Finikiotis v Sims PARTNERS
[2005] FMCA 904
•5 July 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FINIKIOTIS & ANOR v SIMS PARTNERS | [2005] FMCA 904 |
| BANKRUPTCY – Section 178 application amended during course of hearing so as declarations not damages sought – summary dismissal – no reasonable cause of action disclosed. |
| Bankruptcy Act 1966, ss.52(2), 153B, 52(3), 37, 178(2), 33(1), 178(1) Federal Magistrates Court Rules, 13.10 |
| Rana v University of South Australia [2004] FCA559 Wilson & Anor v The Commonwealth of Australia & Anor (unreported) |
| Applicants: | EFSTATHIOS FINIKIOTIS & CHRISAFINA ZERVOS |
| Respondent: | SIMS PARTNERS |
| File Number: | ADG 111 of 2004 |
| Judgment of: | Lindsay FM |
| Hearing date: | 22 April 2005 |
| Date of Last Submission: | 22 April 2005 |
| Delivered at: | Adelaide |
| Delivered on: | 5 July 2005 |
REPRESENTATION
| Counsel for the Applicant: | Self-represented |
| Solicitors for the Applicant: | Nil |
| Counsel for the Respondent: | Mr Ross-Smith |
| Solicitors for the Respondent: | Kelly & Co Lawyers |
ORDERS
That the application filed on 3rd June 2004 is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 111 of 2004
| EFSTATHIOS FINIKIOTIS and CHRISAFINA ZERVOS |
Applicants
And
| SIMS PARTNERS |
Respondent
REASONS FOR JUDGMENT
This is an application by the respondent to summarily dismiss an application filed by Mr Finikiotis and Ms Zervos on 3rd June 2004.
In that application, the applicants claim:
“Loss and damages suffered by the applicants consequent upon Trustees actions pursuant to Bankruptcy Act 1966, Section 178.”
The application first came before me on 12th November 2004. On that day an order was made that the applicants file and serve a Statement of Contentions setting forth the relief claimed by them and the factual matters said by them to entitle them to the relief claimed.
That document was filed on the 26th November 2004.
On 14th December 2004 the respondent indicated that he proposed to seek summary relief. The difficulties associated with the seeking of summary relief in the Federal Magistrates Court, given the absence of pleadings, has been discussed by Lander J in Rana v University of South Australia [2004] FCA559 especially at paragraph 41.
In noting that the Federal Magistrates Act has eschewed pleadings in favour of affidavits, His Honour notes:
“Often a cause of action will not be so easily recognised where an application accompanies an application. Material facts which go to constitute the cause of action will not be identified. Instead, the evidence to prove those material facts will have to form the structural platform upon which the proceedings are conducted. Because the FMC Rules do not require the applicant to file all of his evidence with the application, in many cases, the applicant’s cause of action may not be completely made out by the applicant’s affidavit filed pursuant to Rule 4.05. It may be that the cause of action cannot be precisely identified until all the evidence is in.”
Section 50 of the Federal Magistrates Act provides:
(1)“Proceedings may be instituted in the Federal Magistrates Court by way of application without the need for pleadings.
(2)Sub-section (1) has effect subject to the Rules of Court”.
The Court has power pursuant to Rule 1.06 to dispense with the Rules and where in a proceeding the Court makes an order that is inconsistent with the Rules, the order of the Court prevails.
On 14th December, having been advised that the respondent proposed to seek summary relief pursuant to Rule 13.10, I considered that the only way in which that application could be disposed of in a way that would do justice to the applicant was for the matter to proceed by way of a form of pleadings so that each party would be obliged to file documents which identify the matters in dispute between the parties and the issues to be resolved. A series of orders were made on
14th December in relation to the filing of such documents including documents providing discovery.
So, the respondent filed a Statement of Contentions on 26th November 2004 and a Response on 7th January 2005; the applicant filed a Reply on 24th January 2005; they each gave discovery; the applicant filed a supplementary Reply. The respondent also formally filed an application seeking an order for summary dismissal on 25th November 2004 and filed a summary of his submissions. In addition to those documents I had the applicant’s affidavits of 3rd June 2004 and
28th June 2004.
I have had regard to all of those documents in resolving this application for summary dismissal. I have also had regard to the submissions each of the parties made before me on 22nd April 2005.
When I reserved my decision on that day, it was upon the basis that the applicant have the opportunity to provide me with copies of the transcript of the hearing before the Full Court of the Federal Court on 29th October 2004 which was the hearing from an appeal of the order of Mead FM dismissing the application. The appeal was ultimately treated as an application for leave to appeal and the appeal was allowed and the orders of Mead FM of 22nd July 2004 set aside. That is why the matter came to be listed before me.
Lander J in Rana v University of Adelaide (supra) at paragraph 72 summarises the nature of the Court’s responsibility in dealing with an application of summary dismissal as follows:
“It is clear that an application under the Federal Court Rules for the summary dismissal of a proceeding will only succeed in the clearest of cases: Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 per Dixon J. A Court must proceed exceptionally cautiously. In General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129, Barwick CJ said:
‘It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind be brings, unless his lack of a cause of action – if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal – is clearly demonstrated. The test to be applied has been variously expressed; “so obviously untenable that it cannot possibly succeed”; “manifestly groundless”, “so manifestly faulty that it does not admit of argument”; “discloses a case which the Court is satisfied cannot succeed”; “under no possibility can there be a good cause of action”; “be manifest that to allow them” (the pleadings) “to stand would involve useless expense.”
At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or “so manifest on the view of the pleadings, merely reading through the, that it is a case that does not admit of reasonably argument”; “so to speak apparent at a glance”.’
Rule 13.10 of the Rules of this Court provide:
The Court may order that a proceeding be stayed, or dismissed generally or in relation to any claim for relief in the proceeding, if it appears to the Court that:
a)no reasonable cause of action is disclosed in relation to the proceeding or claim for relief; or
b)the proceeding or claim for relief is frivolous or vexatious; or
c)the proceeding or claim for relief is an abuse of the process of the Court.
In determining the application for summary dismissal, I will proceed upon the assumption that the applicant will be able to make out his contentions. It is not a question of me weighing the likelihood or probability of him succeeding on his contentions. In order for the claim to succeed, I must be satisfied that on the assumption that Mr Finikiotis is able to make out his factual contentions, no reasonable cause of action can be said to exist.
The applicants were guarantees of a loan made to Gallerie Investments Pty Ltd (Gallerie Investments) by Sandhurst Trustees Ltd (Sandhurst). There was a default under the loan agreement. Sandhurst sued in the Supreme Court of South Australia. Summary judgment was entered against the applicants for an amount in excess of $4 million.
Ultimately that judgment debt resulted in a sequestration order being made in the Federal Magistrates Court on 19th February 2001.
Federal Magistrate Raphael determined a Review of the making of the sequestration order on 23rd August 2001. I have read his Reasons for Judgment. He dismissed the Review application.
The applicants appealed to the Federal Court from Federal Magistrate Raphael’s order. On 27th February 2002, Justice North dismissed the appeal. I have read his Reasons for Judgment of that date.
The applicants sought special leave to appeal to the High Court against the decision of North J. In July 2003 that appeal was deemed to have been abandoned, but it was reinstated on 3rd March 2004 only to be dismissed by Kirby and Callinan JJ on 28th May 2004.
For the sake of completeness, I also mention that preceding the making of the sequestration order was an application to set aside the bankruptcy notice founded upon the summary judgment. That application was determined by von Doussa J in the Federal Court on 14th July 2000. He dismissed the application. The applicants appealed to the Full Court of the Federal Court, but their appeal was dismissed on 1st December 2000. They sought special leave to appeal against that decision, but it was ultimately dismissed by Kirby and Callinan JJ on 28th May 2004.
There were also proceedings in the Supreme Court arising out of the summary judgment. Williams J dismissed that appeal on 13th March 2000. Proceedings then ensued in relation to an application seeking an extension of the time to appeal that decision. Ultimately that was dismissed by Wicks J. The Full Court of the Supreme Court dismissed an appeal from Wicks J and ultimately Kirby and Callinan JJ on
28th May 2004 refused the application for leave to appeal the decision of the Full Court.
On 13th July 2000 the applicants instituted proceedings against Sandhurst and against Knight Frank and Heine Management Ltd (“Heine”) in the Federal Court (hereinafter referred to as “the valuation proceedings”). The Statement of Claim is summarised in paragraph 19 of the decision of North J referred to above. The proceedings related to the claims by the applicant that Knight Frank wrongly valued the building which secured the loan from Sandhurst. Heine were the managers acting on behalf of Sandhurst.
That action was dismissed by O’Loughlin J in the Federal Court on
19th January 2001. His Honour found that no reasonable cause of action was disclosed in the Statement of Claim.
It will be noted that the decision of O’Loughlin J preceded the making of the sequestration order.
The applicants appealed the decision of O’Loughlin J, but on
22nd November 2001 (after the applicants had become bankrupt), the Full Court of the Federal Court stayed the appeal until further order on the ground that the applicants did not have standing as bankrupts to bring the appeal.
Alan Geoffrey Scott is the trustee of the estate of each of the applicants. He is a member of the firm of Sims Partners. The misdescription of the respondent is a matter raised by him which I will deal with hereafter.
The Trustee filed two reports for the Court which are the subject of complaint by the applicants. The first was filed on 20th August 2001. It reviewed the progress and the administration of the estate to that point. It noted that the valuation proceedings had been instituted prior to the appointment of the trustee and indicated that the Trustee was electing not to pursue these actions upon legal advice that had been obtained. It made a number of complaints about the failure of the applicants to provide details of their income and assets and raised the question of possible breaches of the act by them relating to a number of matters including the failure to lodge a Statement of Affairs.
The first report was before Raphael FM when he conducted the review of the sequestration order on 23rd August 2001.
The Trustee filed a second report on 20th February 2002. That report noted that the Statement of Affairs had been filed and reported as to other matters and indicated that the Trustee was not proposing to pursue the possible breaches of the Act by the applicants foreshadowed in the first report.
The applicant’s affidavit of the 28th June 2004 also annexes correspondence which passed between he and the Trustee in March and April of 2001. The applicant alleges that the Trustee agreed to assign to him the valuation action for the sum of $10,000 but then reneged upon that agreement. The Trustee contends in that correspondence that no such agreement was reached although there were discussions which the Trustee says never reached the stage of an agreement.
The applicant’s case is that the conduct of the Trustee in that regard, together with the conduct of the Trustee in filing the two reports together with other specified conduct relating to the conduct of the hearings in the High Court relating to the applications for special leave to appeal on 11th March 2004 and 28th May 2004 should be the subject of orders pursuant to Section 178 of the Bankruptcy Act.
The applicant was most concerned that I not make improper use of matters arising from my consideration of Justice North’s judgment and when providing me with the transcript of the decision of the Full Court in these proceedings drew my particular attention to the passages where Lander and Cooper JJ are at pains to clarify that North J’s judgment cannot be used for the purposes of establishing any facts relating to the applicant’s claim to be entitled to damage arising from the conduct of the trustee. I accept that neither North J’s decision nor any of the other decisions that have been made in the long history of proceedings in this Court, the Federal Court and the Supreme Court are capable of giving rise to any issue estoppel or plea of res judicata in relation to the claim to be entitled to damages or loss in this application. There has never been a trial on the valuation proceedings. The Statement of Claim was found not to disclose a cause of action by O’Loughlin J and the Full Court on appeal from his decision were then confronted with the bankrupt status of the applicants and had no alternative but to stay the proceedings.
A careful reading of the documents filed by Mr Finikiotis in these proceedings reveals that the gravamen of his complaint against the trustee is that the conduct of the Trustee in March and April of 2001 and the filing of the reports and certain unspecified conduct in 2004 caused him to lose the opportunity of litigating the valuation proceedings, and that in turn was responsible for his bankruptcy.
But of course the sequestration order and indeed the dismissal of the review application in relation to the sequestration order preceded the stay of the valuation proceedings by the Full Court of the Federal Court. Federal Magistrate Raphael made a finding on the review that valuation proceedings were unlikely to be successful. For that reason, presumably, he found that they were not capable of assisting any claim by Mr Finikiotis either as to his solvency or as to the existence of “other sufficient cause” in terms of section 52(2) of the Bankruptcy Act.
Mr Finikiotis is essentially contending that had the reports not been filed and the Trustee not conducted himself in the way he did and had he been able to take an assignment of the valuation proceedings from the Trustee (and in this he was thwarted, he says, by the Trustee obtaining advice from legal practitioners acting in a state of conflict of interest), then he would have been able to prosecute them successfully and his bankruptcy would have been avoided. That must amount to a submission that he would have been successful on his Review of the sequestration order. I say that because the sequestration order preceded any of the acts of which he complains. He is contending that but for the conduct of the Trustee, he would have successfully reviewed the making of the sequestration order upon the basis that the strength of his case in the valuation proceedings would have been apparent and this would have led to the Court not making a sequestration order.
Implicit in his submission must be a contention that he would have amended the formulation of the valuation proceedings in a way that addressed the deficiencies identified by O’Loughlin J when he dismissed the action on 19th January 2001.
This was certainly the understanding of Cooper J in the Full Court of the Federal Court in these proceedings where his Honour says, at paragraph 40 of the transcript of 29th October 2004:
“But the difficulty was that what he was seeking to do was under Section 178 of the Bankruptcy Act …........ say that the conduct of the Trustee was such that he was denied the opportunity to formulate what he says was a valid claim with the benefit of the assistance of Judges of this Court and the Supreme Court of South Australia as to where they thought it was deficient. He was denied the ultimate ability to litigate the claim which had never been finally ruled upon in a final way because of the conduct of the Trustee in not proceeding with this agreement to pay the $10,000.”
I must say that it is not apparent to me from the documents filed by Mr Finikiotis or from any of the submissions that he made before me that he has specifically addressed the need to rearticulate the valuation proceedings, but I accept that it must have been put before their Honours in the Full Court and that if he did not say it specifically before me, he can be taken to accept that the rearticulation of the claim is obviously necessary.
I should note at this point that Mr Finikiotis’ application underwent a substantial transformation during the course of the submissions he made before me on the 22nd April 2005. He made it clear that he was not seeking orders by way of damages or to compensate him for his loss, but was seeking orders in the nature of declarations relating to the conduct of the Trustees as specified in his affidavit and in the other documents he filed. This was a submission he made after the court had heard from Mr Ross-Smith on behalf of the Trustee, make his submission that the applicant was at no stage entitled to claim for loss or damages in proceedings pursuant to s.178. I will come to those submissions in a moment. Mr Finikiotis indicated that he only sought the orders he did in the application because he was somewhat constrained by the form on which he had to make his application. He also clarified for me that whereas the form he filed appeared to indicate he was seeking discovery as an interlocutory application, it was in fact part of his application under section 178. That is that I should make an order for discovery of documents in the sense in which Mr Finikiotis wanted discovery of documents against all parties to the valuation proceedings.
Because the application was significantly transformed during the hearing I consider it appropriate to set out the relevant parts of the transcript of the hearing before me on 22 April 2005:
HH:Just before you do, do you want to say anything more to me about the third matter Mr Ross-Smith Raised, that is what he says is the unavailability of the sort of remedy you have mentioned in your application and proceedings under section 178, that is that on such an application I can’t give you the relief you are seeking in terms of loss and damages? Anything you wanted to put to me about that?
MR F:As I said that’s a second point. The main point is again as it says under the act s.178 ‘affected by any 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.’ That is the main reason for the application and the attention should be drawn mostly to that, not to what he is saying.
HH:Yes but it has to be superfluous. You’re asking the court to exercise that jurisdiction for a purpose. You’re making a claim and your claim is for loss and damages. That’s what par 1 of your application says.
MR F:But primarily that we were affected by the acts, omissions and decision of the trustee and how we were affected was that we were improperly disadvantaged by the bankruptcy not being annulled.
HH: So you want me to make a declaration about that?
MR F: We are complaining about that because it was improper.
HH:Let’s say the court conducted a full inquiry in relation to that matter and heard evidence and inquired into it, what would the outcome be? Would I make a declaration that you’ve been affected by these acts and that would be the end of the proceedings?
MR F:The manner that we are complaining of would then – then it would be compelling that those matters be taken up by either the court or some regulatory body because their improper and unlawful conduct has influenced us to our detriment so someone has to ----
HH:So you are saying to me – it may be that you are clarifying an important matter here that whereas in par 1 of your application which says:
‘Details of the claim. On the grounds appearing in the accompanying affidavit, the applicant claims loss and damages suffered by the applicants consequent upon trustee’s actions pursuant to Bankruptcy Act section 178’
Are you saying to me that whereas you used the words “loss and damages” you are not after any damages from the court? You are just after a declaration that you’ve suffered loss?
MR F:What I’m saying is when it’s finally understood and the whole sequence of events is unravelled, it will be seen that the other parties that the trustee was collaborating with, Sandhurst and ING Bank have to be brought back to make discovery themselves because there are documents that they haven’t discovered, they’ve gotten away with it. This is what I’m saying.
HH:No the discovery is a separate matter and this is an important matter if I may say so. I just want to understand what you’re actually asking the court to do. You see, anyone reading par 1 of your application under heading A would make an assumption as the respondent has made the assumption that you’re after damages. You’re after the court to conduct a hearing as to whether you have been affected by any acts or omissions or decisions of the trustee and then, if you have, for the court to make some compensatory order, to make an order that restores you to the position you were in before the acts were done or compensates you with money for the losses you have experienced on account of those matters.
That is what I inferred when I read that but are you telling me now that you’re not actually asking me to make those orders; you’re only wanting the court to make findings or perhaps to go a step further and make declarations that you have been affected but just to leave it at that?
MR F:Yes I’m happy with that as long as the court follows the Full Court’s direction to have the matter heard properly and that is further discovery because there are documents that have been omitted, and then I would be happy with that if the court just does that, just follows what the Full Court after looking at all the facts wanted the matter to be heard properly.
HH:What would that achieve? Let’s assume we went down that line and you were successful and I made certain declarations that what the trustee did was wrong, what would all of that process have achieved?
MR F:After the discovery that they did which was in line with the Full Court’s wishes, then one would look at the documents there and make some determination as if there was anything to go on with.
HH:No, I’m sorry I’m not making myself clear. Just put the discovery issue to one side if you would. You’ll get the chance to put to me what you want about the discovery issue in a moment, but let’s assume I conduct the hearing that you’re asking me to conduct and which the respondent presently is saying I shouldn’t embark upon because it’s bound to say that, but let’s say I reject that submission and I go on to hear that matter and I find that certain acts of the trustee have been wrong, to use a neutral expression, and I make that declaration. I say the trustee was wrong in doing the following matters. What would that achieve? What would be the utility of those proceedings?
MR F:That would compel then Sandhurst and Heine and ING to state truly what they had gotten away with and falsely induced the courts to make decisions.
HH:No but you would have my findings saying that they’d done these wrong things, so we’ve got those findings. What happens then? We all go home?
MR F:They have to atone, account and atone for what they did. They deceived the courts.
HH:You see that’s usually what follows in legal proceedings, not always but usually that’s what happens. There’s a series of findings and then those findings are used as the basis for some orders because the orders address the matters that arise from the findings and as I read your application that’s what you’re asking for; you’re asking for damages.
MR F:That’s the secondary part of it. Primarily, and in relation to the Sandhurst and ING then if the evidence was there I would make another application for the court to look at those actions.
HH:What sort of application would you make, under what section?
MR F:Even under s.153(a) where the court may annul a bankruptcy if it sees fit. I think it is under s.153(a) (b) and ---
HH:So you’d apply for an annulment. You’re answering my hypothetical question.
MR F: Yes.
HH:That’s all I’ve asked you to do. Would you seek ay other orders?
MR F:If the court was so gracious as to grant that annulment, then of course we should fairly be compensated for what happened and I would leave that to the court. I’m not ---
HH:But they’d be separate proceedings, wouldn’t they? They’d be proceedings that you’d then consider and bring subsequent to any ---
MR F:Yes, subsequent to this. It may be to the trustee’s advantage that that process is not hampered in any way that it goes through so that they have to account for what they did because initially in their strategy was to apply for a summary judgment and they evaded making the discovery and they continued to do that right throughout the series.
HH:Just two general matters arising from that. Firstly, what’s now been clarified, and you’ve now made plain to me, is it’s not what your application says, is it? The respondent could justly complain that they have been misled in your application because it does refer to – it uses those words “loss and damages”. You claim loss and damages, which tends to suggest, doesn’t it, that the relief you are seeking is a lot more than the relief you have just told me about, findings and declarations which are then used as the springboard for other proceedings. So if that wasn’t your intention to seek loss and damages, why did you refer to it in your application? I think that’s a fair point, isn’t it?
MR F:Yes, all right, your Honour, could you indulge me for a moment to consider that that was brought on by the format of the application.
HH: I see.
MR F:It actually says that, you know, what is the – I didn’t mean that this – I didn’t for a moment expect that this would be the only pleading, part of the pleading submission that I was cut short a little bit there, I think, that the federal magistrate didn’t really understand the issue and didn’t get a chance to expand that.
HH:It’s a straightforward document though. It straightforwardly asks you, doesn’t it, to say what you’re after, what the proceedings are all about?
MR F:To my limited experience in that, I thin I answered – I did say in the first paragraph, s 178, so I did refer to it.
HH:In any event, you say you have clarified it now and if you had had the opportunity to give some thought to it when you filed your application, what par 1 would have read would be “claims to be entitled to certain declarations relating to the conduct of the trustees as specified in my affidavit.” Is that?
MR F:Of course that would have been much better if I didn’t ---
HH:That’s what you would have done if you had turned your mind to it?
MR F: Yes.
HH:That was my first question. Thank you for that. My second question was if you’re after an annulment, why not ask for it first? Why not say, “I want my bankruptcy annulled pursuant to s.153?” Why go through this process of getting finds under s 178 first?
MR F:Because of the conflict of interest of the parties. There are matters which the court needs to see all of these things to understand what had actually happened, how this came about. I think it’s important that it’s seen in total.
HH:But if where all this is leading as you are telling me now it’s an annulment application, why haven’t you applied for an annulment under s.153?
MR F:I see the logical order is to have the full discovery and then to go on to bring the others to make the annulment application and I would hope if your Honour would consider it possibly to, if you see fit after seeing the full discovery of documents that are relevant, that whether the Sandhurst and ING could be joined or an order for non-party discovery be made. That may help to ---
HH:You see whereas you have claimed discovery as Sims Lockwood relief, really – you tell me if I’m wrong about this – really discovery is another principal part of your application, isn’t it?
MR F: Yes.
HH:You’re after these declarations and findings to ground an annulment application but you’re also after discovery to assist you in the conduct of other proceedings.
MR F: Yes.
HH:And that is as a final outcome, not as a preliminary outcome to these proceedings, so whereas it’s under the heading of Interlocutory Relief, really if you’d had more room you would have included it under the heading A Details of Claim?
MR F: Yes.
HH: Is that a fair summary?
MR F: Yes.
Mr Finikiotis also made it clear that once I had made the declarations as to the Trustee’s conduct, he considered that he would then be able to utilise those findings to ground an annulment application under section 153B of the Bankruptcy Act (he said section 153A but he meant section 153B).
Mr Finikiotis put it to me:
“They have to atone, account and atone for what they did. They deceived the Courts”.
Mr Ross-Smith contended that section 178 cannot be used as a basis for a claim for damages or loss. In this regard he relied upon the decision of Bryson J in Wilson and Anor v The Commonwealth of Australia and Anor (unreported) 12th March 1999 – BC 9900812. There the conduct sought to be reviewed related to the admission of a specific proof of debt by the Trustee which had already been the subject of separate and (from the bankrupt’s point of view) unsuccessful proceedings. Her Honour said at paragraph 49:
“The applicants have not sought to invoke s178 of the Act in an endeavour to obtain review of any act, omission or decision of the Trustee by which they are presently affected. The claims made by them for declarations concerning s178 do not disguise the fact that the applicants are in truth seeking to use s178 as a statutory base for a claim for damages. S178 does not create a cause of action which sounds in damages. It is not necessary for me to decide whether the Court could make an order under s178 for compensation for loss or damage suffered by a bankrupt estate if it considered it just and equitable to do so in a case in which its jurisdiction under s178 was properly invoked. In my view, the jurisdiction of the Court under s178 is not properly invoked in this case as the applicants do not seek review by the Court of any act, omission or decision of the Trustee. The sixth claim of the applicants, and claims three, four, five and seven which are ancillary to it, will be dismissed as disclosing no reasonable cause of action.”
It was in the light of the submissions based on this case that
Mr Finikiotis recast his application as one seeking declarations, the utility of which would be to ground section 153B proceedings and justify an order for discovery in the valuation proceedings.
I pause here to summarise the acts of the Trustee said to give rise to the claim for section 178 relief:
(1)The failure to assign to the applicants the valuation proceedings and the related volte face in the Trustee’s intentions in that regard, both in March/April 2001, and especially the trustee’s reliance on advice given by solicitors in a position of conflict in so doing;
(2)The filing of the first report in August 2001;
(3)The filing of the second report in February 2002;
(4)The influencing in collaboration with other persons of the hearing of the appeal by North J in February 2002;
(5)The influencing in collaboration with other persons, of the outcome of the High Court special leave applications in May 2004.
The matters said to ground those contentions are set out in the Summary of Contentions, the Reply and Supplementary Reply and his two affidavits.
Section 178 of the Bankruptcy Act provides:
“(1) 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.
(2) 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.”
The application was filed on 3rd June 2004. So the acts of the Trustee said to give rise to the claim for relief must be acts of which the applicant was aware not earlier than 2nd April 2004 if the claim is to be made within time.
Section 33(1) of the Bankruptcy Act provides:
“The Court may:
(a)upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally;
(b)at any time allow the amendment of any written process, proceeding or notice under this Act; or
(c)extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.”
I had no application for extension of time before me. Mr Finikiotis says in his Reply, par 2:
“This is incorrect as there is no sub-section accompanying section 178 of the Bankruptcy Act [Cth] 1966. The next item in the Act is section 179 [Control Of Trustees By The Court] which states: (1) The Court may, on the application of the Inspector-General, a Creditor or the Bankrupt, inquire into the conduct of a Trustee in relation to a Bankruptcy and may do one or both of the following:
[A] Remove the Trustee from Office; and
[B] Make such order as it thinks proper.”
It was not clear to me what Mr Finikiotis was intending to say in that paragraph. He was asked by me to clarify it and said, in effect, that s.178(2) does not exist. It does not exist because it does not appear in the copy of the Bankruptcy Act held within the library consulted by him. That was a very curious contention. It was particularly curious that he persisted with it after the subsection was brought to his attention. My exchange with him did not extract any application for an extension of time. In response he focussed upon his contention as to the conduct of the High Court hearing on 11th March 2004 which led to the orders of the 28th May 2004. In fact, the 11th March 2004 is out of time as an act relied upon for s.178 proceedings. Further, he submitted that the matters referred to in par 43 hereof constituted a “continuum” of conduct, but other than the various acts involving the same perpetrators he was unable to tell me what such a description actually meant in terms of a continuing act or acts. The allegations as to March 2004 are in essence nothing more than bare assertions as to “false statements” made at the hearing on that day.
I would have to imply an intention to seek an extension of time on Mr Finikiotis’ part for the application to be permitted to proceed.
Similarly, with respect to the submission by the respondent that he has misdescribed the respondent in his application by referring to the firm for whom the Trustee works or of which he is a partner, Mr Finikiotis simply persists with the application in unamended form when the matter is raised by the respondent and when I raised it with him.
I would have to imply an intention on his part to seek to amend so as to refer to the Trustee personally.
The reliance on the second report and the allegation relating to the hearings before North J and the High Court are not advanced beyond the stage of assertion. When I made the order on 12th November 2004 as to the Statement of Contentions, I said:
“That the applicants do within 14 days file and serve a statement of contention setting forth:
(a) the relief claimed against the respondent or respondents;
(b)the factual matters said by the applicant to entitle him to the relief claimed.”
Of course, I have considered all of the documents filed by Mr Finikiotis and all he had to say to me, but there is nothing provided to me which even purports to ground the assertions as to conspiracy and intentions to influence asserted in these parts of the claim. The acts are all out of time in any event, two of them over two years out of time. They do not disclose any reasonable cause of action, even if I were to extend the time within which the actions could be brought.
The reliance on the first report (and the related allegation as to the hearing before Raphael FM) and on the conduct in not assigning the valuation proceedings fall into a different category. It is clear that Raphael FM did rely on the report and in particular its description of the events relating to the non-assignment of the valuation proceedings in a manner that was adverse to Mr Finikiotis. Raphael says so expressly, at least as far as the application by Mr Finikiotis for an adjournment of the proceedings is concerned. It will be remembered Mr Finikiotis asked Raphael FM to adjourn the hearing of the creditor’s petition until the outcome of his appeals relating to the summary judgment in the Supreme Court, the dismissal of that valuation proceedings and the dismissal of his application to set aside the Bankruptcy Notice had been determined.
We know now that all of the appeals were unsuccessful, but I have discussed earlier in these Reasons how the Full Court of the Federal Court in these proceedings interpreted his application as it related to the failure by the Trustee to assign the valuation proceedings. If the Trustee had not wrongfully failed to assign the proceedings (or not reneged on any agreement to assign them) then, having amended them so as to disclose a cause of action, Mr Finikiotis would have had the basis when before Raphael FM of substantiating his submission of solvency or “other sufficient cause and avoided bankruptcy”.
The failure of Raphael FM to grant the adjournment however, would only have been of significance and would only have affected the outcome of the valuation proceedings in the Full Court of the Federal Court if he had stayed the operation of the sequestration order pending his determination of the Review. Section 52(3) of the Bankruptcy Act provides that such an adjournment cannot be for more than 21 days (see also s.37 of the Act). That time can be extended by the Federal Court where an appeal against the making of the order has been filed (see the authorities referred to by the learned authors of Australian Bankruptcy Practice (fifth edition) at p 2922). Presumably the same considerations apply in the case of an Application for Review in this Court. So such an order could conceivably have been made.
This is putting Mr Finikiotis’ case at its best but that is I think what I am obliged to do in applications of this nature.
If I do so, and if I also evaluate Mr Finikiotis’ application in the manner in which he reshaped it before me so as to seek declaratory relief, why should not he have the opportunity to demonstrate that the Trustee behaved wrongfully in not assigning the valuation proceedings and in filing the report as to such matters in the form that was put before Raphael FM?
The reason is that the valuation proceedings are not on foot and were not on foot when the sequestration proceedings were before Raphael FM. They had been struck out as disclosing no cause of action. I have not been provided by Mr Finikiotis with any draft of his proposed amendment to his Statement of Claim. Indeed, he does not appear to have taken any step in furtherance of the proposed re-casting of the claim in the manner anticipated by the Full Court (see par 37 supra).
If the valuation proceedings are not capable of being agitated or if it cannot be shown that they were capable of being agitated at the time that the alleged conduct occurred (that is March – August 2001) then the elaborate structure of Mr Finikiotis’ claim, based as it is on a number of assumptions and reliant as it is on an extension of time for the bringing of the application, falls to the ground. There was no point in complaining that the valuation proceedings were not assigned if they were not capable of being furthered. There was no point in complaining about the summary of these matters in the first report if the adjournment which it is said Raphael FM should have given gave no opportunity to further the valuation proceedings.
This is not to raise an issue estoppel or res judicata submission on the strength of any finding in other proceedings. It would be wrong to do so. It is to recognise that the valuation proceedings in the only form they have ever been cast have been the subject of an order of dismissal. Mr Finikiotis, if he had been able to show that he lost the opportunity of re-casting the claim in arguable form, would have been in a better position to further this application. The task of the Court in such proceedings, involving as it does an assessment of the extent to which losses have arisen when an opportunity to litigate has been lost, is a difficult one but would still have had to be undertaken. Such a task is not infrequently an aspect of, for example, claims for loss on account of a failure by a solicitor to institute proceedings within time. But the matter is not in a state such as to enable that exercise to be undertaken. The applicants cannot litigate a claim which has been dismissed. Consequently, they cannot rely on an opportunity lost to litigate such a claim as the basis for a section 178 application. A defunct claim would not ground any solvency or other sufficient cause submission in sequestration proceedings.
The Court should not embark on proceedings for declarations where the declarations sought have no utility. Such would be the case here even if the applicants were successful in demonstrating wrongful conduct on the part of the Trustee. Even more importantly, the conduct cannot be said to have “affected” them (see section 178(2) supra, at paragraph 47) in any sense which would impact in any way upon the applicant’s current position (see the passage cited from the decision of Bryson J in Wilson supra at paragraph 43). Such proceedings for that reason disclose no reasonable cause of action, even if the extension of time were granted and the misdescription of the respondent remedied.
The other parts of the report (ie, those not concerned with the assignment) of which Mr Finikiotis complains are of no consequence. The Trustee noted that certain obligations of the bankrupts had not been fulfilled by them. Supposing he is in error about that (and his second report expressly abandoned any intention to take such matters further) no relevant impact on the applicant’s position has been or could be demonstrated.
I have considered whether I should give Mr Finikitios the opportunity to recast the valuation proceedings in the manner anticipated by the Full Court, but do not consider that it is in the interests of justice to do so. He has had an opportunity to do so, both before and after his successful appeal to the Full Court. O’Loughlin J’s Reasons for dismissing the proceedings (summarised in the decision of North J) make clear what the defects were and no attempt has been made to show how the difficulties would have been or could have been or can be now addressed.
The position of the valuation proceedings being as above-described, no basis can be demonstrated for requiring an order for further discovery in relation to these proceedings.
I bear steadfastly in mind that the summary dismissal procedure should be exercised exceedingly sparingly and only in the clearest of cases.
I hope I have made clear that throughout this determination I have assumed that Mr Finikiotis will succeed in establishing his factual contentions. But the application to conduct a section 178 hearing is predicated on Mr Finikiotis (and his co-applicant) having lost the chance to prosecute the valuation proceedings. He says he lost such chance because of the conduct and machinations of the Trustee, and conflicted solicitors. He says that his bankruptcy is a consequence of that loss. But the valuation proceedings were not capable, even before the sequestration order, of being furthered. They were fundamentally flawed. This application is made with no attempt having been made to breathe life back into them or no indication as to how that could be done.
In the end, the continuation of fruitless litigation is not in the interests of Mr Finikiotis and his co-applicant as much as it is not in the interests of the respondent. The factors giving rise to the sympathy expressed by North J in his judgment (see paragraph 36 thereof) were also evident in the hearing before me. These matters, however, should not distract me from proceeding in the only way which in my view it is appropriate to proceed and that is to bring this proceeding to an end.
For these reasons, the application filed on 3rd June 2004 is dismissed.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Lindsay FM
Associate: S.M. Smart
Date: 1-7-05
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