Carello (Trustee), in the matter of Cardaci (Bankrupt)
[2024] FedCFamC2G 550
•14 June 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Carello (Trustee), in the matter of Cardaci (Bankrupt) [2024] FedCFamC2G 550
File number(s): PEG 198 of 2024 Judgment of: JUDGE STREET Date of judgment: 14 June 2024 Catchwords: BANKRUPTCY – Annulment - sequestration of deceased estate- order should not have been made- deceased estate solvent – interested party not heard- duty of full and frank disclosure- accuracy of affidavit verifying statement of affairs -costs, remuneration and expenses of trustee Legislation: Bankruptcy Act 1966 (Cth)
Crimes Act 1914 (Cth)
Federal Circuit and Family Court of Australia Act 2021(Cth)
Federal Circuit Court of Australia Act 1999 (Cth)
Cases cited: Aristocrat Technologies Australia Pty Ltd v Allam [2016] HCA 3
Bianco as trustee In the matter of the bankrupt estate of Jones [2022] FCA 1470
Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571
CHEP Australia Ltd v Russo No 3 (2023) FedCFamC2G 1197
International Finance Trust Company Limited v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319
Porter v Ghasemi [2021] FCAFC 144; [2021] 286 FCR 556
Robson v Body Corporate for Sanderling at Kings Beach [2021] FCAFC 143; 286 FCR 494
Taylor v Tylor [1979] HCA 38; (1979) 143 CLR 1
Thomas A Edison Ltd v Bullock [1912] HCA 72; (1912) 15 CLR 679
Williamson & Michell (Trustee) [2019] FCA 481
Division: Division 2 General Federal Law Number of paragraphs: 15 Date of hearing: 14 June 2024 Place: Sydney Solicitor for the Applicant: Ms E McCloskey of Tottle Partners Solicitor for the First Interested Person Mr D Banda of Bennett Solicitor for the Second Interested Person Mr H Materne-Smith, Herbert Smith Freehills ORDERS
PEG 198 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THE BANKRUPT ESTATE OF MARCO ANTONIO CARDACI, DECEASED
BETWEEN: GIOVANNI MAURIZIO CARRELLO AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF MARCO ANTONIO CARDACI, DECEASED
Applicant
AND: FILIPPO PRIMO CARDACI
First Interested Person
MAE CARDACI
Second Interested Person
ORDER MADE BY:
JUDGE STREET
DATE OF ORDER:
14 JUNE 2024
THE COURT ORDERS THAT:
1.Pursuant to section 252B of the Bankruptcy Act 1966 (Cth) the administration of the Bankrupt Estate of Marco Antonio Cardaci, deceased, under Part XI of the Bankruptcy Act 1966 (Cth) pursuant to the order made on 6 February 2017 Federal Court Proceedings PEG 631 of 2016 is annulled.
2.The Applicant’s remuneration, costs, and expenses that are outstanding and/or incidental to this application are fixed in the amount of $34,082.50, inclusive of GST to be paid out of the monies formally held by the trustee under the part XI administration that has been annulled, and the balance of the monies held by the trustee in respect of that administration is to be paid forthwith to the executrix of the Estate of Marco Antonio Cardaci.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
JUDGE STREET
These proceedings were commenced on 11 June 2024, seeking an annulment of a sequestration order against the bankrupt estate of Marco Antonio Cardaci, deceased, under s 252B of the Bankruptcy Act 1966 (Cth) (“the Act”), the order having been made on 6 February 2017. At the commencement of the hearing, the Court identified that it would treat as having before it, the material that was filed in support of the making of that sequestration order against the bankrupt estate in PEG631 of 2016. The Court also indicated that it would treat, because of the need to identify the instrument of replacement of the trustee in the present proceedings, the material that was before the Court in PEG723 of 2017, being a judicial advice application, as also being before the Court. The Court then identified the affidavits that had been filed in these proceedings and that were treated as read, being that of Mr Carrello of 11 June 2024, Mr Cardaci of 30 May 2024, Ms Cardaci of 13 June 2024, and Ms Solomon of 14 June 2024.
Ms McCloskey appeared on behalf of the applicant trustee (“the applicant”) seeking the annulment order on the grounds that at the time the order was made, the estate was solvent, and that the orders should accordingly not have been made. The Court received the benefit of an outline of submissions on behalf of the Applicant that identified that the proceedings had been the subject of related litigation, in respect of, a particular payment in the Supreme Court of Western Australia, and then in the Court of Appeal of the Supreme Court of Western Australia. The Court was referred to the orders that had been made in those Supreme Court proceedings and the reasoning, which clearly identified that the alleged bankrupt estate was, in fact, solvent. The findings material in that regard, in part, turned on credit findings and the characterisation of whether a particular transfer was a loan. It is not necessary for this court to descend into the detail of that payment. However, it is apparent that the Duporte Pty Ltd payment in Annexure F to the Statement of Affairs, in the amount of $1,280,714 was a transaction characterised as a payment of an alleged liability to a creditor of the bankrupt estate in that Statement of Affairs that was provided in support of the making of the sequestration order, in respect of the bankrupt estate, whereas in fact there was no loan to support the alleged liability. There was also a box crossed in support of information about the deceased’s insolvency that asserted “Excessive use of credit facilities including losses on repossessions, high interest payments and pressure selling” as well as an assertion that the deceased first had difficulty paying their debts in November 2015. These assertions appear to be at least errors. The applicant certified on 20 December 2016 that the particulars in the Statement of Affairs are correct and swore on oath on 21 December 2016 in his affidavit that the statements made in the Statement of Affairs are within his own knowledge true. Given the true characterisation of the Duporte Pty Ltd payment was not reimbursement of a creditor of the estate, the particulars were not in this respect correct. This Court does not have to address the knowledge of the applicant as to the truth of the statements given that the applicant supports the annulment of the sequestration order.
