Farmakis v Lo Pilato (Trustee)

Case [2023] FCA 1611

FEDERAL COURT OF AUSTRALIA

Farmakis v Lo Pilato (Trustee) [2023] FCA 1611

File number: QUD 148 of 2022
Judgment of: THOMAS J
Date of judgment: 15 December 2023
Catchwords: PRACTICE AND PROCEDURE – bankruptcy – whether notice of objection to discharge applicant from bankruptcy invalid
Legislation:

Bankruptcy Act 1966 (Cth)

Insolvency Practice Rules (Bankruptcy) 2016 (Cth)

Explanatory Memorandum to the Bankruptcy Legislation Amendment Bill 2002 (Cth)
Cases cited:

Duckworth v Field [2023] FCA 801

Frigger v Trenfield [2019] FCA 1746

Frost v Sheahan (as trustee of the bankrupt estate of Frost) (2008) 249 ALR 538; [2008] FCA 1073

Frost v Sheahan (trustee of the bankrupt estate of Frost) (2005) 220 ALR 733; [2005] FCA 1014

Frost v Sheahan (Trustee) [2009] FCAFC 20

Jones and Inspector-General in Bankruptcy [2018] AATA 3260

Prentice v Wood (2002) 119 FCR 296; [2002] FCA 214

Re Hall (1994) 14 ACSR 488

Re Rimanic and Inspector-General in Bankruptcy (2010) 119 ALD 381; [2010] AATA 875

Smith v Trustee of the Property of Richard John Smith [2023] FCA 300

Van Reseema v Official Receiver in Bankruptcy (1983) 50 ALR 253

Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28; [2001] FCA 96

Costello, ‘Bankruptcy Reforms Package’ (2001) 11 New Directions in Bankruptcy 17

Hogan-Doran, ‘Bankruptcy: Tightening up on Bankruptcy — no more easy outs’ (2003) 41 Law Society Journal 58

Macquarie Dictionary (6th ed, 2013)

Oxford English Dictionary (2nd ed, 1989)
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 96
Date of hearing: 4 October 2022
Counsel for the Applicant: Mr P McQuade KC
Solicitor for the Applicant: Chancery Legal
Counsel for the Respondent: Mr MA Taylor
Solicitor for the Respondent: Stratos Legal

ORDERS

QUD 148 of 2022

IN THE MATTER OF THE BANKRUPT ESTATE OF SUSAN PATRICIA FARMAKIS
BETWEEN:

SUSAN PATRICIA FARMAKIS

Applicant
AND:

FRANK LO PILATO AS TRUSTEE OF THE BANKRUPT ESTATE OF SUSAN PATRICIA FARMAKIS

Respondent

ORDER MADE BY:

THOMAS J

DATE OF ORDER:

15 DECEMBER 2023

THE COURT ORDERS THAT:

1.The originating application filed on 5 May 2022 be dismissed.

2.The applicant pay the costs of the respondent of and incidental to the originating application, to be taxed if not agreed.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

THOMAS J:

OVERVIEW

  1. This is an application by Ms Susan Farmakis for declaratory relief that the notice of objection to her discharge from bankruptcy dated 15 April 2021 (Notice of Objection) is invalid and of no force and effect and that she was therefore discharged from bankruptcy on 22 October 2021 pursuant to s 149 of the Bankruptcy Act 1966 (Cth) (the Act).

  2. Ms Farmakis also seeks a related order that the Official Receiver enter into the records of, or alternatively, amend the information in, the National Personal Insolvency Index that Ms Farmakis was discharged from bankruptcy on 22 October 2021.

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AGLC
Farmakis v Lo Pilato (Trustee) [2023] FCA 1611
Case
[2023] FCA 1611
Decision Date

CaseChat Overview and Summary

The case of Farmakis v Lo Pilato (Trustee) involved a dispute between the bankrupt, Ms Farmakis, and the Trustee appointed to manage her bankruptcy. Ms Farmakis sought to challenge the validity of the Notice of Objection filed by the Trustee, which objected to her discharge from bankruptcy. The central issue before the court was whether the Notice of Objection complied with the statutory requirement to refer to evidence or material that establishes the ground of objection.

Ms Farmakis argued that the Notice of Objection was invalid because it did not specify that the requests for additional information were made in writing, as required by s 149D(1)(d) of the Bankruptcy Act 1966 (Cth). The court considered whether the Trustee was required to detail in the Notice of Objection that the request for information was made in writing. It found that the requirement under s 149C(1)(b) was to refer to the evidence or material, not to set it out in detail. Given that the evidence referred to in the Notice of Objection was consistent with a request for written information, the court held that the Notice of Objection was valid as it referred to material that could support the Trustee's objection.

The court concluded that the statutory requirement was satisfied by the reference to the evidence in the Notice of Objection and that it was not necessary for the Trustee to explicitly state that the requests were made in writing. The court dismissed Ms Farmakis's application, finding that the Notice of Objection was valid and that no further review was warranted. Consequently, Ms Farmakis was ordered to pay the costs of the respondent.

Orders

Orders of the court

1. The originating application filed on 5 May 2022 be dismissed.

2. The applicant pay the costs of the respondent of and incidental to the originating application, to be taxed if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons which follow, the notice of objection is not invalid. BACKGROUND On 22 October 2018, Ms Farmakis became bankrupt on the presentation of a debtor’s petition. The respondent (the Trustee) was appointed as her trustee in bankruptcy on the same date. In the ordinary course, Ms Farmakis would have been discharged from bankruptcy by operation of law on 22 October 2021, being three years from the date on which the debtor’s petition was accepted by the Official Receiver: see s 149(1)(b) of the Act. However, on 15 April 2021, the Trustee filed the Notice of Objection. The Notice of Objection recorded the Trustee’s ground of objection as follows:S149D(1) (d) the bankrupt when requested in writing by the trustee to provide written information about the bankrupts property, income or expected income, failed to comply with the request(errors in original) In the section of the Notice of Objection which stated “[r]efer to the evidence or other material that in the opinion of the trustee establishes the ground”, the following information was provided:- The Bankrupt on 27 October 2020 provided their income contribution questionnaire. - Nathan Burgess of this office sent a email to the Bankrupt on 9 February 2021, requesting additional information relating to the Bankrupts income. The request was for:•Employment contracts held since the date of Bankruptcy;• Any commissions or bonuses that were paid or eligible for during bankruptcy and/or may be eligible for going forward. - With no response, Nicholas Campbell of this office wrote to the Bankrupt on 24 March 2021 requesting the information be urgently provided. It was at this time the bankrupt was warned that non compliance would result in the Trustee lodging an objection to their discharge from bankruptcy for a period of five (5) years. No response has been provided, nor has the Bankrupt attempted to contact my office.(errors in original) Under the Act, Ms Farmakis had until 14 June 2021 to seek a review by the Inspector-General (s 149K) or the Administrative Appeals Tribunal (the Tribunal) (s 149Q) of the Trustee’s decision to file the Notice of Objection. She did not do so. On 5 April 2022, Ms Farmakis filed this originating application seeking to challenge the validity of the Notice of Objection. Ms Farmakis asserts that the Notice of Objection did not comply with the requirement contained in s 149C(1)(b) of the Act. MATERIAL RELIED UPON Ms Farmakis relied upon an affidavit of her solicitor, Mr Jonathon Laws, filed on 5 May 2022. The Trustee filed two affidavits on 22 July and 28 September 2022. Ms Farmakis objected to a number of parts of the Trustee’s two affidavits on the grounds of relevancy and inadmissible opinion evidence. The majority of the material objected to related to the past events in the bankruptcy of Ms Farmakis and the Trustee’s attempts to obtain information from her. For reasons explained below, due to the basis on which this application was brought (namely, being limited to the validity of the Notice of Objection), that material is not relevant to the determination of this application.LEGISLATIVE PROVISIONS

Evidence

Evidence Before The Court

This clearly set out which ground under s 149D(1) the Trustee relied upon. It could not be said that Ms Farmakis was left in any doubt as to which ground was relied upon, and no submission to the contrary was made. Section 149C(1)(b) – references to evidence Section 149C(1)(b) requires a notice of objection to “refer to the evidence or other material that, in the opinion of the trustee, establishes that ground or each of those grounds”. There is no requirement to “set out” such evidence or material; the requirement is only to refer to it: Re Hall at 491. As stated in Prentice (at [16]), if the notice refers to that material, then s 149C(1)(b) will have been complied with “even though it may subsequently emerge that the evidence or other material particularised did not exist, or for some other reason was insufficient or ineffective to establish the ground relied upon” (emphasis added). The evidence referred to in the Notice of Objection is set out above. In summary, it referred to the income contribution questionnaire provided by Ms Farmakis on 27 October 2020, the subsequent email sent by a member of the Trustee’s office to Ms Farmakis on 9 February 2021 “requesting additional information relating to [Ms Farmakis’s] income” (the 9 February Email), the fact that Ms Farmakis did not respond to the 9 February Email, and the follow up request sent on 24 March 2021 which noted that “No response has been provided, nor has the Bankrupt attempted to contact my office”. These requests for information were made pursuant to ss 139U and 139V of the Act. The entitlement of the Trustee to seek this information was not contested by Ms Farmakis. Ms Farmakis contended that the Notice of Objection failed to comply with s 149C(1)(b) as the evidence referred to did not establish the ground of objection relied upon under s 149D(1)(d). In particular, it was contended that the “evidence” contained in the Notice of Objection did not refer to a request by the Trustee that the additional information be provided by way of “written information”. That, it was submitted, was an essential element of a valid ground of objection under s 149D(1)(d) and the Trustee’s alleged failure to do so made the Notice of Objection invalid. On its face, the Notice of Objection refers to the evidence or material which could make out a ground of objection under s 149D(1)(d). It was not necessary for the Trustee to specifically identify that this evidence amounted to a request for “written information”. It is self-evident in the context of the ground relied upon that the evidence referred to is believed to amount to a request for written information that satisfies s 149D(1)(d). In my view, without going behind the face of the notice and undertaking a merits review (which is impermissible), it is impossible to say that the evidence referred to in the notice could not, in the Trustee’s opinion, support the ground in s 149D(1)(d). Further, as counsel for the Trustee submitted, the evidence referred to is in a different category from what was considered in Re Hall, and it can be seen by reference to what the Full Court stated in Prentice, that even where facts are stated entirely wrongly, there can still be a statement of evidence which satisfies s 149C(1)(b).

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Relevantly, s 90-15 of the IPS provides:90-15 Court may make orders in relation to estate administrationCourt may make orders(1)The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.Orders on own initiative or on application(2) The Court may exercise the power under subsection (1):(a)on its own initiative, during proceedings before the Court; or (b)on application under section 90-20.Examples of orders that may be made(3)Without limiting subsection (1), those orders may include any one or more of the following:(a) an order determining any question arising in the administration of the estate;…Matters that may be taken into account(4)Without limiting the matters which the Court may take into account when making orders, the Court may take into account:(a)whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and (b)whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and (c)whether an action or failure to act by the trustee is in compliance with an order of the Court; and …Section does not limit Court’s powers(7)This section does not limit the Court’s powers under any other provision of this Act, or under any other law. Section 178 of the Act, which was repealed when the IPS was enacted, provided that:If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. The authorities with respect to s 178 of the Act continue to guide the exercise of the Court’s jurisdiction under s 90-15 of the IPS: Duckworth at [49]-[51]. Ms Farmakis has standing to seek orders under s 90-15 as s 90-20 provides that a person with a financial interest in the administration of a regulated debtor’s estate may apply for an order under s 90-15. Pursuant to the definition in s 5-30 of a “financial interest”, it is clear that Ms Farmakis, as the bankrupt, has a financial interest in the estate: Duckworth at [52]; Frigger v Trenfield [2019] FCA 1746 at [12] (per Jackson J).THE NOTICE OF OBJECTIONApplicable principles By this application, Ms Farmakis contended that the Notice of Objection was invalid. It is significant to note that Ms Farmakis is not seeking a review of the Trustee’s decision to make the objection “on the merits”: see ss 149K, 149N of the Act. On a review under s 149K, for example, the decision would be liable to be cancelled if the Inspector-General was satisfied that:(a)the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or(b)there is insufficient evidence to support the existence of the ground or grounds of objection; or(c)the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or(d)a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled …