Constantindis v Robinson
[2008] FMCA 1374
•1 October 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CONSTANTINDIS v ROBINSON | [2008] FMCA 1374 |
| BANKRUPTCY – Application to review decision or conduct of a trustee in the administration of a bankrupt estate – sale of real estate – trustee permitting asserted secured creditor to take residue of the proceeds of the sale – security later undermined by decision of the Supreme Court in separate proceedings – whether the trustee responsible for any loss to unsecured creditors considered. PRACTICE AND PROCEDURE – Interlocutory dismissal of application – no reasonable prospect of success. |
| Bankruptcy Act 1966 (Cth), ss.176, 178 Federal Court Act 1976 (Cth), s.31A Federal Magistrates Act 1999 (Cth), ss.17A, 50 |
| Alphapharm Pty Ltd v Merck & Co Inc [2006] FCA 1227 Australian International Pilots Assn v Qantas Airways Ltd [2006] FCA 441 Balding v Ten Talents Pty Ltd & Anor [2007] FMCA 145 Boston Commercial Services Pty Ltd v GE Capital Finance Australasia [2006] FCA 1352 Cate v International Flavours & Fragrances (Bost) Pty Ltd [2007] FMCA 36 Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (in liq) (formerly Stanley Thompson Valuers Pty Ltd) [2006] FCA 1416 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Duncan v Lipscombe Child Care Services Inc [2006] FCA 458 Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 Galadriel Lothlorien Pty Ltd v Station 1 Pty Ltd [2008] NSWSC 91 Galadriel Lothlorien Pty Ltd v Station 1 Pty Ltd & Ors, 1805/06, 6 July 2006, Palmer J Galadriel Lothlorien Pty Ltd v Station 1 Pty Ltd & Ors, 2818/06, 6 July 2006, Palmer J General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Hicks v Ruddock [2007] FCA 299 Hocking v Bell (1945) 71 CLR Howard v Australian Fisheries Management Authority [2006] FMCA 975 Jewiss v Deputy Commissioner of Taxation [2006] FCA 1688 MG Distribution Pty Ltd & Anor v Khan & Anor [2006] FMCA 666 Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 Vans, Inc v offprice.com.au Pty Ltd [2006] FCA 137 Vivid Entertainment LLC & Ors v Digital Sinema Australia Pty Ltd & Ors [2007] FMCA 157 |
| Applicant: | GEORGE CONSTANTINDIS |
| Respondent: | M J ROBINSON |
| File Number: | SYG 1751 of 2008 |
| Judgment of: | Driver FM |
| Hearing date: | 1 October 2008 |
| Delivered at: | Sydney |
| Delivered on: | 1 October 2008 |
REPRESENTATION
The Applicant appeared in person
| Counsel for the Respondent: | Mr B Skinner |
| Solicitors for the Respondent: | Kemp Strang |
ORDERS AMENDED UNDER THE SLIP RULE
The application in a case filed on 13 August 2008 is dismissed.
The applicant is to pay the respondent’s costs and disbursements of and incidental to the application in a case filed on 13 August 2008 to be taxed in accordance with the Federal Court scale.
Judgment is given for the respondent, MJ Robinson, against the applicant, George Constantindis, in relation to the whole of the proceedings constituted by the application filed on 25 June 2008 and the amended application filed on 12 September 2008, pursuant to s.17A(2) of the Federal Magistrates Act 1999 (Cth).
Mr Constantindis is to pay Mr Robinson’s costs and disbursements of and incidental to the proceedings to be taxed if not agreed, pursuant to the Federal Court scale.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1751 of 2008
| GEORGE CONSTANTINDIS |
Applicant
And
| M J ROBINSON |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
I have before me an interlocutory application filed 3 September 2008 seeking the dismissal of the principal application in this matter pursuant to s.17A(2) of the Federal Magistrates Act 1999 (Cth) (“the Federal Magistrates Act”) and costs. The proceedings were originally instituted in the Federal Court and were transferred to this Court. The principal application is currently an amended application filed on
12 September 2008seeking relief against the respondent trustee in bankruptcy. The principal applicant is a creditor in the bankrupt estate.
The general background facts are contained in an affidavit by
Mark Julian Robinson of the trustee's firm filed on 3 September 2008. That affidavit was read for the purposes of the summary dismissal application. I also have before me the exhibit MJR1 to that affidavit.
