Cassaniti v Alam

[2006] FMCA 1320

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CASSANITI v ALAM & ANOR [2006] FMCA 1320

BANKRUPTCY – Application to set aside bankruptcy notice − where consent judgment debt stayed to enable applicant to file a cross-claim − where applicant filed cross claim − where cross claim stayed pending payment of security for costs of the cross claim − where security not paid − where applicant blamed the delay on problems associated with separate criminal proceedings − whether s.40(1)(g) applies to a cross claim which has been set up but has not been pursued − whether time for compliance with the bankruptcy notice should be extended in circumstances where cross claim (in excess of value of the judgment debt) is yet to be resolved − whether court has power to extend time for compliance after holding that the bankruptcy notice is valid and the applicant must comply with the notice − making of orders that will have the effect of keeping the proceedings on foot and thus extending time.

Bankruptcy Act 1966, ss.31, 40(1)(g), 41(6A), (7)
Bankruptcy Rules 2006

Alam v Quest Enterprises [2006] NSWSC 752 Ebert v Union Trustee (1960) 104 CLR 346 Guss v Johnstone (2000) 171 ALR 598 Zakrzewski In the matter of Zakrzewski v Rodgers [2000] FCA 1187 Ebner v Official Trustee [2003] FMCA 442 Patane v Asteron Life Ltd [2004] FCA 232 Tzovaras v Nufeno Pty Ltd [2003] FCA 1152 Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 Re Ling; Ex parte Ling v The Commonwealth of Australia (1995) 58 FCR 129 Smart v Esanda Finance Corporation Limited [2000] FCA 235 Carver v Westpac Banking Corporation [2000] FCA 1517 Amos v Lillyman [1998] FCA 1725 Bank of Western Australia Limited v Commissioner of Taxation (1994) 55 FCR 233 Re Sterling ex parte Esanda Ltd (1980) 44 FLR 125 Byron v Southern Star Group Pty Limited (1997) 73 FCR 264 Agrillo v Codisposto (1994) FCA 988 Geard, Ex parte Reid (1994) 217 ALR 191 Burns v AMP Finance Limited [2004] FCA 1094 Shephard v Chiquita Brands South Pacific Ltd [2004] FCAFC 76 James v Hill [2005] FCA 853 Jenkins v National Australia Bank [1999] FCA 1758 Porter v OAMPS Ltd [2004] FMCA 272

Applicant:

SAM CASSANITI

Respondents: 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

File Number: SYG1599 of 2006

Judgment of: Raphael FM

Hearing date: 5 September 2006

Date of Last Submission: 5 September 2006

Delivered at: Sydney

Delivered on: 12 September 2006

REPRESENTATION

Solicitors for the Applicant: HAL Lawyers

Counsel for the Respondent: Mr S Golledge

Solicitors for the Respondent: Uther Webster & Evans

ORDERS

1. The Respondent shall in seven days bring in orders to give effect to these reasons.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG1599 of 2006

SAM CASSANITI

Applicant

And

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

Respondents

REASONS FOR JUDGMENT

1. This is a proceeding commenced on 5 June 2006, purportedly pursuant to ss.31, 41(6A) of the Bankruptcy Act 1966 (the “Act”), seeking orders that Bankruptcy Notice No 1740 of 2006 served on the applicant on

   
   

   20 May 2006 be set aside. The reference to s.31 has not been explained. The reference to s.41(6A) appears to be misconceived as the basis upon which the applicant seeks to have the bankruptcy notice set aside comes nearest to those circumstances set out in s.40(1)(g):

   “Acts of bankruptcy

   (1)  A debtor commits an act of bankruptcy in each of the following cases:

   (g)  if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

   (i)  where the notice was served in Australia–within the time  specified in the notice; or

   (ii)  where the notice was served elsewhere–within the time fixed for the purpose by the order giving leave to effect the service;

   comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.”

   Thus s.41(7) is more likely to apply.

2. In this case there is, however, a twist.  The cross claim, which is said to ground the lack of need to comply with the bankruptcy notice, and thus the non-existence of an act of bankruptcy, far from being a counter claim, set off or cross demand that the debtor could not have set up in the action or proceeding in which the judgment or order was obtained, is a cross claim that was set up in those very proceedings.  In order to understand how this state of affairs has arisen I set out below certain of the agreed facts that were presented to me by counsel for the parties:

   “1.Mr Cassaniti, the applicant, is an accountant who was previously in private practice at Liverpool in the State of New South Wales.