The principles to be applied, in respect of, whether the Court should make an order under s252B of the Act are of a similar kind to that dealing with annulment under s 153B of the Act, which have been helpfully summarised by the Moshinsky J in Williamson & Michell (Trustee) [2019] FCA 481 at [10]-[15].
In the present case, the Court raised at the outset a concern that, on one possible view, the bringing of the proceedings in this Court might have been characterised as part of a scheme by the applicant to prevent distributions to the primary beneficiary, spouse of the deceased, from a solvent estate. It is not necessary or appropriate, for the Court to determine any such characterisation, because it is sufficient to identify that the evidence filed supports the proposition that the estate was, in fact, solvent and that the order made on 6 February 2017 ought not to have been made. This Court finds that the Duponte Pty Ltd payment was not correctly characterised in the Statement of Affairs as there was no loan to be repaid to Duponte Pty Ltd and that entity was accordingly not a creditor for the alleged significant amount in the Statement of Affairs. The Court has also taken into account the orders made by in the Supreme Court of Western Australia by the Court of Appeal in finding that the deceased estate was and is solvent.
The Court, however, addresses the accuracy of the Statement of Affairs more for the importance of preserving and cautioning the proper use of the bankruptcy provisions, including in relation to a deceased estate. If, for example, a false statement of affairs was provided, it can give rise to a serious potential offence under s 263 of the Act. The relevant provisions in s263 of the Act are directed primarily towards an intent to defraud creditors. There is an interesting question as to whether that provision is deficient, insofar as there can be conduct not directed to an intent to defraud creditors, that might need to be the subject of an appropriate offence such as intend to defraud third parties or an intent to deceive. Having said that, there are, however, other statutory offences that are created in relation to providing a false affidavit, because it would be false testimony within s 35 of the Crimes Act 1914 (Cth), and if there had been any such scheme using a false affidavit, it could give rise to an attempt to pervert justice, giving rise to an offence under s 43 of the Crimes Act 1914 (Cth).
The Court makes these observations not because the facts support or permit such findings in the present case but in furtherance of the importance and caution to be exercised in providing a Statement of Affairs and in the seeking of a sequestration order against a person or a deceased estate. The Court did identify specific “errors’ in the affidavit used to obtain the sequestration order under Part XI as referred to above. The Court does not have to further agitate that issue given the consensus for the annulment. Mr Banda has properly identified he has had no opportunity to consider what the circumstances were when the original order was made. The Court makes these observations, though, in terrorem in relation to future applications and for added caution in the importance of ensuring that the statement of affairs is accurate, and truth of any affidavit supplied in support of the same seeking an order under part XI, and that any affidavit is not the subject of any error that proper and genuine exercise of knowledge should have avoided. The consequences of errors in the Statement of Affairs can be significant, not just because of the criminal sanctions but also because of the consequences that might arise where the Court comes to the view that a sequestration order should be annulled.
A question may then arise, upon annulment of the sequestration order, as to whether the applicant for the order should pay the whole of the costs, remuneration and expenses that have been incurred by the trustee. That power arises under s30(1)(b) and s32 of the Bankruptcy Act 1966 (Cth) and s256(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth). This involves consideration of the factors non-exhaustively, albeit in relation to a de novo review of a Registrar’s order under s104 of the earlier version of what is now s256(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) this involves the factors identified by the Full Court in Porter v Ghasemi [2021] FCAFC 144; [2021] 286 FCR 556 at [48,49]; and see Robson v Body Corporate for Sanderling at Kings Beach [2021] FCAFC 143; 286 FCR 494 at [16,24-29, 231-239]; see also the learned and sagacious Judge Champion in CHEP Australia Ltd v Russo No 3 (2023) FedCFamC2G 1197 at [9]-[15]. As explained below, s252C(1)(b) is not exhaustive of these powers of the Court where it is found the Trustee has not exercised appropriate caution in the incurring of costs, remuneration and expenses. Such issues do not arise in the present case because it is apparent that there was an assessment of damages ordered to be paid by the applicant referable to the imposition of the trustee of the deceased's estate under part XI. In these circumstances, it is also not necessary to revisit whether some other order should have been made in respect of the applicant's costs of the Part XI application that were ordered to be paid, and which it is apparent from the report of the first trustee were, in fact, paid from the bankrupt estate.
The Court does, however, wish to touch upon one very important matter. Whenever an application is brought under part XI, or indeed, in relation to Bankruptcy Act provisions seeking a sequestration order against an individual or against a decease estate, there is an obligation of full and frank disclosure in respect of the party moving for such an order. That duty is not confined to equitable rights, as has been made clear in the High Court of Australia. The principles are well identified in, Thomas A Edison Ltd v Bullock [1912] HCA 72; (1912) 15 CLR 679, as well as Aristocrat Technologies Australia Pty Ltd v Allam [2016] HCA 3 at [15], and International Finance Trust Company Limited v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319 at [131]-[132].
The importance of the duty of full and frank disclosure is that if, for example, in a case such as the seeking of a sequestration order against an alleged bankrupt deceased estate, where it is apparent that there was a person who had a material interest that should be notified, the failure to disclose to the Court under the said duty of full and frank disclosure that there is such a person being say a principal beneficiary spouse who should be notified, of itself justify the orders being set aside. Further the failure to notify such a person, who should have been served, can give rise to the orders made being set aside, notwithstanding s 37 of the Act, see Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 at 584, 589, 607; Taylor v Tylor [1979] HCA 38; (1979) 143 CLR 1 at 6-9, 10, 16, 22; Robson, supra at [15].
As the order in the present case was made by a Registrar, the Court has ample power to extend the time, under the relevant provision of s 104 of the Federal Circuit Court of Australia Act 1999 (Cth), now s256 of the Federal Circuit and Family Court of Australia Act 2021(Cth), to review de novo the making of that order, where it is contended that there has been a breach of the duty of full and frank disclosure, just as could occur if it was before a Judge of the Court, and there had been a breach of that duty of disclosure. It is apparent from what was said by Mr Materne-Smith, consistent with the affidavits of service that were filed, that no notice of the seeking of the sequestration order against the estate was given to the primary beneficiary being the spouse of the deceased, who was an obvious interested person affected by the making of the order on 6 February 2017, and who, on one view, since the date of that making of the order on 6 February 2017, could have come back to this Court to seek to have those orders set aside for an alleged failure to make to the Court full and frank disclosure that she had not been notified of the intention to seek that order before that order was made and that she was a person with a material interest in the making of that order.
It is not necessary for this Court to determine this matter because the parties have, as a result of the conclusion of the Supreme Court of Western Australia and the Court of Appeal of the Supreme Court of Western Australia proceedings and unsuccessful pursuit of High Court of Australia proceedings, resolved the remaining disputes between themselves and agreed upon a regime that includes approaching this Court before an annulment order under s 252B of the Act. The Court has before it no other type of application and having made the above observations the Court finds, it is appropriate in the present case to make an order under s 252B of the Act as the sequestration order ought not to have been made, because the estate was solvent.
In the present case, there has been a resolution of the dispute between the parties including the damages order, and the parties have agreed upon a payment regime in relation to the damages concerning the Trustee’s costs, remuneration and expenses. The Court notes that the trustee was not a party to that settlement (and properly so as Court approval should otherwise have been a condition precedent to any proposed agreed position by the Trustee given the significant amounts incurred) and the Trustee has come before the Court identifying that there are steps that have been taken to try and ensure that the Commissioner of Taxation will have any liability met and identifying proposed orders in respect of the costs that have been incurred. Once the sequestration order is annulled, there is no estate of which the trustee is seized, and the Court has a duty to bring all disputes to an end under s139 of the Federal Circuit and Family Court of Australia Act 2021 (Cth). The Court was referred to s252C(1)(b) and given estimates of the costs, remuneration, expenses, and GST.
The Court however has control of the Trustee and upon the making of the annulment order there is no “property still vested in the trustee” and even if there were, this Court, has a duty to bring the matter to an end and power to do so and is not confined by s252C(1)(b). The Court has power to make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate under s90-15 of the Insolvency Practice Schedule, with regulated debtor’s estate defined in s5-16, including by the Court on its own initiative. This is a broad supervisory power and the principles to be taken into account, including giving of directions in the giving of judicial advice and the limitations based on the full and fair disclosure to the Court of the material facts, are summarised by McElwaine J in Bianco as trustee In the matter of the bankrupt estate of Jones [2022] FCA 1470 at [53-72].
The overall costs, remuneration and expense incurred by the Trustee were well over $800,000, a significant portion of which were legal costs, but it is not necessary in this case to revisit the same or why those amounts were incurred. The order under Part XI should never have been made and none of these Trustee costs, remuneration or expenses should have been incurred as no sequestration order should have been made by the Registrar. In all the circumstances, the Court proposes to make an order fixing the amount of costs, remuneration and expenses including GST that are to be paid from the funds held prior to the annulment by the trustee and an order for the balance of those funds to be paid by the Trustee to the executrix of the estate of the deceased forthwith.
It is for these reasons that the Court makes the above orders.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Street. Associate:
Dated: 25 June 2024
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