I adopt as background with necessary amendments paragraphs 3 through to 16 of that affidavit:
On 20 September 2006 a sequestration order was made against the estate of Anthony Saglimbeni (“the bankrupt”) in the Federal Magistrates Court of Australia proceedings no SYG2262 of 2006. Page 1 of the exhibit is a true copy of the said sequestration order made on 20 September 2006.
Mr Robinson was appointed trustee of the bankrupt’s estate. Page 2 of the exhibit is a true copy of a Certificate of Appointment, dated 25 September 2006.
The bankrupt is also known as Antonio Carmelo Saglimbeni.
Pages 3 to 5 of the Exhibit are a true copy of a judgment given by his Honour Justice Palmer in Supreme Court of New South Wales proceedings no 1805/06 and 2818/06.
David Gorney, a senior manager of PPB Chartered Accountants, assisted Mr Robinson in relation to matters connected with the bankrupt’s estate. Pages 6 to 8 of the exhibit is a true copy of an e-mail transmission chain passing between the applicant, George Constantindis, and David Gorney of PPB Chartered Accountants, on 24 November 2006, containing:
(a) an e-mail transmission from the applicant to Mr Gorney, sent at 6.43am on 24 November 2006; and
(b)an e-mail transmission from Mr Gorney to the applicant sent at 9.59am on 24 November 2006.
Pages 9 to 12 of the exhibit are true copies of correspondence passing between Jordan Djundja (solicitor) and PPB Chartered Accountants on 29 November 2008 and 30 November 2008:
Pages 9-10 Facsimile transmission from Jordan Djundja to PPB Chartered Accountants, dated 29 November 2006.
Page 11 Facsimile transmission from Jordan Djundja to PPB Chartered Accountants, dated 29 November 2006.
Page 12 Facsimile transmission from me to Jordan Djundja, dated 30 November 2006.
Pages 13 to 14 of the exhibit is a true copy of an e-mail transmission chain passing between the applicant and Mr Gorney, on 28 March 2008 and 31 March 2008, containing:
(a)an e-mail transmission from the applicant to Mr Gorney, sent at 3.02pm on 28 March 2008;
(b)an e-mail transmission sent by Mr Gorney to the applicant, at 10.41am on 31 March 2008; and
(c)an e-mail transmission from the applicant to Mr Gorney, sent at 12.02 on 31 March 2008.
Page 15 of the exhibit is a true copy of a letter from the applicant, on the letterhead of South Pacific Investments Development Growth & Energy Pty Ltd, to PPB, Chartered Accountants dated 4 April 2007. The letter was received in April 2008. It appears that the letter was incorrectly dated 4 April 2007 and should have been dated 4 April 2008.
Pages 16 to 17 of the exhibit are a true copy of a letter from PPB Chartered Accountants to the applicant dated 14 April 2008.
Sale of 77 Croydon Avenue, Croydon Park
Contracts for the sale of the land contained in folio 89/687, known as 77 Croydon Avenue, Croydon Park in the State of New South Wales (“the Croydon Park property”), were exchanged on 16 September 2006. Page 18 of the exhibit is a true copy of the front page of one of the counterparts of the contract for sale of the Croydon Park property signed by the purchasers, dated 16 September 2006.
Settlement of the sale of the Croydon Park property took place on 30 November 2006. Pages 19 to 21 of the exhibit are a true copy of a letter from Jordan Djundja to the bankrupt, containing a settlement statement, dated 4 December 2006.
Pages 22 to 26 of the exhibit are true copies of the following documents obtained from the records of Land and Property Information New South Wales:
Pages 22 Street Address Browse search for the Croydon Park Property, conducted on 22 August 2008.
Pages 23-24 Historical search for folio 89/687, conducted on 22 August 2008.
Pages 25-26 Caveat no AC596396, lodged by the applicant over folio 89/687.
Those documents referred disclose that:
(a) as at 30 November 2006 (being the date of settlement of the sale of the Croydon Park property) the caveat lodged by the applicant was not registered on the title of the Croydon Park property; and
(b) the caveat lodged by the applicant was not registered until 28 December 2006.
Mr Robinson is unaware of any caveatable interest held by the applicant with respect to the Croydon Park property as at the date of settlement of the sale of the Croydon Park property.
The summary dismissal application is resisted by the principal applicant, Mr George Constantindis. He relies upon his amended application and affidavits filed by him in support of it on 23 July 2008, 25 September 2008 and 3 June 2008. He also tendered during argument this morning two letters from the trustee’s firm to Jordan Djunda Lawyers dated 27 October 2006 and 23 November 2006. These I marked as exhibit A1 as a bundle.
The dispute between the parties centres upon action or inaction by the trustee in relation to the sale of a property at 77 Croydon Avenue, Croydon Park. The undisputed facts are that contracts for the sale of that property were exchanged shortly before the owner of the property (Mr Saglimbeni) became bankrupt. The trustee was appointed trustee of the bankrupt estate and was required to decide whether to agree to the sale of the property continuing. Although the facts are not entirely clear, it appears that the property was subject to several secured interests. Among other interests, it appears that the property was used by the bankrupt, along with other properties, to secure a loan which is generally understood to be a caveat loan ‑ namely, a loan where the security normally in the form of a mortgage is not registered but is supported by the caveat. That loan was made by a company called Galadriel Lothlorien Pty Ltd (“Galadriel”). Mr Constantindis had, along with Galadriel and (apparently) others, placed caveats over the property. Those caveats needed to be removed for the sale to proceed. Mr Constantindis does not dispute that he did not have a caveatable interest, being a simple creditor, but stated from the bar table that the purpose of the caveat was to ensure that he was alerted to any intended sale of the property.
It is apparent from Mr Constantindis' affidavit material that he did, indeed, become aware of the sale of the property and understood that the trustee was seeking to have funds from the sale of the property that were due to be paid to Galadriel paid into the trustee's trust account or, alternatively, into the Supreme Court. The latter option appears to have been raised because of litigation in the Supreme Court in which Galadriel sought to enforce personal guarantees in respect of the loan given by three individuals, including the bankrupt. The proposition appears to have been that until that dispute was resolved the proceeds from the sale of the property that would otherwise have been paid to Galadriel as a secured creditor would be held in trust until the rights of the parties in that dispute were resolved.
It appears, and I accept from Mr Constantindis' affidavits, that he was concerned when told immediately before the settlement of the sale that the funds due to be paid to Galadriel would not be held in trust but would be paid to Galadriel in accordance with its status as a secured creditor. He expressed his disappointment about that outcome at the time. More recently, Mr Constantindis became concerned following the decision of the Supreme Court in the proceedings between Galadriel and the guarantors, which were resolved against Galadriel. That decision by his Honour Hamilton J[1] on 15 February 2008 was to refuse to enforce any of the provisions of the loan contract against two of the three guarantors on the basis that the contract was unfair and unconscionable because of the extremely high rate of interest applied. Mr Constantindis believes, in the light of that judgment, that the trustee was wrong not to insist upon holding the funds which were paid to Galadriel.
[1] Galadriel Lothlorien Pty Ltd v Station 1 Pty Ltd [2008] NSWSC 91
There is an issue about whether Mr Constantindis' application is out of time. His application is purportedly brought pursuant to s.178 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) which relevantly provides that the application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision. It is apparent from Mr Constantindis' own affidavit material that he was aware some two years before instituting the proceedings that the funds in issue would not be held in trust either by the trustee in bankruptcy or by the Supreme Court. However, the amended application complains of resultant actions or asserted failures by the trustee and it might reasonably be argued that the proceedings are more properly based upon s.176 of the Bankruptcy Act rather than s.178. I proceed on the basis that the principal application is not barred by s.178(2).
The issue to be resolved on the trustee's interlocutory application is whether the principal application should be summarily dismissed pursuant to s.17A of the Federal Magistrates Act. I dealt with the interpretation of that section in Vivid Entertainment LLC & Ors v Digital Sinema Australia Pty Ltd & Ors [2007] FMCA 157 at [18]‑[30]. I adopt in this case the same principles that I applied in the Vivid proceedings:
Rule 13.07 of the Federal Magistrates Court Rules has been considered on a number of occasions and it had been accepted that the general law in relation to summary judgment applied. The rule[2] was, however, amended in 2005 to ensure consistency with s.17A of the Federal Magistrates Act. That section has received only limited judicial consideration in this Court. Following the amendments, Lindsay FM in Howard v Australian Fisheries Management Authority [2006] FMCA 975 (decided on 7 July 2006) considered the section and rule 13.10 in the light of the general law principles at [33]-[35]. His Honour recognised, however, that the enactment of s.17A had the effect of moving away from the rigour of the approach taken by the courts to summary dismissal under the general law. His Honour stated that henceforth, an application need not be hopeless or bound to fail for it to have no reasonable prospect of success.
[2] and rule 13.10 dealing with summary dismissal
McInnis FM considered the section in MG Distribution Pty Ltd & Anor v Khan & Anor [2006] FMCA 666 (decided on 12 May 2006). His Honour noted[3] that s.17A sought to modify the general law test set out in Dey v Victorian Railways Commissioners (1949) 78 CLR 62. At [38]-[39] His Honour said:
[3] At [37]
The new provision clearly provides in s.17A(2) that this court may give judgment for the Respondents against the first Applicant for the whole or any part of the proceeding if the court were to be satisfied that the Respondents are defending the proceeding or part of the proceeding and the court is further satisfied that the first Applicant in this case has "no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding".
However, the new statutory provision in my view does not necessarily detract entirely from the principles in relation to summary dismissal which were described by Dixon J in Dey as being "well settled". It is relevant in my view to have regard to the following passage from the decision of Dixon J in Dey as follows:
“The principles upon which that jurisdiction is exercisable are well settled. A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process.”
In Cate v International Flavours & Fragrances (Bost) Pty Ltd [2007] FMCA 36 (decided on 24 January 2007), McInnis FM adopted his earlier reasoning in MG Distribution[4].
[4] Cate at [66]-[72]
Section 17A is in the same terms as s.31A of the Federal Court Act 1976 (Cth) (“the Federal Court Act”). That section has not been considered by the Full Court of the Federal Court but has been considered on several occasions by single judges, whose decisions should be followed by this Court unless they are clearly wrong. Two approaches are discernable from the authorities. Under the first approach, the section is seen as imposing a less stringent test than the test imposed under the general law in cases such as Dey v Victorian Railway Commissioners and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. In Vans, Inc v offprice.com.au Pty Ltd [2006] FCA 137 at [10]-[12] Wilcox J said:
I have sympathy with the view expressed by Finkelstein J. There is much to be said for the principle that a party, against whom proceedings are taken, is entitled to its/his/her day in court to test that evidence. The principles in force before the enactment of s 31A would, I think, have required the rejection of a summary judgment application in this case. It is sufficient for me to refer to authorities such as Dey v Victorian Railways Commissioners (1949) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125.
The strength of the application for leave to appeal is, in my view, the recent enactment of s 31A. There is a real question as to the effect of the formula, ‘the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding’. It can rarely be said there is no prospect of a party successfully defending a proceeding. There is almost always a possibility that the case of the party bearing the onus of proof will break down at trial. If s 31A is to be construed so as to exclude summary judgment where there is only this possibility, then, as Mr Shavin says, it is difficult to see the point of its enactment. Also, it should be borne in mind that subs (3) of s 31A goes on to say that:
‘For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.’
It seems to me it is, at least, arguable that the effect of s 31A is that there can be summary judgment for an applicant, notwithstanding the possibility that the applicant’s case will break down at trial; in other words, it is now not enough for a party resisting a summary judgment application to seek merely to put the other side to proof. If that view is correct, there is a firm basis for believing that Finkelstein J may have overlooked the significance of the new section.
The alternative approach taken in the Federal Court is to apply the section on a basis consistent with general law principles. In Boston Commercial Services Pty Ltd v GE Capital Finance Australasia [2006] FCA 1352 (decided on 16 October 2006) Rares J considered the available authorities to that point and, at [42], said:
I am of opinion that properly construed, s 31A(2)(b) requires a person moving a motion for summary disposal (‘the moving party’) to satisfy the Court that there is no reasonable prospect of the party claiming relief (‘the plaintiff’) successfully prosecuting the proceeding or the part of the proceeding in question. Experience shows that there are cases which appear to be almost bound to fail yet they succeed. As Dixon CJ once said (Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 at 20):
‘Experience of forensic contests should confirm the truth of the common saying that one story is good until another is told...’
His Honour continued at [44]-[48]:
In a case to which s 31A applies, where there is a real issue of fact to be decided in the sense identified in the above principle, and, possibly, where there is a real issue of law of a similar kind, it is obviously appropriate that the matter goes to trial. And, one must be mindful that in Hocking v Bell (1945) 71 CLR at 487, Dixon J said that in effect, every judge who had heard the matter (through four trials, two Full Court appeals and, to that point, the appeal to the High Court) would have formed the view that the plaintiff should have failed had they been able to decide the facts, yet the Privy Council restored the second jury verdict in her favour and so concluded the litigation. This raises a very real question, as to what reasonable prospects are for present purposes.
I am of [the] opinion that in assessing what reasonable prospects of success are for the purposes of s 31A, the Court must be very cautious not to do a party an injustice by summarily dismissing the proceedings where, in accordance with the principles in Hocking v Bell (1947) 75 CLR 125, contested evidence might reasonably be believed one way or the other so as to enable one side or the other to succeed. As soon as the evidence may have such an ambivalent character prior to a final determination, I am of opinion that then, as a matter of law, at that point there are reasonable prospects of success within the meaning of s 31A. Unless only one conclusion can be said to be reasonable, the moving party will not have discharged its onus to enliven the discretion to authorize a summary termination of the proceedings which s 31A envisages. In moving the second reading of the bill introducing s 31A (the Migration Litigation Reform Bill 2005) the Attorney-General said that it strengthened ‘... the power of the courts to deal with unmeritorious matters by broadening the grounds on which federal courts can summarily dispose of unsustainable cases’.
In Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 154-155, Dawson, Gaudron and McHugh JJ said that a party should not be shut out from litigating an issue which was fairly arguable and that the power to grant leave to amend should be exercised with that in mind. They observed (189 CLR at 154) that ‘...the ultimate aim of a court is the attainment of justice’. Obviously, s 31A regulates the attainment of justice by creating an entitlement in a party to be protected from claims or defences which fail to meet the threshold prescribed in the section. In granting leave to appeal on a decision involving the application of s 31A, Wilcox J observed in Vans, Inc v Offprice.Com.Au Pty Ltd [2006] FCA 137 at [12] that it was arguable that the effect of s 31A was that there could be summary judgment for an applicant ‘... notwithstanding the possibility that the applicant’s case will break down at trial; in other words, it is now not enough for a party resisting a summary judgment application to seek merely to put the other side to proof’ (his Honour’s emphasis).
GE Capital also argued that s 31A required the Court to dismiss a claim or defence based on a predictive assessment of its prospects, even though it may be possible that had the matter gone to trial it would have succeeded. I am of opinion that this is not how the section operates. It is engaged only to determine summarily a claim or defence which has no reasonable prospect of success. The purpose of the enactment is to enable the Court to deal with matters which should not be litigated because there is no reasonable prospect of any outcome but one. If there is a reasonable danger that a claim or defence could be dismissed under s 31A, which could succeed at a trial, the provision would create miscarriages of justice. It is a key feature of the judicial power under Ch III of the Constitution that the Court be in a position to, and in fact does, quell a controversy. The exercise of the judicial power to prevent the substantive agitation of a controversy in which each side has a reasonable prospect of success would defeat, not advance, the ends of justice.
It could not have been the intention of the Parliament in introducing s 31A to the Federal Court Act to require the Court to engage in lengthy and elaborate trials on an interlocutory basis for the purpose of determining whether or not a proceeding had no reasonable prospects of success. Obviously, there will be cases in which, because of their nature, it is necessary to undergo detailed analysis. However, the assessment of whether there is a reasonable prospect of successfully prosecuting the proceeding must depend upon the evidence and pleading the subject of the application.
In Jewiss v Deputy Commissioner of Taxation [2006] FCA 1688 at [26]-[29] (decided on 5 December 2006) Mansfield J appeared to support the more liberal approach taken by Wilcox J, although the case was essentially decided on the basis of Anshun estoppel[5]. Further support for the approach taken by Wilcox J can be found in Alphapharm Pty Ltd v Merck & Co Inc [2006] FCA 1227 (decided on 15 September 2006) at [9]-[11] per Moore J and Duncan v Lipscombe Child Care Services Inc [2006] FCA 458 (decided 28 April 2006) at [6] per Heerey J.
[5] see [50]
Conversely, support for the approach taken by Rares J can be found in Australian Inernational Pilots Assn v Qantas Airways Ltd [2006] FCA 441 at [23] (decided on 9 November 2006) per Tracey J.
The authorities were reviewed by Jacobson J in Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (in liq) (formerly Stanley Thompson Valuers Pty Ltd) [2006] FCA 1416 (decided 2 November 2006) at [30]-[33] where His Honour said:
… The authorities relating to the proper construction and effect of s 31A of the Federal Court of Australia Act were exhaustively reviewed by Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352 at [31] – [48]. His Honour stated the relevant principles at [45] and they may be summarised as follows:
•In assessing whether there are reasonable prospects of success, the Court must be cautious not to do an injustice by summary dismissal.
•There will be reasonable prospects of success if there is evidence which may be reasonably believed so as to enable the party against whom summary judgment is sought to succeed at the final hearing.
•Evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects.
•Unless only one conclusion can be said to be reasonable, the discretion under s 31A cannot be enlivened.
I do not think that this approach conflicts with the provisions of s 31A(3).
It is true that summary dismissal applications are to be determined on the pleadings and any evidence before the Court; but at the heart of the exercise is the assessment on incomplete materials, of the prospects of success if the matter proceeds to a final hearing; Boston Commercial at [38], [48].
It would be wrong to determine the application on a narrow approach to the pleadings where, as here, there is evidence, albeit incomplete, and perhaps at this early stage, ambivalent, which may at a final hearing, and with amended pleadings, produce a verdict for the applicant.
Further guidance was provided by French J in Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 (decided on 27 October 2006) at [19]-[21]. His Honour said:
The question which has to be answered in an application for judgment under s 31A is whether the party against whom the application is made has any "reasonable prospect" of successfully prosecuting or defending "the proceeding" or the "part of the proceeding" in issue. That question is not to be answered by a finding that a party’s statement of claim or defence fails to disclose a reasonable cause of action or defence. A pleading may be rectified by amendment so as to raise a reasonable cause of action or defence. It follows that a finding that a pleading should be struck out under O 20 does not mean there must be judgment against the party whose pleading it is. There may yet, by amendment, be a reasonable prospect of successfully prosecuting or defending that proceeding.
In order to secure judgment under s 31A it must be shown that the party prosecuting or defending the proceeding has no reasonable prospect of success. This judgment can be made, by reference to pleadings, where there is a defect in the pleadings which cannot be cured. Alternatively, it may be a judgment made by reference to evidence put on in support of an application under s 31A which reasonably excludes the possibility that facts essential to the success of the claim or defence will be able to be established. For example, if a cause of action depends critically for its success upon the presence of the defendant at a particular place, at a particular time and the defendant is able to show, on affidavit, that he or she was not at that place at the particular time and there is no evidence to contradict that "alibi" then the judgment may be made that the proceeding has no reasonable prospect of success. In such a case judgment may be given for the defendant. Alternatively, if a defence is pleaded which depends critically for its success upon the defendant’s denial that it was a party to a contract, then an affidavit by the applicant exhibiting the contract with the defendant’s signature on it, supported by affidavits from witnesses to the execution of the contract by the defendant may be sufficient to support a judgment under s 31A. Of course, if the defendant were to file an affidavit in reply indicating that the material in the applicant’s affidavit evidence was disputed, then it is unlikely that a finding could be made that the defendant had no reasonable prospect of success.
Section 31A is not a vehicle for simply striking out parts of pleadings that are deficient. Section 31A allows for "judgment" or nothing. Alternative remedies with respect to deficient pleadings must be found in the rules of Court. In this connection I respectfully disagree with the approach taken by Heerey J in Duncan v Lipscombe Child Care Services Inc [2006] FCA 458 in which his Honour said (at [6]):
‘Plainly s 31A was introduced to establish a lower standard for strikeouts (either of claims or defences) than that previously laid down by the High Court’s decisions in Dey v Victorian Railways Commissioners (1948) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130, namely that the allegations are "so clearly untenable that [they] cannot possibly succeed".’
Finally, in Hicks v Ruddock [2007] FCA 299, Tamberlin J considered the meaning of the phrase “no reasonable prospects of success” at [12]-[13] in the following terms, which appear to me to build a bridge between the two strands of opinion in the Federal Court:
Section 31A of the Federal Court Act 1976 (Cth) was introduced to impose a lower requirement to dismiss an action by way of summary judgment than that which was imposed in General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125. In that case, the requirement was expressed in terms of "manifestly groundless" or "obviously untenable".
In a case where evidence can give colour and content to allegations and where questions of fact and degree are important, the Court should be more reluctant to dismiss a proceeding on the face of a pleading: see Boston Commercial Services Pty Ltd v G E Capital Finance Australia Pty Ltd [2006] FCA 1352 at [45]. The underlying principle is that the need for a summary judgment must be clear before the court will intervene to prevent a plaintiff submitting a case for determination in the usual way. Once it appears that there is a real issue to be determined, whether it be of fact or law, and that the rights of the parties depend on it, the court should not terminate the action by way of summary judgment. As Barwick CJ said in General Steel at 129-130, great care must be exercised to be sure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of the opportunity to have his or her case tried by the appointed tribunal. The general principle that a person should not lightly be shut out from a hearing is cogent – the onus on the party applying for summary judgment is heavy.
I agree with French J that s.17A, like s.31A, has nothing to do with striking out pleadings[6]. The section, and the Court rules which amplify it, deal with summary judgment and summary dismissal. Pleadings may be relevant in order to determine whether a party should receive summary judgment or suffer summary dismissal but the section, and the rules, are not vehicles for dealing with deficient pleadings. That is, if anything, more clear in this Court, which is not a court of pleadings[7]. Further, in considering whether an apparently hopeless case can be saved by amendment, or further evidence, it may be necessary to consider the conduct of the party who would benefit from that indulgence, and the other circumstances of the proceedings, and determine whether that party is entitled to it, or whether the party should be denied that indulgence.
Otherwise, in the absence of guidance from the Full Federal Court on the interpretation of s.31A, I will follow the cautious approach of Rares J and Jacobson J. In particular, I agree with and will apply the principles summarised by Jacobson J, in the following slightly amended terms:
· In assessing whether there are reasonable prospects of success on an application or a response, the Court must be cautious not to do an injustice by summary judgment or summary dismissal.
· There will be reasonable prospects of success if there is evidence which may be reasonably believed so as to enable the party against whom summary judgment or summary dismissal is sought to succeed at the final hearing.
· Evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects.
· Unless only one conclusion can be said to be reasonable, the discretion under s.17A cannot be enlivened.
· The Court should have regard to the possibility of amendment and additional evidence in considering whether only one conclusion can be said to be reasonable. In that consideration, the conduct of the parties and the other circumstances of the case may be relevant.
[6] In the course of finalising this judgment I became aware of the judgment of Lucev FM in Balding v Ten Talents Pty Ltd & Anor [2007] FMCA 145. His Honour reviewed the same authorities as me at [15]-[31] and came to the same conclusion as me at [32].
[7] see s.50 of the Federal Magistrates Act
The above principles are relevant in assessing whether there are reasonable prospects of success on an application or a response. The Court must be cautious not to do an injustice by summary judgment or summary dismissal.
There will be reasonable prospects of success if there is evidence which may be reasonably believed so as to enable the party against whom summary judgment or summary dismissal is sought to succeed at the final hearing. Evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects. Unless only one conclusion can be said to be reasonable, the discretion under s.17A cannot be enlivened. Finally, the Court should have regard to the possibility of amendment and additional evidence in considering whether only one conclusion can be said to be reasonable. In that consideration, the conduct of the parties and the other circumstances of the case may be relevant.
The position in this case is as follows. The trustee was aware at the time of the sale of the property at Croydon Park that there was a dispute between Galadriel and the guarantors of the loan by Galadriel, which was made to a company. I assume for present purposes that the loan dealt with by Hamilton J in the proceedings between Galadriel and the guarantors was the same loan secured by the property at Croydon Park. The trustee proposed to the solicitors for Galadriel that in view of those legal proceedings the funds that would be available following completion of the sale to Galadriel be paid to him to be held in trust or, alternatively, to be paid to the Supreme Court pending the resolution of the Supreme Court proceedings between Galadriel and the guarantors.
Mr Constantindis was aware of those proposals. They were, however, simply proposals, not a guaranteed outcome. At the time, Galadriel was in a strong position. Its security had been confirmed by the
Supreme Court in a judgment by Palmer J on 6 July 2006[8]. At paragraph 5 of that judgment, his Honour said:
There is no issue that the Plaintiff has a caveatable interest in the property: a security interest is clearly granted under the terms of the loan agreement to which Mr Saglimbeni is a party.
[8] Galadriel Lothlorien Pty Ltd v Station 1 Pty Ltd & Ors, 1805/06, 6 July 2006; Galadriel Lothlorien Pty Ltd v Station 1 Pty Ltd & Ors, 2818/06, 6 July 2006
It followed that Galadriel was a secured creditor in respect of the Croydon Park property and was entitled to be paid in priority to unsecured creditors. The trustee had the power to prevent the sale, but that was his only leverage. He had no legal entitlement to compel payment of the funds due to Galadriel either to himself or to the Supreme Court. It appears that matters came to a head immediately before the sale. On 29 November 2006, the solicitors for Galadriel wrote to the trustee stating, relevantly, that the caveators had withdrawn their caveats unconditionally to permit the settlement of the sale the following day. The solicitors for Galadriel were advised and notified the trustee that if the sale was not settled the following day, the purchasers who had given notice to complete would terminate the contract and seek damages. The solicitors also advised that, in that event, Galadriel would also seek damages. It followed that if the trustee used his power to prevent completion of the sale, the trustee would have been exposed to damages payable both to the purchasers and to Galadriel. It is hardly surprising in the circumstances that the trustee permitted the sale to go ahead.
The position now may be different. The judgment in February this year by the Supreme Court cast doubt on the security held by Galadriel over the Croydon Park property. It is certainly significant that the relief granted by the Supreme Court was granted to guarantors other than the bankrupt. However, it is reasonable to suppose that if the bankrupt had been an active party in the proceedings, he would have also enjoyed benefit from the judgment given that the reasons why the contract was unenforceable did not relate to the individual circumstances of the guarantors but to the unconscionable nature of the loan contract itself.
It is certainly arguable that Galadriel was unjustly enriched by the payment made to it on the sale of the Croydon Park property. The trustee may have a claim against Galadriel for unjust enrichment. However, I would expect that if the trustee were to pursue such a claim, he would want the creditors to fund him to pursue it. It appears to me that if the trustee had wanted to take a direct benefit from the Supreme Court judgment, it would have been necessary for the trustee to have applied to the bankruptcy court for leave for the action by Galadriel to be continued against the bankrupt. That would have been an unusual course of action given that the bankrupt enjoyed the protection of the Bankruptcy Act and, hence, enforcement of the guarantee could not be continued against him without leave of the bankruptcy court.
Further, I would have expected that the trustee would have required to be funded by the creditors in order to become actively involved in the Supreme Court proceedings so as to potentially benefit from them. Such action would have only made sense if the trustee had taken the risk of being sued for damages by the purchasers of the Croydon Park property and Galadriel by preventing the sale of the property.
While Mr Constantindis is understandably upset that the creditors obtained no benefit from the funds obtained from the sale of the bankrupt's residence at the time those funds appeared to be properly payable to Galadriel as a secured creditor, it would have been unreasonable to expect the trustee to have placed himself at personal risk of an action for damages by preventing the sale. It would have also been unreasonable to expect the trustee to have become involved in the Supreme Court action between Galadriel and the guarantors so as to permit that action to be continued against the bankrupt so that it could be resisted, unless the trustee was funded by the creditors, and probably also protected against an adverse costs order.
Having perused all of the available material and in the light of what is now known, in my view, Mr Constantindis has no cause for complaint concerning the sale. The funds paid to Galadriel appeared at the time to be properly payable to it. While Mr Constantindis complains about expenses incurred in the sale, if those expenses had been reduced, on the basis of the entitlements as they appeared at the time of the sale, the result would have simply been an increased payment to Galadriel. Galadriel received no more than 10 per cent of the amount apparently due to it pursuant to the guarantee given by the bankrupt.
I conclude that there is no prospect of Mr Constantindis succeeding against the trustee on the amended application. Only one outcome is reasonable, and that is the dismissal of the application. I will, therefore, order in accordance with the trustee's interlocutory application that judgment is given for the respondent, MJ Robinson, against the applicant, George Constantinidis, in relation to the whole of the proceedings constituted by the application filed on 25 June 2008 and the amended application filed on 12 September 2008, pursuant to s.17A(2) of the Federal Magistrates Act 1999 (Cth).
Costs should follow the event. I will order that Mr Constantindis is to pay Mr Robinson’s costs and disbursements of and incidental to the proceedings to be assessed and if necessary, taxed if not agreed, pursuant to the Federal Court scale.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 5 November 2008
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