Delic v Kazar and Slaven as Joint Trustees in the Bankrupt Estate of Delic
[2020] FCCA 1791
•25 June 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DELIC v KAZAR AND SLAVEN AS JOINT TRUSTEES IN THE BANKRUPT ESTATE OF DELIC & ANOR | [2020] FCCA 1791 |
| Catchwords: BANKRUPTCY – Application by bankrupt under s.104 of the Bankruptcy Act 1966 (Cth) (Act) for orders to reverse or vary the trustee’s acceptance of a proof of debt on grounds that included the agreement on the basis of which the debt was claimed to arise was liable to be set aside on the ground of unilateral mistake or its having been induced by misleading or deceptive conduct – whether it is within the scope of s.104 of the Act for the Court to determine that the debt the trustee admitted is not a debt because the debt arises under an agreement that is liable to set aside without having to make an order setting aside the agreement – such determination is within the scope of s.104 of the Act. |
| Legislation: Australian Consumer Law Bankruptcy Act 1966 (Cth), ss.82, 102(1), 104 Competition and Consumer Act 2010 (Cth), Schedule 2 |
| Cases cited: Auto Group v England [2008] NSWSC 402 |
| Applicant: | DAMIR JAKOV DELIC |
| First Respondent: | HENRY KAZAR AND MICHAEL SLAVEN AS JOINT TRUSTEES IN THE BANKRUPT ESTATE OF DAMIR JAKOV DELIC |
| Second Respondent: | FIDELITY CAPITAL (AUSTRALIA) PTY LTD (ACN 604 621 589) |
| File Number: | SYG 2492 of 2019 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 25 June 2020 |
| Date of Last Submission: | 25 June 2020 |
| Delivered at: | Sydney |
| Delivered on: | 25 June 2020 |
REPRESENTATION
| Solicitors for the Applicant: | Mr S Moss of Panetta & Associates Lawyers, by video |
| Counsel for the First Respondent: | Mr H Somerville, by video |
| Solicitors for the First Respondent: | Emerson Lewis Lawyers |
| Counsel for the Second Respondent: | Mr D Weinberger, by video |
| Solicitors for the Second Respondent: | ERA Legal |
THE COURT DECLARES THAT
It is open to the applicant in this proceeding to rely as a ground for the Court reversing or varying the trustee’s decision to accept the second respondent’s proof of debt on the ground that the agreement or agreements on the basis of which the second respondent claims the debt arose is liable to be set aside for mistake or for misrepresentation.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2402 of 2019
| DAMIR JAKOV DELIC |
Applicant
And
| HENRY KAZAR AND MICHAEL SLAVEN AS JOINT TRUSTEES IN THE BANKRUPT ESTATE OF DAMIR JAKOV DELIC |
First Respondent
| FIDELITY CAPITAL (AUSTRALIA) PTY LTD (ACN 604 621 589) |
Second Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
There is listed before me for hearing an application made by the applicant, Mr Delic, under s.104(1) of the Bankruptcy Act 1966 (Cth) (Act) for review of a decision made by his trustee in bankruptcy[1] admitting a proof of debt in the amount of $285,142.46 submitted by the second respondent, Fidelity Capital (Australia) Pty Ltd (Fidelity).
[1] Two trustees – Mr Kazar and Mr Slaven – had been appointed but Mr Slaven has retired as trustee.
Most of the debt is said to have arisen under the terms of a set of documents, each of which was signed by Mr Delic. The principal document is headed “Master Lease Agreement” (MLA) which records a lease made between Fidelity, a company called “Composite Installations (NSW) Pty Ltd” (Composite) as lessee, and Mr Delic as guarantor. The MLA records the terms on which two vehicles were leased by Fidelity to Composite. The MLA also contains the terms of a guarantee Mr Delic provided to secure Composite’s obligations to Fidelity under the MLA.
Although the form of application by which Mr Delic has sought review of the trustee’s decision to accept the proof of debt seeks an order that the trustee’s decisions be reversed or varied, Mr Delic does not in that document state the grounds on which he relies for such orders. With the form of application, however, Mr Delic filed an affidavit, and in paragraph 40 of that affidavit Mr Delic sets out the grounds on which he says the debt admitted by the trustee is not payable by him. The grounds are as follows:
With respect to the Proof I say: -
(a) The amount claimed in Attachment A of the Proof namely, $285,142.46 is not payable by me as the sums calculated relate to the Master Lease arrangement which was not what I had agreed or guaranteed in respect of the Secured Fidelity Loan.
(b) The amount claimed in Attachment A the proof of debt $285,142.46 is not payable by me as I did not guarantee this amount, the only guarantee I gave was in respect of a loan of $60,000.
(c) With respect of the Secured Fidelity Loan, $60,000 of this has been repaid, not $50,000 as set out in the Proof.
(d) The interest costs claimed in Attachment B are not payable as the loan in question has been repaid.
(e) the enforcement costs claimed in the Proof are not payable for two reasons, namely:-
(i) The loan the subject of the alleged “enforcement costs” has been repaid, and
(ii) There is no evidence of the fact that any such enforcement costs have been incurred and no material to quantify these amounts claimed.
The evidential foundation of these grounds are set out in the earlier paragraphs of Mr Delic’s affidavit. The principal evidence consists of alleged conversations Mr Delic says he had with a finance broker named Mr Volonakis about obtaining a loan of $60,000, two vehicles being granted as security for that loan, and the signing of documents which Mr Delic deposes he understood related to his being granted a loan on the security of the two vehicles. The effect of the evidence is that Mr Delic signed the documents without reading them and, in any event, Mr Delic says he did not obtain independent advice. Another matter about which Mr Delic deposes is that after the loan was advanced Mr Volonakis informed him that Composite had been deregistered.
Mr Delic filed a further affidavit on 4 March 2020 (second affidavit). In that affidavit Mr Delic gives evidence that, at the time the MLA was signed, Composite had been deregistered. In paragraph 16 of the second affidavit Mr Delic deposes as follows:
If I had known on 1 December 2017 that: -
(a) The Company was de-registered; or
(b) I was not a director of the Company; or
(c) The Company did not own the motor vehicles that were being provided as security and in fact these motor vehicles had vested in the ASIC;
I would not have executed any documents provided to me by Mr Volonakis on 1 December 2017 and would not have had the company purport to enter into the loan that was being offered to it.
The reference to “Company” in that passage is intended to be a reference to Composite, which is defined as such in paragraph 7 of the second affidavit.
In the second affidavit Mr Delic also deposes to conversations with Mr Volonakis, and provides further details about the circumstances in which he signed the relevant documents. Mr Delic also asserts in paragraph 28 that Mr Volonakis acted as agent for Fidelity. The relevance of that assertion will become apparent later in these reasons.
Also relevant to another matter which I will deal with later in these reasons is paragraph 31 of the second affidavit. That comes after Mr Delic, in paragraph 30, refers to Mr Crawley, who I will, for the purposes of these reasons for judgment, assume is the mind of Fidelity, deposing to his having conducted a search of Composite on 1 December 2017, which, Mr Delic asserts, by that day Composite had been deregistered. In paragraph 31 Mr Delic deposes as follows:
Any search obtained by Fidelity in respect of the Company as part of Fidelity’s due diligence for the loan provided was not given to me nor brought to my attention by Fidelity or Mr Volonakis prior to me executing the documents referred to in paragraph 27 above.
This then brings me nearer to the two questions I address in these reasons. These arose in the course of the openings made on behalf of Mr Delic and Mr Fidelity this morning. In his opening, Mr Moss, who appears for Mr Delic, set out the grounds on which he submitted the trustee’s decision to admit Fidelity’s debt into proof should be reversed or varied. In relation to two of the grounds Mr Moss submitted that, if those grounds are correct, the MLA should be set aside.
The first of the two grounds which Mr Moss submitted would have this effect was what I characterised in the course of his opening address as unilateral mistake. Mr Moss submitted that Mr Delic laboured under a mistake of fact, namely, that Composite was registered, and all the implications of that fact, and that Fidelity was aware that Mr Delic laboured under that mistake. In other words, Mr Moss submitted the MLA and guarantee are liable to be set aside for unilateral mistake on the principles set out in Taylor v Johnson.[2] The second of the grounds which Mr Moss seemed to submit would have the effect of the MLA being set aside is a ground based on misleading or deceptive conduct, as that expression is used in the Australian Consumer Law.[3]
[2] Taylor v Johnson (1983) 151 CLR 422
[3] Being Schedule 2 to the Competition and Consumer Act 2010 (Cth)
In his opening Mr Weinberger, counsel for Fidelity, submitted that these two grounds are predicated on the Court ordering that the MLA be set aside but, Mr Weinberger submitted, that would require a fresh proceeding or, at the very least, an amendment to the application which would include a specific claim for relief to the effect of the MLA and any other relevant documents be set aside. Mr Weinberger also submitted that the trustee in this case did not have the power to set aside the MLA. In effect, Mr Weinberger submitted that the grounds on which debts can be reviewed under s.104 of the Bankruptcy Act cannot include grounds that rely on the transaction out of which the debt is claimed to arise being liable to be set aside. Mr Weinberger also submitted that Fidelity did not have fair notice of the claims based on mistake, agency, and misleading or deceptive conduct. I take this to be a separate point, and this is the second of the two questions that I consider in these reasons.
Mr Moss, in reply, submitted that it is not necessary for the Court to make an order to set aside the MLA. It is sufficient that there are grounds on which the MLA could be set aside. Mr Moss also submitted that the question in the application Mr Delic has brought is whether Fidelity, in the circumstances of this case, is a creditor.
In the course of discussion, as and after the openings were being delivered, I adjourned the matter for a little while to give me time to consider the submissions that Mr Weinberger made, and the responses to that made by Mr Moss. At my invitation, during the short adjournment, I received some submissions about the relevance of the case of Dingle v Westpac Banking Corporation.[4] As will become apparent, that case is not immediately relevant to the questions that arise in opening although, of course, I am grateful to the notes both Mr Moss and Mr Weinberger gave on that question.
[4] Dingle v Westpac Banking Corporation [1993] FCA 619
The first question, then, is whether it is open to a person who applies under s.104 of the Act for the reversal of a trustee’s admission of a proof of debt to rely as a ground that the agreement under which the debt was accepted as arising is liable to be set aside. The answer to that question really turns on the manner in which the Act provides for proving of debts; and here it is necessary to go to s.82(1) and s.82(2) of the Act, which provide:
(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which the bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
. . . .
(2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
These provisions are broad, and their breadth has been the subject of some judicial comment. I refer, in that context, to the passage from the judgment of James LJ in re Hide: ex-parte Llynvi Coal and Iron Co,[5] quoted by the Full Federal Court in Commissioner of Taxation v Jones.[6] Speaking of s.31 of the Bankruptcy Act 1869 (UK). James LJ said:
Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.
[5] (1871) 7 Ch. App. 28, at pages 31-32
[6] Commissioner of Taxation v Jones [1999] FCA 308, at [8]
The significance of my referring to the breadth of s.82 of the Act is that within its scope fall all manner of debts, including classes of debts that arise on the ground that the contract pursuant to which money has been paid is liable to be set aside; and I particularly have in mind equitable claims for the return of money paid under contracts that have been set aside because they have been entered into under the inducement of fraud, or innocent misrepresentation. That equitable debts fall within s.82 of the Act, and their nature, was referred to by Bryson J in Auto Group v England, where his Honour said:[7]
Equitable obligations of restitution where moneys are fraudulently obtained by fiduciaries are treated in equity as debts, and as liquidated debts, and are not in my opinion demands in the nature of unliquidated damages.
[7] Auto Group v England [2008] NSWSC 402, at [23]
I then turn to s.102(1) of the Act, which provides:
The trustee shall examine each proof of debt and the grounds of the debt sought to be proved and, subject to the power of the Court to extend the time, shall, not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend as the period within which creditors may lodge their proofs of debt, either:
(a) admit the proof of debt in whole;
(b)admit it in part and reject it in part;
(c)reject it in whole; or
(d)require further evidence in support of it.
Now, the relevance of that is as follows. Given the breadth of the “debts and liabilities” that are provable under s.82 of the Act, which, as I have said before, include the recovery of all manner of equitable debts, it is within the power of the trustee to consider whether an agreement is liable to be set aside if the agreement’s being liable to be set aside is a ground on which the debt claimed in the proof of debt is said to arise. That would be so if a creditor claims as a debt money paid under an agreement induced by fraud, or undue influence, or by mistake or, indeed, for any other reason an agreement is liable to be set aside. The determination of such claim would not require the trustee to make any order setting aside the agreement. All that would be required is for the trustee to determine whether the agreement is liable to be set aside for fraud, undue influence, or for some other reason on which the person alleging the debt relies, and, if so, to determine whether that has the consequence that a debt is owing.
