FEDERAL CIRCUIT COURT OF AUSTRALIA
| COMMONWEALTH BANK OF AUSTRALIA TRADING AS BANKWEST v MASTRONARDO | [2019] FCCA 2371 |
| Catchwords: BANKRUPTCY – Whether debtor has reasonably arguable case that he has a cross-claim against the creditor in an amount that exceeds the debt on the basis of which the creditor relies in its creditor’s petition – reasonably arguable case – creditor’s petition adjourned on terms that the debtor prosecute cross-claim with due dispatch and subject to the parties having liberty to apply. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.43, 47, 52, 156A Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr.4.02(2), 4.04(1), 4.04(6) Real Property Act 1900 (NSW), s.57(2)(b) |
| Cases cited: Ahern v The Deputy Commissioner of Taxation (QLD) [1987] FCA 312; (1987) 76 ALR 137 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) TRADING AS BANKWEST |
| Respondent: | CLAUDIA ALEJANDRA MASTRONARDO |
| File Number: | SYG 275 of 2019 |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) TRADING AS BANKWEST |
| Respondent: | ANTONIO MASTRONARDO |
| File Number: | SYG 310 of 2019 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 20 August 2019 |
| Date of Last Submission: | 20 August 2019 |
| Delivered at: | Sydney |
| Delivered on: | 28 August 2019 |
REPRESENTATION
| Counsel for the Applicants: | Mr M Dempsey SC and Mr M Rose |
| Solicitors for the Applicants: | Norton Rose Fulbright Australia |
| Counsel for the Respondents: | Mr D Pritchard SC and Mr S Golledge |
| Solicitors for the Respondents: | JT Law |
In proceeding No.SYG275 of 2019 (Commonwealth Bank of Australia Trading as Bankwest v Claudia Alejandra Mastronardo):
THE COURT ORDERS THAT
In the hearing of the creditor’s petitions in matters No.SYG275 of 2019 and No.SYG310 of 2019 the evidence in one has been taken to be evidence in the other.
The application for an adjournment of the creditor’s petition is dismissed.
The estate of Claudia Alejandra Mastronardo is sequestrated under the Bankruptcy Act 1966 (Cth).
The applicant creditor’s costs (including reserved costs) be taxed and paid from the estate of Claudia Alejandra Mastronardo in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES THAT
The date of the act of bankruptcy is 1 February 2019.
The consent to act as trustee signed by Katherine Barnet has been filed under s.156A of the Bankruptcy Act 1966 (Cth).
A copy of this order is to be provided to the official receiver in Sydney within two business days.
In proceeding No.SYG310 of 2019 (Commonwealth Bank of Australia Trading as Bankwest v Antonio Mastronardo):
THE COURT ORDERS THAT
In the hearing of the creditor’s petitions in matters No.SYG310 of 2019 and No.SYG275 of 2019 the evidence in one has been taken to be evidence in the other.
Subject to orders 3 and 4, the creditor’s petition be adjourned part-heard for directions to 9:30 am on 12 December 2019.
The adjournment of the creditor’s petition granted by order 2, and any further adjournment of the creditor’s petition, is subject to the respondent, Mr Antonio Mastronardo, prosecuting with due dispatch his cross-claim (Cross-claim) currently filed in the Supreme Court of New South Wales, matter no.2013/95636 (Common Law proceeding).
The parties have liberty to apply on such notice as the circumstances warrant.
Costs are reserved.
THE COURT NOTES THAT
Unless the contrary is proved, it will be presumed that the respondent, Mr Antonio Mastronardo, will not be prosecuting the Cross-claim with due dispatch if he seeks to alter, or acquiesce in the alteration of, the current constitution of the Common Law proceeding by applying for, or acquiescing in, the addition in that proceeding of additional claimants; or if the respondent, Mr Antonio Mastronardo, seeks to make additional claims he considers he may have against the applicant or some other person that do not arise out of the same, or substantially the same facts out of which the Cross-claim arises.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 275 of 2019
| COMMONWEALTH BANK OF AUSTRALIA TRADING AS BANKWEST |
Applicant
And
| CLAUDIA ALEJANDRA MASTRONARDO |
Respondent
SYG 310 of 2019
| COMMONWEALTH BANK OF AUSTRALIA TRADING AS BANKWEST |
Applicant
And
| ANTONIO MASTRONARDO |
Respondent
REASONS FOR JUDGMENT
Introduction
On 20 August 2019 there came before me for hearing two creditor’s petitions, both presented by the Commonwealth Bank of Australia Trading as Bankwest (Bank). One petition relates to Mr Antonio Mastronardo (Antonio), and the other relates to Ms Claudia Alejandra Mastronardo (Claudia). Claudia is the wife of Mr Carmelo Adriano Mastronardo (Adrian), the son of Antonio.
Before the Court can make a sequestration order it must be satisfied that the matters specified in s.43 and s.52(1) of the Bankruptcy Act 1966 (Cth) (Act) are proved. These include the Court’s being satisfied that the person against whom the creditor’s petition is presented has committed an act of bankruptcy. The Court must also be satisfied that the relevant provisions of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules) have been complied with, subject to the Court’s discretion to dispense with compliance with those rules. [1] If the Court is satisfied that the matters specified in s.43 and s.52(1) of the Act have been proved, and that the requirements of the Bankruptcy Rules have been met (or their compliance is otherwise dispensed with), the Court may make a sequestration order. If the Court is not so satisfied it must dismiss the petition, or if, under s.52(2) of the Act, the Court “is satisfied by the debtor (a) that he or she is able to pay his or her debts; (b) that for some other sufficient cause a sequestration order ought not be made”, the Court may, not must, dismiss the petition.[2] One matter which may constitute “some other sufficient cause”, and which is relevant to the matters I am required to consider in these reasons, is that the debtor has a cross-claim against the creditor for an amount that exceeds the debt on the basis of which the creditor seeks a sequestration order.
[1] See Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449 at [48]
[2] Act, s.52(2)
The acts of bankruptcy on which the creditor’s petitions rely are the failure by Antonio and Claudia to comply with the requirements of bankruptcy notices issued against them on 27 June 2018. The bankruptcy notice issued against Antonio demands payment of $9,938,954.27. That is the amount of a judgment entered against Antonio on 21 August 2017 in a proceeding in the Supreme Court of New South Wales (Commercial List proceeding). The bankruptcy notice against Claudia demands payment of $8,308,208.16. That is the amount of a judgment that was entered against Claudia, also in the Commercial List proceeding. The Commercial List proceeding was commenced by Antonio, Claudia, and West Ryde Developments Residential Pty Ltd against the Bank. The Bank recovered the judgments against Antonio and Claudia on a cross-claim it filed against them in that proceeding.
Claudia filed a notice of grounds of opposition to the creditor’s petition in which she relies on one ground; and that is she has appealed against orders made by Griffiths J on 1 February 2019 in Federal Court proceeding NSD 1286/2018. By those orders his Honour dismissed an application brought by Claudia to set aside the bankruptcy notice that was issued against her. On 8 August 2019, however, the Full Federal Court determined the appeal adversely to Claudia.[3] Counsel for Claudia accepts that the consequence of the Full Federal Court’s judgment is that the ground on which Claudia relies is no longer available to her.
Antonio, in his notice of grounds of opposition to the creditor’s petition, also relies on the exercise of his right to appeal against the orders made by Griffiths J on 1 February 2019 in Federal Court proceeding NSD 1287/2018 by which his Honour dismissed Antonio’s application to set aside the bankruptcy notice issued against him. That appeal, which was heard together with Claudia’s appeal from the orders of Griffiths J, was dismissed,[4] which means that that ground is also no longer available to Antonio. Antonio, however, relies on an additional ground. He claims he has a cross-claim against the Bank that exceeds the amount of the judgment referred to in the bankruptcy notice that was issued against him. The cross-claim on which Antonio relies is that pleaded in a cross-claim Antonio filed against the Bank in a proceeding the Bank commenced against Remo 97-99 Queens Road Pty Ltd (Remo 97), Antonio, and Adrian in the Supreme Court of New South Wales (Common Law proceeding).[5] In that proceeding the Bank alleges that, as at 17 January 2013, Antonio was liable to pay to the Bank amounts totalling $29,988,035.76 under guarantees he had granted to the Bank.
At the commencement of the hearing of the creditor’s petitions, Antonio and Claudia, through their counsel, applied for an adjournment of three weeks. The purpose of the adjournment, counsel submitted, was to give Antonio and Claudia an opportunity to obtain senior counsel’s advice about draft cross-claims they say they each propose to file in, or at least in connection with, the Common Law proceeding. A draft of the cross-claims is annexed to an affidavit of Mr Tomaras, the solicitor for Antonio and Claudia. The Bank opposes the application for an adjournment.
I expressed the view to counsel that there might be a substantial overlap of evidence and issues in relation to the application for an adjournment and the hearing of the creditor’s petitions. I suggested that I hear both the application for an adjournment and the creditor’s petitions on the assumption that I would not grant the adjournment, and then reserve my judgment on the application for an adjournment and on the issues that were to be argued on the creditor’s petitions. I indicated that if I were to be satisfied that an adjournment should be granted the only order (other than costs) I would make would be to grant the adjournment Antonio and Claudia seek, but if I were not so satisfied I would consider the issues raised on the creditor’s petitions and give judgment on the petitions. Counsel agreed with my suggestion.
I therefore heard both the application for an adjournment and the creditor’s petitions on the assumption that an adjournment would not be granted. Although I did not make any formal order to this effect, counsel for the parties agreed that the evidence in each of the creditor’s petition proceedings be evidence in the other. I propose to make an order to this effect at the time I publish these reasons for judgment.
Arrangement of reasons
These reasons are arranged as follows. First, I set out some of the background out of which the issues I have to decide have arisen. Second, I will describe the claims made in the Common Law proceeding, including the cross-claim Antonio filed in that proceeding. Third, I will set out the legal principles relevant to determining when a counter demand may constitute “some other sufficient cause” for not making a sequestration order. Fourth, I will set out the principles relevant to determining applications to adjourn the hearing of a creditor’s petition. Fifth, I will consider whether I should grant Antonio and Claudia the adjournment they seek for the purpose of obtaining counsel’s advice on their draft cross-claims. For the reasons I give in that part of my reasons, I am satisfied that no such adjournment should be granted. Sixth, I consider whether the preconditions for the making of a sequestration order are satisfied in relation to Antonio and Claudia. Finally, I consider whether the cross-claim Antonio has filed in the Common Law proceeding constitutes, or is capable of constituting, “some other sufficient cause” for not making a sequestration order.
Background
In around 2005 Adrian and Antonio became partners in a property development business. They carried on their business through Remo Corporation Pty Ltd (Remo Corp). The two shareholders of Remo Corp were companies. Antonio was the sole director and shareholder of one of the companies, and Adrian was the sole director and shareholder of the other. Antonio and Adrian were both directors of Remo Corp from 2005 until about May 2008. Antonio retired as a director in 2008, but Adrian continued to be a director until July 2009 when Antonio became its sole director.[6]
[6] Affidavit of Carmelo Adriano Mastronardo made 2 April 2016 in Common Law proceeding, being Exhibit C (Adrian’s first affidavit), [3]-[15]
According to Adrian, from 2005 Remo Corp, through subsidiary companies, was involved in the development of three sites, one at 49 Queens Road, Five Dock, a second at 97-99 Queens Road, Five Dock, and a third in West Ryde. Remo 49 Queens Road Pty Ltd (Remo 49) undertook the development of 49 Queens Road, and Remo 97 undertook the development of 97-99 Queens Road.[7] Antonio was the registered proprietor of the Queens Road properties.
[7] Adrian’s first affidavit, [18]-[22]
By letter dated 12 March 2007 the Bank offered Remo 49 a bill line facility of up to $26,000,000 (Remo 49 Facility).[8] The facility was offered for a term expiring on 31 March 2009. Its purpose was to assist with funding the construction of a four-level commercial office building at 49 Queens Road, Five Dock, and to repay a debt of approximately $3,314,000 owing to Westpac. The offer required, among other things, that Antonio provide the Bank with a guarantee limited to $26,000,000, and that Antonio grant to the Bank a first registered mortgage over his interest in both Queens Road properties.
[8] Affidavit of Carmelo Adriano Mastronardo made 27 June 2017 in Common Law proceeding, being Exhibit A (Adrian’s second affidavit), [21], tab 4 exhibit CAM2
By a separate letter dated 12 March 2007 the Bank offered Remo 97 a bill line facility of up to $9,000,000 (Remo 97 Facility).[9] The facility was offered for a term expiring on 30 August 2008 for the purpose of assisting with funding the construction of a three-level commercial office building at 97-99 Queens Road, Five Dock, and to repay a debt of approximately $1,685,000 owing to National Australia Bank. The offer required, among other things, that each of Adrian and Antonio provide the Bank with a guarantee limited to $9,000,000, and that Antonio grant to the Bank a first registered mortgage over his interest as registered proprietor of both Queens Road properties.
[9] Adrian’s second affidavit, [30], tab 7 exhibit CAM2
On 2 May 2007 Antonio executed a deed of guarantee in favour of the Bank in which he guaranteed up to $9,000,000 of the amount owing or which may become owing by “the Debtor”, Remo 97 (Remo 97 Facility Guarantee).[10] On the same day Antonio executed a separate guarantee in favour of the Bank in which he guaranteed up to $26,000,000 of the amount owing or which may become owing by “the Debtor”, Remo 49 (Remo 49 Facility Guarantee). Each of the guarantees contained the following clauses:
[10] Exhibit F
3.1The Guarantor guarantees that the Debtor will pay the Secure Moneys to the Bank.
3.2Except where the Secured Moneys are payable without prior demand under clause 7, the Guarantor will pay the Secured Moneys to the bank on demand, or so much of the Secured Moneys as the Bank specifies in its demand. However, the Bank will not make demand on the Guarantor –
(a)in the case of moneys which are payable by the Debtor on demand, before making demand on the Debtor; and
(b)in all other cases, before the Debtor has failed to pay, when due to be paid, the money specified in the demand.
The expression “Secured Moneys” is defined in cl.2 of each guarantee to include, among other things, “all moneys . . . now or in the future owing or payable to the Bank by the Debtor”.
By instrument dated 28 June 2007 Antonio mortgaged to the Bank all of his estate and interest as registered proprietor of 49 Queens Road (49 Queens Road mortgage).[11] By instrument dated 28 June 2007 Antonio mortgaged to the Bank all of his estate and interest as registered proprietor in 97 Queens Road (97 Queens Road mortgage).[12] According to the amended defence to the amended statement of claim filed by Antonio, Adrian, and Remo 97 in the Common Law proceeding, each of the 49 and 97 Queens Road mortgages contained the following terms:
a)The Bank may appoint any person or two or more persons to be a receiver of the land the subject of the mortgage if Antonio was in default under the mortgage. [13]
b)Antonio would be in default under the mortgage if he does not pay on time the “Amount Owing”.[14]
c)The expression “Amount Owing” was defined to include all money that Antonio owed to the Bank under a “Secured Agreement”.[15]
d)In the event of default by Antonio, the Bank was entitled to take possession of the secured properties, sell the properties, and appoint any two or more persons as receivers to do these things.[16]
e)Before the Bank could exercise any of its rights referred to in (d), the Bank was required to give Antonio a notice in writing specifying the default, and requiring Antonio to fix the default within the period specified in the notice.[17]
[11] Amended statement of claim filed in Common Law proceeding (forming part of exhibit “E”) (ASC), [2]; Amended Defence to Amended Statement of Claim (forming part of exhibit “E”) (AD), [2]
[12] ASC, [5]; AD, [5]
[13] AD, [25(e)(i)(A)]
[14] AD, [25(e)(i)(B)]; [91]
[15] AD, [25(e)(i)(C)]; [92(a)]
[16] AD, [93]
[17] AD, [94]
In around August 2007 another company, Ashe Morgan Capital No. 2 Pty Limited (Ashe Morgan), agreed to lend $5,000,000 to Remo 49 and Remo 97.[18] That led to Ashe Morgan, Remo 49, Remo 97, and the Bank entering into a deed of priority and subordination.[19] Under that deed the parties agreed that the “Senior Securities”, which included the 49 and 97 Queens Road mortgages, would have first priority for the payment by Remo 49 and Remo 97 of the “First Priority Senior Debt”, which was defined to be $36,600,000.
[18] Adrian’s first affidavit, [35]; Adrian’s second affidavit, [33]
[19] Adrian’s second affidavit, [33], tab 8, exhibit CMA
By letter dated 19 December 2008 the Bank agreed to increase the Remo 49 Facility from $27,600,000 to $31,900,000;[20] and in June 2009 the Bank agreed to again increase that facility to $34,700,000.[21] According to a letter dated 14 October 2010 to the Bank, Ashe Morgan agreed to vary the priority deed to permit the increase of the “First Priority Senior Debt” from $36,600,000 to $40,900,000.
[20] Adrian’s first affidavit, [39]; Adrian’s second affidavit, [44], tab 18 Exhibit CMA2
[21] Adrian’s first affidavit, [41]-[42], tab 13, exhibit CMA1
In a letter dated 20 July 2010 addressed to “Mr A Mastronardo Director Remo 49 Queens Rd Pty Ltd Remo 97 Queens Road Pty Ltd”, the Bank stated as follows:[22]
[22] Adrian’s second affidavit, tab 19, exhibit MCA2
Failure to repay the Bank’s debt in full by 31 March 2010 was a default under the Bank’s security documentation. The Bank reserves its rights and remedies under that default.
The Bank is considering its position in regards to your facilities. While acknowledging your efforts to date to sell the properties, the Bank’s [sic] remains concerned at the length of time it is taking to achieve the sales and the associated debt reduction.
While this should not be considered an approval, the Bank, as a minimum, would expect that sales, exchanged contracts, and settlements totalling at least 50% of the Bank’s debt, $22m, be achieved by 30 September 2010. Failure to achieve this level of debt reduction is likely to see the Bank commence recovery action under its securities.
. . . .
Due to the facilities now being in default, the Bank, under its documentation, is entitled to immediately increase the interest rate applying to your facilities from 11.5% pa to 15.49% pa. In recognition of your efforts to sell the properties, the Bank will not apply the full increase rather [sic] apply a rate of 13.5% from 30 July 2010. It would be prudent to expect further increases, if sales are achieved [sic] in line with the Bank’s expectations.
Please note that as Adrian Mastronardo is a guarantor to the facilities, a copy of this letter has been provided to him for his information.
By 14 October 2010 the Bank and Ashe Morgan entered into a dispute.[23] In its letter to the Bank dated 14 October 2010 Ashe Morgan claimed it had consented to the increase in the “First Priority Senior Debt” on “the specific understanding that such amounts already included an amount of drawn principal plus capitalised interest on that amount”. The dispute between the Bank and Ashe Morgan arose at a time when, according to Adrian, the lots at 49 Queens Road had been completed and sold or were ready to be sold. In an email sent to Antonio on 18 October 2010 Ashe Morgan stated that its position for repayment of the loans it made had been compromised, and that “we would like a resolution with CBA prior to consenting to any future settlements”. By email sent on 9 November 2010 Ashe Morgan informed Antonio that it was not prepared “to consent to further settlements until the priority issues are resolved”.[24]
[23] Adrian’s first affidavit, [54], tab 13, exhibit CMA1
[24] Adrian’s first affidavit, [58], tab 24, exhibit CMA1
By two letters dated 10 December 2010, one addressed to Remo 49, and the other addressed to Remo 97, the Bank, through its lawyers, claimed Remo 49 and Remo 97 were in default of the Remo 49 Facility and the Remo 97 Facility respectively because Remo 49 and Remo 97 failed to repay the amounts that were advanced to them by 30 March 2010, being the claimed maturity date for both facilities as had previously been extended by the Bank. The letters claimed that Remo 49 and Remo 97 owed the Bank $32,863,492.40 and $9,834,482.50 respectively, and demanded that Remo 49 and Remo 97 pay these amounts to the Bank by 17 December 2010.
The Bank’s lawyers provided to Antonio a copy of the demands they gave to Remo 49 and Remo 97 under cover of two separate letters addressed to Antonio.[25] Each letter stated:
[25] Affidavit of Antonio Mastronardo made on 29 April 2016 (being Exhibit D) (Antonio’s affidavit), [44], tab 12 of exhibit AM1
We act for Commonwealth Bank of Australia (ACN 123 123 124) (“the Bank”).
Please find enclosed a copy of our letter of demand on behalf of the Bank to [Remo 49/Remo 97] dated 10 December 2010 for your information as guarantor.
Antonio says he did not receive a letter of demand “issued to me as guarantor to the loans”, or a “notice of default issued to me personally as the mortgagor of the Queens Road Properties”.[26] Adrian claims he, too, “never received any formal demand to enforce the guarantees which I provided for the debts of Remo 49 and Remo 97”.[27]
[26] Antonio’s affidavit, [45]
[27] Adrian’s first affidavit, [60]
Neither Remo 49 nor Remo 97 met the demands; and on about 23 December 2010 the Bank entered into a deed of appointment with Mr Needham and Mr Taylor (Receivers).[28] That deed recited that Antonio was indebted to the Bank; the Bank holds a registered mortgage over the land described in item 1 of Schedule 1 to the deed, that land being lots in a strata plan “commonly known as 49-51 Queens Road, Five Dock” (49 Queens Road Lots), and the property “commonly known as 97-99 Queens Road, Five Dock” (97 Queens Road Property); Antonio “is in default under the terms of the Mortgage”; and the “Mortgage has become enforceable and the Mortgagee is entitled to appoint receivers and managers of the Mortgaged Property under the powers conferred in the Mortgage”. The deed then purported to appoint the Receivers as receivers of the properties referred to in the recitals and authorised them to exercise “[a]ll and every power discretion and authority conferred upon a receiver and manager by the Mortgage, under any Act of Parliament or otherwise by law”.
[28] Adrian’s first affidavit, [72], tab 26, exhibit CMA1
By letter dated 23 December 2010 the Receivers informed Antonio they had been appointed receivers and managers of the 49 Queens Road Lots and the 97 Queens Road Property pursuant to the powers contained in the 49 Queens Road and the 97 Queens Road mortgages.[29] The Receivers further said that as “a consequence we are now in control of the properties and all matters relating to them”, and that as “owner of the properties, we put you on notice that you should not deal or purport to deal with the properties in any way whatsoever”. Antonio responded with a fax sent on 31 December 2010 in which he acknowledged receipt of the letter, and stated “[w]e are more than happy to assist and co-operate [with] you in the matter”.
[29] Antonio’s affidavit, [50], tab 14, exhibit AM1
In its amended statement of claim filed in the Common Law proceeding, the Bank alleges as follows:
a)By deed of retirement dated 1 September 2011 the Receivers retired as receivers and managers of the 97 Queens Road Property;[30] and by deed of appointment dated the same day they were appointed as agents for the mortgagee in possession in relation to that property.[31]
b)By deed of retirement dated 15 September 2011 the Receivers retired as receivers and managers of the 49 Queens Road Lots (excluding lots 57 and 59);[32] and by deed of appointment dated the same day they were appointed as agents for the mortgagee in possession in relation to those lots.[33]
c)By deed of retirement dated 23 March 2012 the Receivers retired as receivers and managers of lots 57 and 59 of the 49 Queens Road Lots;[34] and by deed of appointment dated the same day the Receivers were appointed as agents for the mortgagee in possession in relation to those lots.[35]
[30] ASC, [26]
[31] ASC, [28]
[32] ASC, [27]
[33] ASC, [29]
[34] ASC, [30]
[35] ASC, [31]
In their amended defence to the amended statement of claim Antonio and Adrian admit that documents to the effect of the deeds of retirement and deeds of appointment were made.[36] As I will shortly show, however, Antonio and Adrian claim that the appointments of the Receivers were invalid.
[36] AD, [26]-[31]
On about 8 June 2011 the Bank served on Antonio a notice dated 6 June 2011 pursuant to s.57(2)(b) of the Real Property Act 1900 (NSW) in relation to the 49 Queens Road Lots, and a notice pursuant to the same section in relation to the 97 Queens Road Property.[37] On 13 October 2011 the Bank, through the Receivers as agent for the Bank, sold lots 3 and 75 of the 49 Queens Road Lots for $7,800,000,[38] and on 30 November 2011 the Receivers, as agents for the Bank, sold the 97 Queens Road Property for $4,450,000.[39]
[37] ASC, [32]; AD, [32]
[38] AD, [133(a)]; Reply, [86.b.]
[39] AD, [133(b)]
On or about 19 January 2013 the Bank served on each of Antonio and Adrian a document purportedly pursuant to the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee demanding payment of $21,422,986.53, but neither Antonio nor Adrian paid the amounts demanded.[40]
[40] ASC, [37]
Common Law proceeding
On 28 March 2013 the Bank commenced the Common Law proceeding against Remo 97, Antonio, and Adrian. The most current statement of claim is the amended statement of claim filed on 28 August 2015. The Bank there alleges that:
a)each of Antonio, and Adrian agreed to guarantee to the Bank Remo 49’s obligations under the Remo 49 Facility up to $31,900,000;[41]
b)each of Antonio and Adrian agreed to guarantee to the Bank Remo 97’s obligations under the Remo 97 Facility up to $9,000,000;
c)on or about 19 January 2013 the Bank demanded that, pursuant to their guarantees of Remo 49’s obligations under the Remo 49 Facility they each had given to the Bank, Remo 97, Antonio, and Adrian pay $21,422,986.53 to the Bank;
d)on or about 19 January 2013 the Bank demanded that, pursuant to the guarantee of Remo 97’s obligations under the Remo 97 Facility they each had given to the Bank, Antonio, and Adrian pay $8,565,049.23 to the Bank; and
e)none of Remo 97, Antonio, or Adrian paid to the Bank any part of the amounts the Bank demanded they pay.
[41] ASC, [16]. That paragraph also alleges that Remo 97 guaranteed for an unlimited amount Remo 49’s obligations under the Remo 49 Facility
Although the amended statement of claim pleads that Antonio granted mortgages over Antonio’s interest as the registered proprietor of the 49 Queens Road Lots and the 97 Queens Road Property, the Bank’s claims are not based on any covenant contained in the mortgages. The Bank’s claims are based on the guarantees each of Remo 97, Antonio, and Adrian gave to the Bank.
The amended defence raises a number of matters. Particularly relevant to the matters I am required to determine is the allegation that the Receivers were not validly appointed as receivers and managers of the 49 Queens Road Lots or of the 97 Queens Road Property. That claim is based on the following allegations:[42]
[42] AD, [25(e)-(f)]
a)it was a term of each of the 49 Queens Road and 97 Queens Road mortgages that the Bank would be entitled to appoint a receiver of the mortgaged land if Antonio were to default under the mortgage;
b)Antonio could only default under the mortgage if he failed to pay every “Amount Owing” for which he would be liable at the time agreed by him or, if no time has been agreed, when the Bank asks;
c)Antonio’s liabilities to the Bank are liabilities he assumed under the Remo 49 Facility Guarantee and the 97 Remo Facility Guarantee;
d)Antonio’s liability under each of the guarantees was to pay the amounts owing by Remo 49 and Remo 97 “on demand”;
e)at the time it appointed the Receivers the Bank had made no demand on Antonio under the guarantees; and
f)because of (e):
i)at the time the Bank appointed the Receivers there was no “Amount Owing” that Antonio had failed to pay to the Bank;
ii)because of (i), Antonio was not in default and, therefore, the Bank was not entitled to appoint the Receivers over the 49 Queens Road Lots or over the 97 Queens Road Property; and
iii)the Receivers had no authority to enter into possession of the 49 Queens Road Lots or the 97 Queens Road Property and sell them, and, to the extent they did those things, they acted as trespassers and at the direction of the Bank.
Further, the amended defence alleges as follows:
a)On the proper construction of each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee:
i)it was a condition precedent to Antonio becoming liable to pay to the Bank any amounts owing under the Remo 49 Facility or the Remo 97 Facility that the Bank would provide to Antonio a notice of demand in writing;[43] and
ii)the Bank promised not to seek to enforce the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee without first making a demand on Antonio as required by (i).[44]
b)It was a term of each of the 49 and 97 Queens Road mortgages that the Bank would not exercise its rights under those mortgages other than in the circumstances in which it was entitled to do so.[45]
c)Contrary to the terms referred to in (a) and (b), the Bank purported to exercise its rights under the 49 and 97 Queens Road mortgages by purporting to appoint Receivers over the properties the subject of those mortgages in circumstances where the Bank was not entitled to do so, those circumstances being the Bank’s not having first given to Antonio a demand under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee.[46]
d)In those circumstances, the Bank “breached the conditions precedent” in (a),[47] and the term referred to in (b),[48] as a consequence of which:
i)Antonio was discharged from any further performance of his obligations under each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee;[49] or
ii)in the alternative, the Bank repudiated both the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee, and, by so alleging in his defence, Antonio accepted the repudiation.[50]
[43] AD, [89]
[44] AD, [90]
[45] AD, [98]
[46] AD, [99]
[47] AD, [100]
[48] AD, [101]
[49] AD, [102]
[50] AD, [103]
In its reply the Bank denies it was not entitled to appoint the Receivers. The Bank says:[51]
a)it relies on the terms of the mortgages for “their full form [sic] and effect”;
b)the Bank issued a notice on Antonio “based on a default under the Mortgages”, that notice being contained in a letter dated 20 July 2010 from the Bank to Antonio;
c)Antonio failed to comply with the terms of the notice;
d)further or in the alternative, Antonio received a letter dated 10 December 2010 “which enclosed a demand dated 10 December 2010 which was not complied with”; and
e)the Bank was not required to issue a notice to Antonio under the mortgages because the Bank believed on reasonable grounds, pursuant to cl.A22.3 of the mortgages, that “the default could not be remedied”.
[51] Reply, [1]
In his cross-claim Antonio repeats the claim made in his amended defence that the purported appointment of the Receivers was invalid, and the allegations on which that claim is made; and, on the basis of those allegations, claims:
a)he was discharged from the performance of any obligations he may otherwise have had under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee;[52]
b)from 23 December 2010 until at least January 2011 the Receivers were in wrongful possession of the 49 Queens Road Lots and the 97 Queens Road Property;[53] and
c)the amounts the Receivers received on the sale of 49 Queens Road Lots and on the sale of the 97 Queens Road Property, and for which they accounted to the Bank, is money the Bank is not entitled to retain; and
d)Antonio has suffered loss and damage.
[52] Cross-claim, [84]
[53] Cross-claim, [80]
Cross-claim as a reason for not making sequestration order - principles
It is open to a debtor to claim at the hearing of a creditor’s petition that he or she had a cross-claim against the creditor in an amount that exceeds the amount of the debt on which the creditor relies. Such a claim, when made, may be relevant in two ways. The first is where the bankruptcy court is not in a position to determine whether the asserted cross-claim is likely to succeed, but nevertheless is satisfied that the claim is of sufficient substance that the validity of the claim ought to be determined by the ordinary process by which civil claims are determined. Where the bankruptcy court is so satisfied it has a discretion to adjourn the creditor’s petition until such time as the cross-claim is determined in the ordinary course.
The assertion of a cross-claim against the creditor may be relevant in another way. The bankruptcy court may not only be satisfied that the cross-claim is of substance, but also that the debtor is likely to have a cross-claim that exceeds the judgment on which the creditor’s petition is based. Here, although the bankruptcy court retains a discretion to adjourn the hearing of the creditor’s petition it has the additional discretion to treat the existence of the cross-claim as “some other sufficient cause” and, for that reason, dismiss the creditor’s petition.
What I say in the preceding two paragraphs is based on the following passage from the judgment of Beach J in Liang v LV Property Investments Pty Ltd:[54]
An important distinction is to be made between a cross-claim which is likely to succeed and a cross-claim which is a bona fide and reasonably arguable claim, but where it is not established by the judgment debtor that it is likely to succeed. In the former case, where it is established that the claim is likely to succeed, such a claim may warrant the refusal of a sequestration order (Rigg v Baker at [66] per French J; Singh v Deputy Commissioner of Taxation [2011] FCA 889 (Singh) at [14] per Collier J). In the latter case, only a basis for adjourning the creditor’s petition may be established, but the ultimate refusal of a sequestration order may not be justified (Rigg v Baker at [66] per French J).
There is a theoretical question. If you have the latter case, do you establish a “sufficient cause” at all? Some authorities suggest that you do not and that only cases in the former category fit within s 52(2)(b) (St George Bank Ltd v Helfenbaum [1999] FCA 1337 at [13] per Sundberg J; ICM Agriculture Pty Ltd v Young (2009) 260 ALR 515; [2009] FCA 1169 at [85] per Lindgren J; Hilellis v Mobil Oil Australia Ltd [2000] FCA 1139 at [8] per Hely J; Singh at [14] per Collier J; Totev v Sfar [2008] FCAFC 35; (2008) 167 FCR 193 at [85] to [87] per Cowdroy J). In my view, these authorities support what was said in Rigg v Baker that cases in the former category support a refusal of a sequestration order, whereas cases in the latter category support only an adjournment of the petition. In such a case, a “sufficient cause” has not been shown. The discretion to adjourn does not then arise under s 52(2), but rather arises more generally (s 33) as to when the petition should be decided. In any event, there is little doubt that the discretion to adjourn arises in the latter case (Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116 per Gibbs J).
[54] [2015] FCA 1057, at [59], [60]
When considering whether a debtor has a substantial cross-claim, it is not enough for the debtor to produce a pleading he or she has filed in another proceeding:[55]
There must be sufficient evidence or other material to show that it is reasonably arguable or of substance. This may require prima facie verification of the key factual elements as well as demonstrating legal tenability.
[55] Liang v LV Property Investments Pty Ltd [2015] FCA 1057, at [61]
The question I must consider when assessing the cross-claim Antonio has filed in the Common Law proceeding is whether it is of sufficient substance to merit the exercise of the discretion either to adjourn the hearing of the creditor’s petition presented against him or to dismiss it. I must also consider the same question in relation to the draft cross-claims Antonio and Claudia say they intend to submit to senior counsel when I consider their application for an adjournment.
Adjournment of creditor’s petitions - principles
The Court has power under s.33(1)(a) of the Act to adjourn any proceedings under the Act. That, of course, includes proceedings based on a creditor’s petition.
A useful discussion of the manner in which the power to grant adjournments should be exercised is the following passage from the reasons for judgment of Bromberg J in Rotstein & Associates v Slaveski:[56]
It is evident that s 33(1)(a) gives the Court a wide discretion in relation to the grant of an adjournment. As Sweeney J (with whom Franki J agreed) stated in Field v Commercial Banking Co of Sydney Ltd [1978] FCA 46; (1978) 37 FLR 341 at 349, it would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the Court should pay regard in considering an application for an adjournment of a creditor’s petition. However, the Court’s discretion should be exercised with a mind to the policy objectives of the Bankruptcy Act. Relevantly to the issues before me, those objectives include the public interest in stopping individuals who are unable to meet their debts from continued insolvent trading and assisting creditors who are unable to recover debts owed to them: See Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407at 414.
