.52 of the Bankruptcy Act 1966 (Cth) (the “Act”). The case was adjourned until today in order to hear evidence from a solicitor, Mr Ward, who swore the affidavits verifying both the original petition and the amended petition.

2. In the original petition the deponent had said, in paragraph 2, that:

   “The applicant creditors do not hold security over the property of the respondent debtor.”

   In a notice of opposition filed by the debtor it was said that that affidavit was incorrect and that in fact the creditors did hold security, being that unregistered mortgage over a property known as 151 Epsom Road, Chipping Norton.  That statement now appears in the amended creditor’s petition which was dated 14 September 2009, and the affidavit stating that the statements contained in paragraph 2 of the amended petition referring to the security were true was also dated that day. 

3. When the application came before me on 15 December it was because the attempts at settlement had fallen down. Mr Marshall, who appears on behalf of the debtor, made a strong case that, based upon the existing petition, the application could not proceed because the petition was inaccurate and in fact did not comply with s.44(4) of the Act. After a short adjournment Mr Johnson commenced an appearance for the creditor and produced the amended creditor’s petition to which I have already referred. I expressed the view that the production of the amended creditor’s petition brought the matter into regularity and I noted the authorities, in particular the decision of Fitzgerald J in Re Finn and Another; Ex Parte Finn and Another v Amoco Australia Limited and Another (1981) 58 FLR 54. I take from this decision that a Court may allow an amendment to a creditor’s petition in circumstances such as this and then the matter can proceed on the amended petition, which in this case is now accurate.

4. The proceedings were then adjourned for the purpose of cross-examining Mr Ward, because counsel for the debtor wished to submit that the actions of the solicitors, in swearing an affidavit that was now conceded to have been incorrect should reflect upon my discretion, as to whether or not to make a sequestration order.  Mr Ward was cross‑examined today through a video link.  He is a solicitor in a major firm in South Australia.  It appears that that firm used to have offices in Sydney, but those offices were closed up and that it was left to Mr Ward to wind down the affairs of the partnership in relation to the Sydney office.  This included the collection of outstanding debts, one of which was the debt by the debtor to the firm.  Although Mr Stratti told me in his evidence today that he disputed the debt, the fact is that there is a judgment for it and no appeal has been made against that judgment. 

5. Mr Ward gave his evidence with the frankness and candour that one would expect from a practitioner of his seniority and experience.  He told the Court that this (bankruptcy) was not his area of practice and that he relied, for information, on other partners of the firm more involved in the relationship between the Sydney office and Mr Stratti.  He was told, prior to the time he swore that affidavit, that the property over which the firm had security had been sold.  There is contained in an affidavit of Mr Richard Farrago dated 11 September 2009, who is the local solicitor for the firm of Norman Waterhouse in Sydney, a letter filed as exhibit E.  That letter is dated 5 April 2007.  It comes from a firm called Stacks Finance which is another creditor of Mr Stratti and his companies and it is addressed to a Mr Orlizky at Norman Waterhouse and it says:

   “We refer to the writer’s telephone conversation with your Tim Orlizky on 3 April 2007.  We confirm that we have been advised by the solicitors Gordon and Johnstone that both properties have been sold to the same purchaser for 2.4 million being 1.6 million dollars for the commercial property and $800,000 for the residential property.”

   The letter then goes on to deal with questions of valuation of the property but it is not suggested anywhere that the settlement had not taken place. 

6. It appears that the state of knowledge of the Norman Waterhouse partners in Adelaide at the time Mr Ward swore his affidavit was based upon that letter.  Mr Ward candidly admitted that he did not obtain the title search prior to swearing the affidavit and that this is now being done and he understands that for reasons which he is not aware the sale never took place.  Mr Stratti when he gave his evidence had told Mr Johnston that he had told his solicitors to tell Mr Ward’s firm that the sale had not been completed but there is no evidence they ever did this. 

7. In these circumstances I would find that the action of Mr Ward in swearing the affidavit in the manner in which he did, whilst unfortunate, was not reprehensible.  It is not a question of a false affidavit being sworn, it is a question of an affidavit being sworn upon information and belief that was out of date but which he could be forgiven for not updating when one considers that nothing had been sent to the firm about the property over a further two years.  Solicitors must of course be careful to ensure that any affidavit that they swear is 100 percent accurate and Mr Ward had gratifyingly accepted this.  I doubt very much whether he will ever swear such an affidavit again without ensuring that up to date searches are obtained.  Because of the view that I have taken about Mr Ward’s conduct I cannot say that it puts him in the same situation as that considered by Northrop J in Michael Kwiatek & Anor Ex Parte; Big J Limited v Paul Anthony Pattison (As Trustee of the Estates of the Bankrupts) (1989) FCA 363. In any event, this is one of those cases where the petition is sought to be amended before the sequestration order is made and not afterwards as it was in that case. Mr Marshall has also referred me to Udowenko v Rasevi Pty Limited [2006] FCA 1217. That is a case in which Madgwick J at [5] had made some views known about process servers being tempted to cut corners and swear false affidavits. I have no quarrel with what his Honour said in that case but I do not think it applies to proceedings before me. I am also able to distinguish the other authority to which I was referred, Re Burgess; Ex Parte Council of the Shire of Snowy River (1961) 19 ABC 139 which I believe is a case that ought to be considered on its own facts, involving as they do a statutory charge in favour of the shire which guaranteed that the shire would be paid and yet it had wrongly assessed the value of that charge for the purposes of the predecessor of s.54 as nil.

8. It will follow from what I have said that I am of the view that the actions of Mr Ward would not in themselves constitute grounds for refusing to grant a sequestration order where the other matters required by s.52 have clearly been proved, including a substantial debt. But in any event the Court would have discretion and one of the matters that the Court would take into account when considering how to exercise that discretion would be the financial situation of the debtor. This, it seems, is most unsatisfactory. The property over which the petitioning creditor claims to have some small security is still in the hands of the first mortgagee. Why it has not been sold I do not know but the debtor says that he is in default under that mortgage. He says that he believes he owes those mortgagees approximately $800,000.00 although he believes the value of the house to be significantly in excess of that. I have no other evidence about the value of the house.

9. There is also a supporting creditor, Mr Kent, represented by Mr Orlizky.  The debtor disputes that debt which is for legal costs and I am advised that no judgment has been entered in respect of it.  However, I am satisfied from the questioning of Mr Stratti, who has not filed with the Court any evidence concerning his financial position, that he is not a person who is able to pay those substantial debts, including that of the petitioning creditor as and when they fall due from his own monies or monies made available to him.  I therefore believe that it is in the public interest that a sequestration order be made against him.  I am unable to say that anything that Mr Marshall has gallantly put to me would change my view. 

10. I am satisfied that the respondent committed the acts of bankruptcy alleged in the petition as amended. I am satisfied of the proof of the other matters required by s.52 of the Act. I make a sequestration order against the estate of Troy Kenneth Stratti. Under the bankruptcy regulations a copy of the sequestration order shall be given to the Official Receiver in Sydney within two days. The Court notes that the date of the act of bankruptcy is 9 July 2009. The Court notes that Andrew Aravanis has signed a consent to act as Trustee and that has been lodged with the Official Receiver in Sydney.

11. This brings me to the question of costs. It is fair to say that until 15 December 2009 Mr Stratti was entitled to assume that the creditors were proceeding on the basis of the original petition. The amended petition, although prepared on 14 September 2009, was not presented to the Court until that day. Mr Marshall came prepared to meet that petition and did so competently. If no amended petition had been filed the petition would have been dismissed. The amended petition should have been filed earlier, although I understand that the attempts at negotiation settlement probably took precedence. However, I believe that the failure to file a petition which truly reflected the current situation should be reflected in costs. Thus, only the costs of preparation of the amended petition, the costs associated with service of the amended petition and the costs of today, including the costs of the video conferencing and all disbursements including counsel’s fees, shall be taxed and paid from the estate of the Respondent in accordance with the Act.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date:  2 February 2010