Thus, I do not accept Mr Weinberger’s submissions that it is outside the power of the trustee when considering a proof of debt based on a debt arising under contract to consider whether it is not payable because the person opposing the admission into proof of the debt claims the agreement itself is liable to be set aside for misrepresentation, or for some other reason known in equity. It also follows that, on a review under s.104 of the Act, it is not outside the power of the Court to reverse the admission of a proof of debt which is based on the ground that the agreement on the basis of which it is claimed the admitted debt arises is liable to be set aside.
The next question is whether Fidelity has been given fair notice that Mr Delic intends to claim unilateral mistake, or that Mr Volonakis acted as an agent for Fidelity, or whether Mr Delic intends to rely on misleading or deceptive conduct. By “notice” I do not mean notice that would be given if there were a statement of claim. There are rules governing pleadings that have their own requirements of what constitutes fair notice. Here there has been no order for pleadings. The question, therefore, is whether material contained in the affidavits reasonably put Fidelity on notice that Mr Delic was making these claims.
In relation to the claim based on mistake, Mr Delic deposes he signed documents on the incorrect understanding that Composite was registered, and he gives evidence about what he says he would have done had he been aware of the true state of affairs. That to me is sufficient notice of a claim based on mistake. There is also sufficient notice, in my opinion, that that claim would rely on Fidelity having knowledge of that mistake, or at least suggesting it ought to have had knowledge of that mistake, and the basis of that notice is paragraph 31 of Mr Delic’s second affidavit, the terms of which I have already set out. It might be that it was not clear enough that what is being alleged is that Mr Crawley in terms knew that Mr Delic was labouring under a mistake. If that is the case, subject to any objection, there would be no difficulty in my granting Mr Crawley leave to give evidence-in-chief about what his state of belief was about those matters.
Again I stress that by “notice” I mean notice that arises on the affidavits. It was open – and this is not meant to be a criticism – to the extent there was any uncertainty about what was intended to be alleged on the material that was being filed, for Fidelity to correspond with Mr Delic’s lawyer about the uncertainty and, if there was any issue about it, to make an application for an order requiring Mr Delic’s to plead his case.
Then there is the issue whether Fidelity was given notice that Mr Delic intended to claim that Mr Volonakis acted as agent for Fidelity. On my reading of the material I could only find one reference, but it is there and the assertion is made that Mr Volonakis was the agent of Fidelity. It certainly would not withstand a strikeout application as an unparticularised assertion, but nevertheless the allegation of agency is made. It is in the material, and it may well be that it goes no further than an assertion, and the submission could be made there is no evidence to support it; but my finding is that sufficient notice was given that Mr Delic would be claiming, or was claiming, that Mr Volonakis acted as agent for Fidelity in relation to the circumstances in which Composite sought the loan and executed documents in relation to the loan.
Then there is the question of misleading or deceptive conduct. Those words do not appear, nor does the expression “Australia Consumer Law”, but it is sufficiently clear that Mr Delic makes or intends to make something of the fact of his dealings with Mr Volonakis. He has set out what his beliefs were and, he says, his beliefs were incorrect and again, although not pleaded, because the applicant was not asked Mr Delic to plead, there is sufficient notice on the material on the basis upon which Fidelity ought reasonably to expect that some claim of that nature would be made. It does not sound satisfactory, but, as I said, this is not a case where pleadings were ordered.
To give effect to these reasons, I do not need to do anything in relation to my determination of the second question; but I think the best way of dealing with my determination of the first question is for me simply to make a declaration to record my conclusion. So the only order I make on the basis of these reasons for judgment is to declare as follows:
It is open to the applicant in this proceeding to rely as a ground for the Court reversing or varying the trustee’s decision to accept the second respondent’s proof of debt on the ground that the agreement or agreements on the basis of which the second respondent claims the debt arose is liable to be set aside for mistake or for misrepresentation.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 2 July 2020
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