[56] [2010] FCA 493 at [17]
Other factors that have been held to be relevant include whether the debtor’s assets would be in jeopardy if an adjournment is granted,[57] and whether the debtor has filed an appeal based on genuine and arguable grounds against the judgment on which the application for a sequestration order is based.[58]
[58] Ahern v The Deputy Commissioner of Taxation (QLD) [1987] FCA 312; (1987) 76 ALR 137 (Davies, Lockhart and Neaves JJ), at page 148
It is also necessary to bring to mind the following passage from the judgment of the Full Federal Court in Culleton v Balwyn Nominees Pty Ltd:[59]
In considering the question of an adjournment of the hearing of a creditor’s petition, it is fundamental to keep firmly in mind, at all times, the nature of the jurisdiction. Bankruptcy is not just a variety of inter partes litigation; it does not deal only with the private rights and obligations of the debtor and creditor; it is not a form of judgment execution. It is directed to the estate of a person who is insolvent. In that sense it has a public interest, through the general body of creditors and potential creditors of the debtor and prospective bankrupt, and through what is referred to as the change of status of the person who becomes a bankrupt. That status is changed because of the provisions of the Act which inhibit conduct and affect rights and obligations of the bankrupt, including making the bankrupt susceptible to criminal punishment for what would otherwise be innocent conduct.
[59] [2017] FCAFC 8, at [40]
Should adjournment be granted to permit opportunity to submit draft cross-claims to senior counsel?
As I have already mentioned, Antonio and Claudia seek an adjournment of three weeks to give them an opportunity to submit to senior counsel draft cross-claims. The draft cross-claims are annexed to a notice of motion that is annexed to the affidavit of Mr Tomaras. The notice of motion, which was filed on 28 June 2019,[60] seeks orders including the following:
a)The Common Law proceeding be transferred to the Commercial List of the Supreme Court of New South Wales, and that the motion be listed for hearing on an urgent basis before the Commercial List.
b)Leave be granted to the second defendant (that is, Antonio) to file and serve “a Further Amended Defence and Amended First Cross-Summons in the form and terms annexed as ‘Remo 1’”.
c)Leave be granted to the third defendant (that is, Adrian) to file “a Second Cross-Summons in the form and terms annexed as ‘Remo 2’”.
d)Leave be granted “to the Applicants to join the proceedings as the Third, Fourth, Fifth, Sixth, Seventh, and Eighth Cross-claimants respectively”, and that leave be granted “to file and serve a Third, Fourth, Fifth, Sixth, Seventh, Eighth cross-Summons respectively in the form and terms annexed as ‘Remoe 3, 4, 5, 6, 7 & 8’”.
[60] Affidavit of J Tomaras, 19 August 2019, [21]
The notice of motion also seeks orders restraining the sale of certain properties, and the application for these orders came on for hearing before Walton J on 28 June 2019. His Honour dismissed the application, and the hearing balance of the notice of motion, including the application for orders for leave to file amended and additional cross-claims, have been stood over, first from 2 July 2019 to 30 July 2019, then from 30 July 2019 to 20 August 2019,[61] and, on 20 August 2019, for a further three weeks.
[61] Affidavit of J Tomaras, 19 August 2019, [21]
To his affidavit Mr Tomaras annexes “Claudia’s proposed cross claim”. Under the heading “Mrs Claudia Mastronardo (“Claudia”)” Mr Tomaras says that since the hearing of 28 June 2019 Mr Tripodi, barrister, “has worked extensively on the CBA proceedings in order to draft and settle the Proposed Amended Pleadings”, but “the timeframe in which we anticipate to the Proposed Amended Pleadings settled have taken longer than expected”, and that Mr Tripodi has met several occasions with Mr Walker SC.[62] Mr Tomaras further deposes that Mr Tripodi has only met Mr Walker SC “today”, that is on 19 August 2019, to discuss and finalise Claudia’s proposed cross-claim.[63] Mr Tomaras deposes that Claudia has no assets, the only liability she has is the debt owed to the Bank, she has “no non-incurring debts/liabilities to any third parties”; and that she seeks to adjourn the creditor’s petition “to finalise and have her proposed Cross Claim settled by Senior Counsel, who is now fully briefed in the matter and currently carrying out lengthy conferences to settle the pleadings and further evidence in support of the motion seeking leave to amend can be determined by the Court”, and to “obtain an opinion regarding special leave to [the] High Court”,[64] presumably from the orders of the Full Federal Court in Mastronardo v Commonwealth Bank of Australia.[65]
[62] Affidavit of J Tomaras, 19 August 2019, [30]
[63] Affidavit of J Tomaras, 19 August 2019, [30]
[64] Affidavit of J Tomaras, 19 August 2019, [30]
[65] [2019] FCAFC 127
Under the heading “Mr Antonio Mastronardo (“Antonio”)”, Mr Tomaras deposes that Antonio has no assets, the only liability he has is the debt owed to the Bank, and he has “no non-incurring debts/liabilities to any third parties”; and that he seeks additional time to “finalise and have his Amended Cross Claim settled by senior counsel and determined by the Court”, and to “obtain an opinion regarding special leave to [the] High Court”.
I do not propose to say much about the draft cross-claims; and that is because counsel for Antonio and Claudia did not submit that the draft cross-claims, in their current form, disclose any substantial claim:
HIS HONOUR: . . . . what is it about this document that you say . . . ought to engage my discretion in favour of giving your client an adjournment? . . .
MR PRITCHARD: In the universe of other discretionary considerations, your Honour, it is a document which on the evidence establishes is the current draft of a product of a number of months, on the evidence, work by counsel to progress the interests of the client in respect of a substantial claim which is to be propounded within the ..... finalise and propounded in the next 14 days.
HIS HONOUR: Do you say the draft – that document arguably propounds a serious claim?
MR PRITCHARD: I can’t say that in its current form. No.
Given the form of the draft cross-claims, counsel’s answer to my question was inevitable. The proposed cross-claims purport to rely on unparticularised allegations of unconscionable conduct by the Bank constituted by its taking advantage of “the special disability of the Remo Group and guarantors”; of “unreasonable and unfair conduct” by the Bank; and of conduct amounting to the exercise of undue influence. It is impossible to conceive that a court would grant Antonio and Claudia leave to file the cross-claims in their current form.
Another feature of the draft cross-claims is that they do not refer to the current cross-claim in the Common Law proceeding. In particular, they do not rely on the claim that the appointment of the Receivers was invalid. I asked counsel for Antonio and Claudia whether that indicated Antonio and Claudia have no faith in that claim. Counsel said it was the intention that the draft cross-claim would be an addition to the matters claimed in the current cross-claim.
Given counsel for Antonio and Claudia does not submit that the draft cross-claims propound any serious claim, on what basis do they seek an adjournment? The answer counsel for Antonio and Claudia gave is contained in the following exchange:
HIS HONOUR: All right. So you’re asking for an adjournment on the basis you don’t know, in fact, whether there’s going to be any prospect of there being a substantial claim . . . Does it get any higher than that, or ‑ ‑ ‑
MR PRITCHARD: No. There are. I’m relying on what’s contained in the affidavit, which is this is the current proposed cross-claim. It’s not the one being propounded. There’s a process on foot where senior counsel is to be engaged with . . . and in the next two weeks, with Mr Tripodi and client and Mr Walker; we will require 14 days to review finalised proposed cross-claim and fix the date for the motion . . . .
In further support of their application for an adjournment, counsel for Antonio and Claudia submitted that the adjournment is sought for only a short period; there is no evidence that the Bank will suffer prejudice, other than costs thrown away which, however, could be remedied by an order for costs; there is a real prospect a form of amended pleading will be forthcoming to “dovetail” with the Common Law proceeding being back before the Supreme Court of New South Wales in two weeks; and Claudia and Antonio will suffer the prejudice of being made bankrupt if the adjournment is not granted.
I am satisfied that none of the matters on which Claudia and Antonio rely support the exercise of the discretion in favour of granting an adjournment. First, given counsel for Antonio and Claudia does not submit that the current draft cross-claims give rise to any serious claims against the Bank, there is nothing to suggest that there is any prospect that the advice from Mr Walker SC will result in the formulation of a cross-claim, or in the formulation of a cross-claim that is substantial or reasonably arguable. What in truth Antonio and Claudia are seeking is an opportunity to determine whether it is possible for them to raise a substantial a cross-claim that has not yet been formulated. On the evidence before me, therefore, whether Antonio or Claudia will formulate a substantial or reasonably arguable cross-claim if an adjournment is granted is entirely speculative.
Second, although Mr Tomaras deposes that Antonio and Claudia request an adjournment to be given an opportunity to obtain advice on applying for special leave to the High Court from the orders made by the Full Federal Court in Mastronardo v Commonwealth Bank of Australia,[66] counsel for Antonio and Claudia made no submissions in relation to this. That means there is nothing before me about the potential grounds on which the Full Federal Court’s orders may be set aside by the High Court.
[66] [2019] FCAFC 127
Finally, Mr Tomaras annexes to his affidavit a medical certificate dated 19 August 2019 stating that Antonio had vascular surgery on 8 August 2019 “with complications of urinary tract infection with difficulty with micturition, and labor [sic] hypertension with mental confusion and thus not fit to be subdued [sic] to any interrogation for at least one month”. Mr Tomaras deposes that Antonio “has found it very difficult to come to my office over the past week since after the operation he has not been able to assist to provide evidence and meet with counsel”.[67] Accepting this to be true, it has not been suggested that Antonio’s medical condition accounts for any delay in briefing Mr Walker SC or in Mr Walker SC’s not being in a position to provide advice. Nor has it been suggested that Antonio’s medical condition is related to the time for which an adjournment has been sought. That time has been sought to provide Antonio and Claudia with an opportunity to provide draft cross-claims to Mr Walker SC for his advice and for the purpose of formulating further amended cross-claims. Antonio’s medical condition, therefore, is not a matter on which I propose to give any weight in favour of granting Antonio and Claudia an adjournment.
[67] Affidavit of J Tomaras, 19 August 2019, [41], Annexure “JT-4”
Proof of matters specified in s.52(1) of Act - Claudia
As I have already noted, the act of bankruptcy on which the Bank relies is Claudia’s failure to comply with the requirements of a bankruptcy notice that was issued on 27 June 2018.
The bankruptcy notice was personally served on Claudia on 29 June 2018.[68] The bankruptcy notice required Claudia to comply with its requirements within 21 days after service on her. The time for Claudia’s complying with the requirements of the bankruptcy notice was extended by orders made in the Federal Court of Australia. The last order extending time was made on 25 September 2018 where the time for compliance with the requirements of the bankruptcy notice was extended up to and including 1 February 2019. Claudia did not by that day comply with the requirements of the bankruptcy notice.[69] That means Claudia committed an act of bankruptcy, and this occurred on 1 February 2019.
[68] Affidavit of service of Richard John Mehigan sworn 29 June 2018
[69] Affidavit verifying creditor’s petition sworn by I M Stevens on 11 February 2019, [8]-[13]
The Bank filed a creditor’s petition on 12 February 2019. The application has been filed in accordance with the prescribed form,[70] and, as required by s.47 of the Act and r.4.02(2) of the Bankruptcy Rules, an affidavit verifying paragraphs 1, 2, and 3 of the creditor’s petition has been made.[71] The Bank also filed at the time it filed the creditor’s petition an affidavit verifying paragraph 4 of the creditor’s petition, as required by r.4.04(1)(a) of the Bankruptcy Rules,[72] and, as required by r.4.04(1)(b), an affidavit of service of the bankruptcy notice.[73] In addition the Bank filed a “Trustee Consent to Act Declaration” given by Ms Katherine Barnet
[70] Bankruptcy Rules, r.4.02(1); Form B6
[71] Affidavit verifying creditor’s petition sworn by I M Stevens on 11 February 2019
[72] Affidavit verifying paragraph 4 of the creditor’s petition affirmed by Olivia Newman Olivia
[73] Affidavit of service of Richard John Mehigan sworn 29 June 2018
The creditor’s petition was not personally served on Claudia. I was informed by counsel that an arrangement was made where Claudia’s solicitor agreed to accept service of the creditor’s petition together with the affidavit required by r.4.04(1)(a) of the Bankruptcy Rules, and the affidavit of service of the bankruptcy notice. Thus I will proceed on the basis that Claudia has been properly served with the creditor’s petition together with the affidavit required by r.4.04(1)(a) of the Bankruptcy Rules, and the affidavit of service of the bankruptcy notice.
Finally, an affidavit of debt has been read,[74] being an affidavit that under r.4.06(4) of the Bankruptcy Rules must be made as soon as practicable before the hearing date for the creditor’s petition. An affidavit of search, as required by r.4.06(3) of the Bankruptcy Rules, has also been read.[75]
[74] Affidavit I M Stevens sworn on 19 August 2019
[75] Affidavit O Newman affirmed on 19 August 2019
In these circumstances, I am satisfied the Bank has proved the matters it is required to prove under s.43 and s.52(1) of the Act and that a sequestration order should be made against the estate of Claudia. I propose to make such an order together with an order that the Bank’s costs be paid out of her estate.
Proof of matters specified in s.52(1) of Act - Antonio
The bankruptcy notice was personally served on Antonio on 29 June 2018.[76] The bankruptcy notice required Antonio to comply with its requirements within 21 days after service on him. The time for Antonio’s complying with the requirements of the bankruptcy notice was extended by orders made in the Federal Court of Australia. The last order extending time was made on 25 September 2018 where the time for compliance with the requirements of the bankruptcy notice was extended up to and including 1 February 2019. Antonio did not by that day comply with the requirements of the bankruptcy notice.[77] That means Antonio committed an act of bankruptcy, and this occurred on 1 February 2019.
[76] Affidavit of service of Richard John Mehigan sworn 29 June 2018
[77] Affidavit verifying creditor’s petition sworn by I M Stevens on 11 February 2019, [8]-[13]
The Bank filed a creditor’s petition on 12 February 2019. The application has been filed in accordance with the prescribed form[78], and, as required by s.47 of the Act and r.4.02(2) of the Bankruptcy Rules, an affidavit verifying paragraphs 1, 2, and 3 of the creditor’s petition has been made.[79] The Bank also filed at the time it filed the creditor’s petition an affidavit required by r.4.04(1)(a) of the Bankruptcy Rules,[80] and, as required by r.4.04(1)(b), an affidavit of service of the bankruptcy notice.[81] In addition, the Bank filed a “Trustee Consent to Act Declaration” given by Ms Katherine Barnet.
[78] Bankruptcy Rules, r.4.02(1); Form B6
[79] Affidavit verifying creditor’s petition sworn by I M Stevens on 11 February 2019
[80] Affidavit verifying paragraph 4 of the creditor’s petition affirmed by Olivia Newman Olivia
[81] Affidavit of service of Richard John Mehigan sworn 29 June 2018
As required by r.4.05 of the Bankruptcy Rules, the creditor’s petition was served on Antonio on 6 March 2019, being more than five days before the date fixed for the hearing of the creditor’s petition, together with the affidavit required by r.4.04(1)(a) of the Bankruptcy Rules, and the affidavit of service of the bankruptcy notice.[82]
[82] Affidavit of service of Richard John Mehigan sworn 14 March 2019
Finally, an affidavit of debt has been read,[83] being an affidavit that under r.4.06(4) of the Bankruptcy Rules must be made as soon as practicable before the hearing date for the creditor’s petition. An affidavit of search as required by r.4.06(3) of the Bankruptcy Rules, has also been read.[84]
[83] Affidavit I M Stevens sworn on 19 August 2019
[84] Affidavit O Newman affirmed on 19 August 2019
In these circumstances, I am satisfied the Bank has proved the matters it is required to prove under s.43 and s.52(1) of the Act and that the preconditions for making a sequestration order in relation to Antonio’s estate have been satisfied.
Reasonably arguable cross-claim?
Despite its length, the cross-claim Antonio filed in the Common Law proceeding consists of a small number of allegations: the Bank promised Antonio it would not seek to enforce the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee without first making a demand on Antonio; those promises constituted a condition precedent to Antonio’s liability under each of the guarantees or, in the alternative, the promises constituted an essential term of each of the guarantees; but, contrary to the condition precedent or essential term, the Bank purported to enforce Antonio’s obligations under the guarantees by having recourse to the mortgages he had given as security for those obligations without first making a demand on Antonio. As a consequence Antonio’s obligations under the guarantee were discharged, or, in the alternative, the Bank repudiated its obligations under each guarantee which Antonio has elected to accept.
Further, Antonio claims that it was a term of each of the 49 and 97 Queens Road mortgages that the Bank would not exercise its rights under those mortgages without first giving Antonio a demand under each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee; but the Bank purported to exercise its rights under the 49 and 97 Queens Road mortgages without first making a demand on Antonio under the Remo 49 Facility Guarantee or the Remo 97 Facility guarantee. Consequently the Receiver’s actions in taking possession of and dealing with the mortgaged properties were wrongful.
The Bank does not in its written submissions address Antonio’s cross-claim, even though it is relatively clearly pleaded in the cross-claim Antonio filed in the Common Law proceeding. Nor, save for one or, perhaps, two exceptions, did counsel for the Bank address the cross-claim at the hearing before me. In its written submissions the Bank instead referred to the course of the Common Law proceeding, and the judgment of Fagan J in Commonwealth Bank of Australia v Remo 97-99 Queens Road Pty Ltd,[85] where his Honour dismissed an application for leave to amend the current cross-claim. The Bank referred to the following passage from his Honour’s judgment:[86]
The course of the Remo Corporation and bankruptcy proceedings shows that throughout 2017 and 2018 the Bank has been actively trying to bring recovery of its debts to a head through sale of the remaining securities and through sequestration. CA Mastronardo has sought to deploy the draft of the proposed amended cross-claim herein as a means of thwarting both the Sheriff’s writs of possession and the creditor’s petition against him. If there were any substance in the proposed cross-claim thus invoked as a last stand against enforcement, the Court would expect it to be pleaded with sufficient precision to show serious questions to be tried. Instead the cross-claim for which leave is sought appears on its face to be no more than insupportable obfuscation.
[85] [2019] NSWSC 510
[86] [2019] NSWSC 510, at [48]
Whether or not this passage is an accurate characterisation of the conduct it describes, it is not directed to the cross-claim Antonio filed in 2015 in the Common Law proceeding. Fagan J briefly described the cross-claim, but his Honour did not assess its merits or apparent merits apart from noting the following:[87]
Obviously, some elements of Mr Mastronardo snr’s present cross-claim are repetitive of set-offs pleaded in his defence. There is no pleading or particularisation of the total amount by which it is alleged the Bank’s debt is reduced as a result of the defences raised, including set-offs. As a result, it is not apparent on the face of the existing pleadings that the amount claimed under the cross-claim would exceed the Bank’s debt, even assuming that all defences and cross-claim causes of action should succeed.
[87] 2019] NSWSC 510, at [10]
With respect, his Honour’s passage appears to overlook that the cross-claim includes the claim that the Bank’s failure to make a demand on Antonio before it purported to enforce the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee by purporting to exercise its rights over the 49 and 97 Queens Road mortgages operated to discharge Antonio’s liabilities under those guarantees.
In these circumstances, the following questions arise:
a)Is it reasonably arguable that each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee contains a condition precedent or, in the alternative, an essential term, to the effect that the Bank would not seek to enforce those guarantees without first making a demand on Antonio?
b)Assuming (a) is answered in the affirmative, is it reasonably arguable that, contrary to the conditions precedent or essential terms referred to in (a), the Bank purported to enforce the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee without first making a demand on Antonio?
c)Assuming (b) is answered in the affirmative, is it reasonably arguable that Antonio has been discharged of his obligations under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee?
d)Is it reasonably arguable that the Bank was not entitled to exercise its rights under the 49 and 97 Queens Road mortgages, including appointing receivers, without first making a demand on Antonio under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee?
e)If (d) is answered in the affirmative, what are the reasonably arguable consequences?
Are the terms not to enforce the guarantees without first issuing demands a condition precedent or essential terms?
Neither the Remo 49 Facility Guarantee nor the Remo 97 Facility Guarantee contains an express term to the effect that the Bank would not seek to enforce those guarantees without first making a demand on Antonio. In my opinion, however, it is reasonably arguable that such a term would be implied as a necessary implication of the express term that Antonio would pay the “Secured Moneys” to the Bank “on demand”. That is, it is reasonably arguable that the express stipulation that Antonio would pay the “Secured Moneys” “on demand” necessarily carries with it the negative stipulation that the Bank would not seek to enforce the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee without first making the demands required by the guarantees.
Assuming each of the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee contains a term to the effect that the Bank would not seek to enforce those guarantees without first making a demand on Antonio, the next question is whether it is reasonably arguable that such term is either a condition precedent or an essential term of each of the guarantees. The notion of “condition precedent” was considered by Samuels JA in Tricontinental Corporation Ltd v HDFI Ltd:[88]
A condition precedent, on the other hand, need not be promissory in nature. It is a stipulation in an agreement upon the fulfilment of which the existence of a contract, or of a principal obligation under an existing contract, is made contingent. The stipulation may involve the occurrence of an event that is independent of both parties, or it may require a unilateral act: see Halsbury's Laws of England, 4th ed, vol 9, par 511 at 353.
If the condition precedent is the performance of some act by one party, it is not necessary to inquire whether the failure to do the act was also a breach of contract unless the party promised to do the act which is the condition precedent: Carter, Breach of Contract (1984) par 432 at 96. The observations of Diplock LJ in United Dominions Trust (Commercial), Ltd v Eagle Aircraft Services, Ltd [1968] 1 WLR 74; [1968] 1 All ER 104, in relation to unilateral contracts are in point. His Lordship said (at 84; 109-110):
“… [T]he initial inquiry is whether the event, which under the unilateral contract gives rise to obligations on the part of the promisor, has occurred. To that inquiry there can only be a simple ‘Yes’ or ‘No’. The event must be identified by its description in the unilateral contract; but if what has occurred does not comply with that description, there is an end of the matter. It is not for the court to ascribe any different consequences to non-compliance with one part of the description of the event than to any other part if the parties by their contract have not done so ….
For the inquiry here is: ‘What have the parties agreed to do?’ — not ‘What are the consequences of their having failed to do what they have agreed to do?’ as it was in the Hongkong Fir case.” (My emphasis.)
[88] (1990) 21 NSWLR 689, at pages 703G-704C; 705F
. . . .
Where an act by one party is a condition precedent to the liability of the other, whether it has occurred or been fulfilled depends upon if the act proffered matches the description of the condition precedent in the contract, not upon the seriousness of the divergence from that description.
The notion of an essential term in the context of a contract of guarantee was considered by the plurality in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd:[89]
The expression “essential term” perhaps needs some elaboration in the context of suretyship because it is said sometimes that a surety is discharged by non-fulfilment of a condition precedent and at other times that a surety is discharged by the creditor's breach of a condition. A condition precedent may be unfulfilled without any breach of contract, but when performance by the creditor of a contractual promise is a condition precedent to the liability of the surety under a contract of suretyship which otherwise involves no more than a guarantee of payment of the debt owing to that creditor, the creditor's promise is necessarily an essential term of the contract. The terms of the contract itself demonstrate that the surety would not have entered into the contract of suretyship unless he had been assured of a strict performance of the promise . . . .
Conversely, when a contractual promise is a condition, performance of the promise, if the promisee so elects, is treated as a condition precedent to the promisee’s executory obligations. . . .
In the context of suretyship contracts there has been a natural tendency to refer to the creditor’s promise as a condition precedent rather than as a condition. This is because many guarantees are unilateral instruments, containing no promises on the part of the creditor except in so far as the recital of the consideration may refer to such a promise.
[89] (1987) 162 CLR 549, at pages 555-556
In my opinion it is reasonably arguable that a term to the effect that the Bank would not seek to enforce the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee without first making a demand on Antonio under each of those guarantees was either a condition precedent to Antonio’s obligations under those guarantees, or an essential term of those guarantees. It is also reasonably arguable that the terms of each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee would have demonstrated to persons in the position of the Bank and Antonio that Antonio would not have entered into the guarantees unless he had been assured of strict compliance with the term that the Bank would not seek to enforce the guarantees without first making a demand on Antonio. The purpose of a term requiring the giving of a demand for the payment of money is to afford the person against whom the demand is made a reasonable opportunity to pay the amount demanded. As the High Court said in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd:[90]
[I]t is now a well established principle of law that a debtor required to pay a debt payable on demand must be allowed a reasonable time to meet the demand. Even in a case where a deed provided that the debt was payable “immediately upon demand thereof in writing” it was held that the provision must be given a reasonable construction so that the debtor had a reasonable time to get the money from some convenient place.
[90] (1984) 153 CLR 491, at pages 502-503
I have not omitted to consider whether in its defence to Antonio’s cross-claim the Bank has pleaded any affirmative defence to this part of the cross-claim. The Bank does not plead any such affirmative defence. I mention this, partly because in his oral submissions counsel for the Bank referred to the fax Antonio sent to the Receivers on 31 December 2010 in which he acknowledge receipt of a notification from the Receivers and in which Antonio stated “[w]e are more than happy to assist and co-operate [with] you in the matter”. Counsel, however, did not submit that Antonio’s fax constituted any waiver or any affirmation of the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee. It may be that counsel made no submission because the Bank does not plead any waiver or affirmation in its defence to the cross-claim and also, perhaps, because Antonio’s fax was not addressed to the Bank.
Enforcement of guarantees without issuing demand?
It is reasonably arguable the Bank purported to exercise its rights under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee without first giving Antonio a demand under those guarantees. Particularly relevant is that the Bank does not allege in its amended statement of claim that it made any demands under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee until January 2013.
Consequences of enforcing guarantees without prior demand
Given I have found it is reasonably arguable that each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee contained a term to the effect that the Bank would not seek to enforce the guarantees without first making demand on Antonio under the guarantees, and that such term is either a condition precedent or an essential term under those guarantees, and Antonio has purported to elect to accept the Bank’s repudiation of the guarantees, it follows it is reasonably arguable that Antonio’s liabilities under each of the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee have been discharged.
Entitled to exercise right over mortgages without prior demand?
The 49 and 97 Queens Road mortgages are not in evidence. The question whether, as Antonio alleges, the Bank’s entitlement to exercise its rights under those mortgages depended on Antonio being in default, which in this case means Antonio having been given a demand under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee, must be assessed by reference to the pleadings filed in the Common Law proceeding, which I have described earlier in these reasons.
The Bank denies it was not entitled to appoint the Receivers at the time it did. The Bank appears to rely on the allegation that it “had issued a notice on [Antonio] based on a default under the Mortgages”.[91] In the particulars to this allegation, the Bank refers to a “[l]etter dated 20 July 2010 from the Bank to” Antonio. I infer that is a reference to the letter reproduced in paragraph 19 of these reasons. The Bank further alleges that Antonio “failed to comply with the terms of the notice”. There are a number of observations that may be made about these allegations.
a)First, the Bank does not identify the term or terms of the 49 or 97 Queens Road mortgages in relation to which it is alleged Antonio was in default; nor does it identify the act or omission which it is alleged constitutes the default of those mortgages.
b)Second, it is not reasonably arguable that the letter dated 20 July 2010 purports to be a notice under the 49 or 97 Queens Road mortgages. The letter does not purport to say so; and although it refers to there being a “default”, what is said to be in default are “the facilities”, not the 49 and 97 Queens Road mortgages.
c)Third, it is reasonably arguable that the letter dated 20 July 2010 is not addressed to Antonio in his capacity of guarantor of the Remo 49 Facility and the Remo 97 Facility. It is addressed to “Mr A Mastronardo Director Remo 49 Queens Road Pty Ltd Remo 97 Queens Road Pty Ltd”.
d)Fourth, the letter dated 20 July 2010 does not purport to make any demand. The letter only states that the “Bank reserves its rights and remedies under that default”, and that it “is considering its position in regards to your facilities”.
[91] Reply, [1(c)]
Another matter that is relevant is the Bank’s response to the allegations made in paragraph 25 of Antonio’s amended defence to the effect that Antonio could only have been in default under the 49 and 97 Queens Road mortgages if the Bank had first made a demand under the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee. The Bank pleads a bald denial with an affirmative statement that it will rely on the terms of the mortgages; but the Bank does not identify the terms of the mortgages, and it does not plead the effect of the terms of the mortgages on which it relies.
In these circumstances I am satisfied it is reasonably arguable that the Bank was not entitled to exercise its rights under the 49 and 97 Queens Road mortgages without Mr Antonio first being in default of his obligations under the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee; and that Mr Antonio could not be in default of his obligations under those guarantees unless the Bank first made a demand on him under those guarantees and Antonio failed to comply with that demand. Given I have also found that it is reasonably arguable that the Bank did not make a demand on Antonio under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee, it follows it is reasonably arguable that the Bank was not entitled to exercise its rights under the 49 and 97 Queens Road mortgages at the time it purported to appoint the Receivers over the properties covered by those mortgages.
Consequences of invalid appointment of Receivers
When considering the potential consequences of the Bank having purported to appoint the Receivers in circumstances where the Bank arguably did not make a demand on Antonio under the Remo 49 Facility Guarantee or the Remo 97 Facility Guarantee, it is necessary to refer to a number of principles.
a)First, any expressed condition precedent to the appointment of a receiver must be faithfully satisfied if the appointment is to be valid.[92]
b)Second, persons who take possession of property as receivers and managers under an invalid appointment may be held liable as trespassers.[93]
c)Third, if a person is invalidly appointed a receiver, the person responsible for that invalid appointment, namely, the appointer, may be vicariously liable for the acts and defaults of the purported receiver.[94]
d)Fourth, where pursuant to an unlawful appointment a purported receiver has sold property without authority, it may be open to the person whose possession was disturbed by the receiver to claim damages for conversion or, in the alternative, claim the proceeds of sale in an action for money had and received.[95]
e)Fifth, if invalidly appointed receivers and managers enter into possession and assume control of property, the chargee cannot validly appoint other receivers and managers until the control of the property is returned to the chargor and a fresh demand, if necessary, is made.[96]
[92] See, for example, Jaffe Ltd v Jaffe [1931] NZGazLawRp 169; [1932] NZLR 195; (1931) 1 NZLRLC 405; (1931) 33 GLR 171
[93] See, for example, Harold Meggit Ltd v Discount & Finance Ltd (1939) 56 WN (NSW) 23
[94] Company Receivers and Administrators (Westlaw AU, subscription service) “Liability in trespass and conversion” at [7.13310], viewed 22 August 2019
[95] Company Receivers and Administrators (Westlaw AU, subscription service) “Liability in trespass and conversion” at [7.13310], viewed 22 August 2019
[96] Company Receivers and Administrators (Westlaw AU, subscription service) “Fresh Appointments” at [7.13610], viewed 22 August 2019
In the light of these principles, it is reasonably arguable that, because their invalid appointment, the Receivers took possession of the properties the subject of the 49 and 97 Queens Road mortgages without authority; they are liable to an action for damages for trespass or for an action for money had and received; and that the Bank, as the person who purported to appoint the Receivers is vicariously liable for the unauthorised actions of the Receivers.
Conclusion on cross-claim
It is reasonably arguable that Antonio has been discharged of his obligations under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee. It is also reasonably arguable that Antonio has an action against the Bank for money had and received in relation to the amounts for which the Receivers sold the 49 Queens Road Lots and the 97 Queens Road Property. In its amended statement of claim filed in the Common Law proceeding, the Bank alleges the Receivers sold these properties for a total of $24,390,424.[97] It is reasonably arguable, therefore, that Antonio has a claim for money had and received in relation to that amount, which exceeds the amount of the judgment on the basis of which the Bank applies for a sequestration order in relation to Antonio’s estate.
[97] ASC, [36]
Disposition
Although I have found that Antonio has a reasonably arguable case that his liabilities under the Remo 49 Facility Guarantee and the Remo 97 Facility Guarantee have been discharged, and that he has a reasonably arguable claim against the Bank for money had and received in relation to the $24,390,424 the Receivers obtained on the sale by the Receivers of the 49 Queens Road Lots and the 97 Queens Road Property, I am not satisfied, on the material that is before me, that it is likely that Antonio will succeed in his cross-claim. That is because I am not satisfied all of the relevant evidence is before me; and, understandably, I have not had the benefit of full argument on the evidence and the law. I am of the opinion, however, that Antonio’s cross-claim is of sufficient substance to warrant its being litigated in the ordinary course in the Supreme Court of New South Wales.
I propose, therefore, to order that the hearing of creditor’s petition in relation to Antonio be adjourned part heard, and to list the matter for directions at 9.30 am on 12 December 2019. I propose to so order on terms. The first term is that Antonio is to prosecute his cross-claim in the Supreme Court of New South Wales with reasonable dispatch. I will include a note to the orders I propose to make that it will be presumed that Antonio will not be prosecuting his cross-claim with due dispatch if he seeks to alter, or acquiesce in the alteration of, the current constitution of the Common Law proceeding by applying for, or acquiescing in, the addition in that proceeding of additional claimants; or if Antonio seeks to make additional claims Antonio considers he may have against the Bank or some other person that do not arise out of the same, or substantially the same, facts out of which his cross-claim arises. The second term on which I propose to adjourn the creditor’s petition is that the parties have liberty to apply on such notice as the circumstances warrant to relist the matter before 12 December 2019 for any reason, including because Antonio is not prosecuting the cross-claim with due dispatch.
I will reserve the question of costs.
I certify that the preceding ninety (90) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 28 August 2019
- AGLC
- Commonwealth Bank of Australia Trading as Bankwest v Mastronardo [2019] FCCA 2371
- Case
- [2019] FCCA 2371
- Decision Date
CaseChat Overview and Summary
The central legal issue before the Court was whether the debtor had presented sufficient evidence to demonstrate that he had a reasonably arguable cross-claim against Bankwest that exceeded the debt. This required the Court to assess whether the proposed cross-claim, as it stood or was intended to be presented, disclosed a genuine and arguable case. The Court also had to consider the appropriate course of action, specifically whether to grant an adjournment or proceed to make a sequestration order.
Judge Manousaridis dismissed the application for adjournment, finding that there was no evidence before the Court that a draft cross-claim, which disclosed a reasonably arguable case, was to be provided to senior counsel. Without such evidence, the Court was not satisfied that the debtor had a reasonably arguable case that his cross-claim would exceed the debt. Consequently, a sequestration order was made in relation to one of the creditor's petitions.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
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Decision
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Ratio Decidendi
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