   2.Mr Cassaniti is presently a person in custody.  He is presently serving a sentence with respect to certain fraud offences committed by him against the Commonwealth.

   3.The creditors Anis (Andrew) Alam and Beverly Dawn Alam issued a bankruptcy notice numbered NN 1740 of 05 based on a judgment or order of the Supreme Court of New South Wales entered on 26 May 2005 in proceedings numbered 4282 of 2004, judgment being entered for the Alam parties (by consent), in the amount of $316,167.13.

   4.The judgment concerned a claim for monies paid to Mr Cassaniti in trust (totalling $225,000.00) and tax refunds or credits forwarded to Mr Cassaniti and his accountancy practice or related entities by the ATO totalling $66,167.13.

   5.On 17 August 2004, the Supreme Court made orders in the 4282/04 proceedings (by consent) a copy of which is tendered.

   6.On 26 May 2005 the Supreme Court made orders in the 4282/04 proceedings (by consent) a copy of which is tendered.

   7.Cassaniti as a defendant/cross claimant, has, since 30 September 2004 been in default of the orders made in the 4282 of 04 proceedings on 17 August 2004.  (Cassaniti had not, at this stage, in fact filed or entered a cross claim).

   8.The terms on which the consent judgment was stayed included terms that a cross claim be filed by Cassaniti on or before 14 September 2005.  Cassaniti complied with this order.

   9.Cassaniti filed a cross claim in the proceedings on 14 September 2005.  In that claim Cassaniti alleges that the refunds were withheld as payment or part payment of loans advanced by Cassaniti or his related parties, to the Alam parties, and also in respect of unpaid accountancy fees.  The quantum alleged in the cross claim (if accepted), exceeds the judgment creditors’ claim (in respect of which the Bankruptcy Notice has issued).

   10.On 25 November 2005, orders were made in the 4282 of 04 proceedings, a copy of which is tendered, and which, relevantly, include terms that the Plaintiffs would be at liberty to enforce the consent judgment, and that the cross claim be stayed pending payment of security for costs of the cross claim in the amount of $150,000 and pending compliance with the orders made 17 August 2004. 

   11.The orders relating to security for costs were not complied with, in that although payments totalling $150,000 were paid they were paid outside the time required by the orders.  Mr Cassaniti remains in default of the Supreme court orders made 17 August 2004.”

3. Justice Whyte in his decision of 28 July 2006 Alam v Quest Enterprises [2006] NSWSC 752 sets out at [12] the orders of the court of 25 November 2005, which are reproduced below:

   “THE COURT:

   1.  Makes an Order in terms of Order 1 as sought in the Plaintiffs’ Notice of Motion dated 2 November 2005.

   2. Orders the First and Second Defendants to provide security (“Security”) for the Plaintiffs’ costs of defending the Cross Claim, in the sum of $150,000.00 to be paid into a Controlled Monies Account in the name of the First and Second Defendants, such account to be opened by the solicitor for the Plaintiffs within 7 days.

   3. Notes the parties’ agreement that the security is to be paid by way of 3 equal fortnightly instalments, the first to be paid on or before 9 December 2005.

   4. Notes that upon the compliance by the First and Second Defendants with paragraph 3 above, the Plaintiffs undertake that they will not enforce the Judgment entered on 27 May 2005, until after 31 March 2006.

   5.  Orders that the proceedings on the Cross Claim be stayed pending:

   (i)  Compliance with Order 2 herein; and

   (ii) Compliance with Order 7 of the orders made 17 August 2004 and entered 18 August 2004.

   6. Orders that the First and Second Defendants pay the Plaintiffs’ costs of and incidental to the Plaintiffs’ Notice of Motion dated 2 November 2005, as agreed or assessed, forthwith.

   ...
   
   8. Notes that the parties agree that the stay referred to in Order 5 shall continue until:

   (i) Provision of the Security in accordance with Order 2;
   (ii)  Compliance with Order 7 of the Orders made 17 August 2004; and
   (iii)    Payment of the costs referred to in Order 6.

   9.  Notes that in the event that the stay of proceedings on the Cross Claim is removed but Judgment has not otherwise been satisfied, the Plaintiffs undertaking to the Defendant in accordance with paragraph 4 will continue until leave is granted to the Plaintiffs to execute upon the Judgment.

   ...”

4. At [19], in dealing with the application to lift the stay of the cross claim in proceedings 4282/04, his Honour said:

   “[19]  The evidence does not explain the defaults in complying with the orders of 17 August 2004, in accordance with the timetable agreed to on that date, or in accordance with the extended time agreed to on 20 October 2004. I would not lift the stay of the cross-claim on the faith of an estimate by Mr Gino Cassaniti as to when the defendants would be in a position to put on evidence in support of their cross-claim, when the defendants’ conduct of the litigation has been characterised by repeated defaults in complying with the Court’s orders for the provision of documents and the filing of evidence.

   [20] In any event, irrespective of the reasons the defendants remain in default of the orders made on 17 August 2004, no substantial reason is advanced for varying the regime to which the parties agreed on 25 November 2005. That regime provides for the cross-claim to remain stayed until, amongst other things, order 7 made on 17 August 2004 is complied with. No reason was advanced as to why the plaintiffs should not be given the verified bills of account and supporting documents which the first and second defendants agreed to provide almost two years ago.

   [21] I refuse the application that the stay of the cross-claim be lifted, or that the orders of 25 November 2005 in relation to the stay of the cross-claim be varied.”

5. Through his counsel the debtor iterates the difficulties he is having with the prison authorities and the proceedings which he has commenced to compel them to treat him in a manner different to that which he is currently being treated. If that occurs he claims he will be able to put himself in a position whereby he can make a successful application to the Supreme Court of New South Wales to lift the stay on the prosecution of the cross claim. If the cross claim was one to which s.40(1)(g) applied the existence of a stay upon it would not prevent the court from making an order setting aside the bankruptcy notice provided that the alleged cross claim met the test set out by the High Court in Ebert v Union Trustee (1960) 104 CLR 346 at [350], affirmed in Guss v Johnstone (2000) 171 ALR 598, per Madgwick J Zakrzewski In the matter of Zakrzewski v Rodgers [2000] FCA 1187; Ebner v Official Trustee [2003] FMCA 442 at [24], Patane v Asteron Life Ltd [2004] FCA 232 at [27].

6. In Tzovaras v Nufeno Pty Ltd [2003] FCA 1152 at [1] Jacobson J refers to the application before him as:

   “An application under s.41(7) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) to set aside a bankruptcy notice upon the ground that the Applicant has a counter-claim, set-off or cross-deamnd as referred to in s 40(1)(g) of the Act.”

   In fact as Madgwick J pointed out in Zakrzewski at [17]:

   “Although s.41(7) does not by its terms provide a power to set aside a bankruptcy notice where the court is satisfied that a counter-claim, set-off or cross-demand exists of the type referred to in paragraph 40(1)(g) it is well settled that such a power is to be implied from s.41(7) and other provisions of the Act.”

   This implication would arise from a proper reading of s.40(1)(g), which does not state that a bankruptcy notice issued when there is such a cross claim etc. is invalid but merely that non-compliance with it does not constitute an act of bankruptcy. The setting aside of a bankruptcy notice where the court has indicated that it is satisfied that such a cross claim etc exists is really a procedural formality to protect the debtor against a wrongful interpretation of the effect of the issue of that notice.

7. The type of cross claim etc. that is referred to in ss.40(1)(g) and 41(7) is one bound by strict limitations. These are seen both in the wording of the sub-section itself and in the interpretation of that sub-section by the courts in cases such as Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 at [139]; Re Ling; Ex parte Ling v The Commonwealth of Australia (1995) 58 FCR 129 at [132] and Smart v Esanda Finance Corporation Limited [2000] FCA 235 at [17]. Those cases all dealt with what was meant by the ability to set up the cross claim in the action or proceeding in which the judgment or order was obtained. In the instant case the cross claim was set up and although it has been stayed it is still on foot. Mr Hall has not presumed to suggest that I read down ss.40(1)(g) or 41(7) to exclude an already existing cross claim on the basis that such a claim was not the subject of the mischief which those sections were intended to avoid – the late setting up of such a proceeding. It was probably best that he did not because however attractive such a result might be it would appear to be in contradiction to currently established authority; Carver v Westpac Banking Corporation [2000] FCA 1517 where Moore J, following Amos v Lillyman [1998] FCA 1725, said at [8]:

   “While the facts in Amos differ from the facts in the present case the differences are not material. That is in the proceedings in which the order was made which founds the bankruptcy notice, the judgment debtor had had the opportunity to set up the claim and indeed had done so. The prosecution of the claim was effectively abandoned (at least for the time being) by the discontinuance of the proceeding in which the claim was made. Whitlam J concluded that in those circumstances the requirement in s.40(1)(g) that the claim could not have (been) set up could not be satisfied by parity of reasoning the same is so in this matter. That is, the judgment debtor in this matter could have, and did, set up the claim in the proceedings in which the judgment was obtained.”

   I am unable to say that either Moore J or Whitlam J were plainly wrong in their views and am thus bound to following them: Bank of Western Australia Limited v Commissioner of Taxation (1994) 55 FCR 233 at [255]. It seems to me that whatever the effect might be the clear wording of the sub sections under review prevent any other interpretation.

8. Mr Golledge, who appears for the respondent creditor, was concerned lest Mr Hall’s arguments also extended to an application that I should extend the time for compliance with the bankruptcy notice pending some further resolution of the Supreme Court proceedings.  I have already referred to the separate proceedings brought in the Supreme Court against the Department of Corrective Services.  These proceedings may result in the debtor having a greater opportunity to comply with the consent orders in the original proceeding such that a new application to lift the stay may be made.  But I accept the argument put by Mr Golledge that the power to extend time, which is granted by s.41, is clearly ancillary to the power to set aside a bankruptcy notice: Re Sterling ex parte Esanda Ltd (1980) 44 FLR 125 at 130. Where there is no valid basis on which to have the notice set aside there is no scope for or purpose in an order extending time for compliance. The only ground upon which I was asked to set aside the notice was the one which related to the existence of the cross claim. There is no challenge to the notice itself or other proceedings of the type identified in s.41(6A)(a). I would therefore not be minded to make any extension of time for compliance with this bankruptcy notice.

9. The matter should not end quite there, however.  The debtor asserts the value of his cross claim is considerably in excess of the value of the judgment.  He points to his bona fides in relation to the cross claim by the payment of the sum of $150,000.00 into a controlled monies account by way of security.  He purports to explain the delay in providing what appears to be very basic information as to his cross claim by reference to the problems which resulted in his current incarceration.  Although I accept the now seminal views of Lehane J in Byron v Southern Star Group Pty Limited (1997) 73 FCR 264 at [270]

   “The commission of an act of bankruptcy is undoubtedly a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order .”,

   I am also sensible of the fact that if the debtor does commit an act of bankruptcy by non-compliance with this particular notice it would be open for not just this creditor but for any other creditor to proceed to issue a petition against him.  I propose to deal with this situation in two ways.  First, I propose  to require the respondent to bring in orders to give effect to these reasons in seven days, unless prior thereto the applicant has complied with the Notice. To that extent these proceedings remain on foot and the time for compliance is extended. If the applicant does so comply there will be liberty to apply.

10. I do this because I am not clear that the court has any power to extend time for compliance after orders have been made determining that a bankruptcy notice is valid or that the applicant is required to comply with the notice. I am aware that extensions are frequently given; Byron, supra, Agrillo v Codisposto (1994) FCA 988; Geard, Ex parte Reid (1994) 217 ALR 191; Burns v AMP Finance Limited [2004] FCA 1094; but this does not mean that they were valid. The better view is that of Hill and Marshall JJ (with whom Sackville J agreed) in Shephard v Chiquita Brands South Pacific Ltd [2004] FCAFC 76:

    “Clearly s.41(6A) was intended to be in aid of the application to set aside the judgment or the bankruptcy notice as the case may be. In that context it seems strange that the legislature would intend that so long as at any time in the past there had been an application to set aside a judgment or a bankruptcy notice, and notwithstanding that such application had been determined and even notwithstanding that the time for compliance had long passed the Court would have power to extend the time for compliance. Once the application to set aside the judgment or the bankruptcy notice has been finally determined (and it is not necessary to consider here the question of the status of that application during such time as an appeal was current) there is no aid which the power to extend time for compliance can give to the determined application. It follows, in our view, that the power to extend time for compliance has been spent.” [40]

    Shephard has been cited by approval in Burns and James v Hill [2005] FCA 853. There is a good policy reason for allowing extensions, the provision of a final opportunity for the debtor to comply with the notice, and it might be best if the Act was amended to empower the courts administering it to grant them in all circumstances.

1. Secondly, in the event that the debtor does not comply and thus commits an act of bankruptcy, I shall order that any petition based upon this bankruptcy notice be returnable before me.  An order of this type was made in Jenkins v National Australia Bank [1999] FCA 1758 and followed by me in Porter v OAMPS Ltd [2004] FMCA 272.

2. The application to set aside the bankruptcy notice will be dismissed.  The applicant debtor shall pay the costs of the respondent creditor to be taxed, if not agreed, in accordance with the Bankruptcy Rules 2006.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Raphael FM.

Associate: 

Date: