Fode v Horne - [2015] FCCA 70

FEDERAL CIRCUIT COURT OF AUSTRALIA

FODE v HORNE & ANOR

[2015] FCCA 70

Catchwords:
BANKRUPTCY – Proof of debt – review under s.104 – discretion – trustees duties – whether the debt was incurred by the applicant personally or as the director or agent of a company.

Legislation:

Bankruptcy Act 1966

Daevys v Official Trustee in Bankruptcy [2011] FCA 398
Young, In the Matter of Macryannis [2011] FCA 1272

Applicant:

MARKO FODE

First Respondent:

STIRLING LINDLEY HORNE (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF MARKO FODE)

Second Respondent:

SHERRIFF'S OFFICE VICTORIA

File Number:

MLG 2233 of 2014

Judgment of:

Judge Street

Hearing date:

12 January 2015

Date of Last Submission:

12 January 2015

Delivered at:

Melbourne

Delivered on:

12 January 2015

REPRESENTATION

Counsel for the Applicant:

Dr Bender

Solicitors for the Applicant:

Vincent J Ryan

Counsel for the Respondent:

Mr Evans

Solicitors for the Respondent:

White Cleland

ORDERS

The Second Further Amended Application filed 12 January 2015 be dismissed.
The Interim Injunction made on 22 December 2014 be dissolved.
The Applicant pay the Respondent’s costs (including reserved costs) on an ordinary basis.

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT MELBOURNE

MLG 2233 of 2014

MARKO FODE

Applicant

And

STIRLING LINDLEY HORNE (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF MARCO FODE)

First Respondent

SHERRIFF'S OFFICE VICTORIA

Second Respondent

REASONS FOR JUDGMENT

This is an application brought by the Applicant who is a bankrupt pursuant to the Court’s jurisdiction vested by s.27 of the Bankruptcy Act 1966 in the Federal Circuit Court of Australia. The Applicant was made bankrupt on 12 May 2011 and the First Respondent was appointed trustee on 23 October 2011 in respect of the estate of the bankrupt. On 19 March 2012, the Applicant filed an application seeking orders that the bankruptcy be annulled and that application was dismissed by Judge Riley on 30 October 2012.
These proceedings were commenced by the Applicant on 6 November 2014 in which the relief sought was originally identified as:
1. A declaration that the first Respondent has erred in admitting proofs of debt of Barry Hajdinjak, BANP Nominees Pty Ltd (A.C.N. 005 374 345) and Georgina Fode.
2. The decision of the first Respondent to admit the proofs of debt of Barry Hajdinjak, BANP Nominees Pty Ltd (A.C.N. 005 3 74 345) and Georgina Fode be revoked.
3. 'The proofs of debt of Barry Hajdinjak, BANP Nominees Pty Ltd (A.C.N. 005 374 345) and Georgina Fode be rejected.
4. The second Respondent as be removed as Trustee of the bankrupt estate of the Applicant.
5. The Applicant be discharged from his bankruptcy.
6. The land situated at 2/19 Nicholas Grove, Heatherton 3202 ("the Property") be transferred from the first Respondent to the Applicant.
7. The costs of this Application be paid by the first Respondent.
8. Such further and other orders as the Court deems appropriate.
Interim relief was sought to restrain the First Respondent from dealing with real property registered in the name of the First Respondent and to restrain the Second Respondent from removing the Applicant and his personal effects from the property. The matter was listed for final hearing today and, having identified at the outset an issue concerning notification or joinder of other parties and the course that the Court may take if the rights of those other parties would be affected by orders of the court, the matter proceeded to final hearing on the basis of a second further amended application in which the orders were set out in paras. 1-6 of the second further amended application:
1. That pursuant to either s33(1)(c), and/or s 104(3) of the Bankruptcy Act 1966 (Cth), the Court extend the time to appeal against the decisions of the respondent to admit the following proofs of debt to the date of the application:
(a) The proof of debt of Barry Hajdinjak in the amount of $74,566;
(b) The proof of debt of Georgina Fode in the amount of $185,345;
(c) The proof of debt of BANP Nominees Pty Ltd (ACN 005 374 345) in the amount of $84,234 (together “the Debt Decisions”).
3. That the proofs of debt of BANP Nominees (ACN 005 374 345)and Georgina Fode be rejected and the proof of debt of Barry Hajdinjak be admitted only in the amount of $14,566.
4. The Respondent be restrained from selling the property at 2/19 Nicholas Grove Heatherton 3202.
5. The costs of this Application be paid by the fist Respondent.
5. Such further and other orders as the Court deems appropriate.
The first issue that arises in the proceedings is an application for review of an admission of a proof of debt of Barry Hajdinjak in the amount of $53,780.21, being a decision made by the First Respondent on 22 December 2014. The Applicant’s right to seek review of the decision lies under s.104 of the Bankruptcy Act 1966, and in respect of this proof of debt no extension of time is necessary. I accept the Applicant’s submission as to the nature of the review that is required as identified by Flick J in Daevys v Official Trustee in Bankruptcy [2011] FCA 398 at para. 13 as being one of a rehearing.
In substance, the Applicant contends that an amount obtained by Barry Hajdinjak and another person in the sum of $60,000 in the settlement of proceedings taken by the executor of the estate of Ursa Surgeon Fode against Harry Hajdinjak and Nada Hajdinjak should be brought into account in full in determining the amount of the proof of debt for Barry Hajdinjak. I was taken to the deed of settlement and, in substance, the argument was advanced that in that settlement the parties to the deed had agreed each to pay their own costs. It was said that the costs that had been incurred by the Respondents in obtaining the $60,000 should not be taken into account in the admission of the proof of debt. It was further submitted that the full $60,000 should be applied to what was otherwise an accepted debt of Barry Hajdinjak as a result of the earlier proceedings in what was then the amount of $74,566.
It was suggested that the expenses that were deducted by Mr Hajdinjak for his legal costs in recovering the $60,000 was an amount that may not have been properly incurred. It was however, accepted that no evidence has been brought to suggest that the sum identified by Mr Hajdinjak did not accurately reflect his legal costs, nor that those legal costs were in some particular respect unreasonable. In essence, the bankrupt seeks to get the benefit of the recovery of the $60,000 without the expense that has been incurred by Mr Hajdinjak to obtain a benefit for the estate. In my opinion, it would be inequitable to require the full amount of $60,000 to be brought to account without deducting the expenses that were incurred, being the legal costs which Mr Hajdinjak has incurred, subject to the question of discretion as to whether this review application should have been brought forward. In my opinion, the proof of debt has been properly accepted by the Trustee in the amount of $53,780.21.
The next issue that arises is the admission of the proof of debt of Georgina Fode. The Trustee admitted the proof of debt in March of 2014, and leave is required under s.104 to bring the application for review. Good cause is required for the purpose of considering whether that time should be extended. The thrust of the Applicant’s contention that the proof of debt as to $185,345 should not be admitted was that the instrument signed by the bankrupt on its proper construction was not one in respect of which the bankrupt assumed a personal liability, but was signing an instrument in his capacity as a director or agent with no personal liability.
The instrument signed by the bankrupt was on the letterhead of a company in which he was a director, MGD Australia Pty Ltd. The document was addressed to Georgina Fode and beneath that there was a heading in bold capitals, “Re Secured Loan Guarantee”. Following that, there was set out the personal name of the bankrupt before the words “I”. There was then set out after an address, in brackets, the words “Director of MGD Australia Pty Limited”. The instrument purports to acknowledge a loan on different occasions for different amounts and states:
The outstanding loan will be paid to you by – And again, different dates and different instruments.
Beneath that is set out relevantly the name of the bankrupt in bold with a bold date beside it and underneath it, not in bold, the words “Director”. In my opinion, as a matter of construction, there would be no work for the word “Guarantee” to perform if it was not the case that relevantly the bankrupt was assuming a personal liability in respect of that loan. I find, on the proper construction of the secured loan documents signed by the bankrupt, that he assumed a personal liability in respect of the loans made by Georgina Fode.
Accordingly, subject to the issue of whether good cause has been shown and, whether as a matter of discretion, any relief should be granted under s.104, I am of the opinion that the trustee was correct in admitting the proof of debt in the amount of $185,345. I note in that regard that there was a suggestion that the decision to admit the debt was made on 16 December 2014, in respect of which no extension of time would be required. The file note dated 16 December 2014 in light of the correspondence of 9 March 2014 was merely confirmatory of an earlier decision clearly made by April 2014 to admit the proof of debt as identified in the letter dated 9 April 2014, signed by the Trustee. Accordingly, leave would be required. I am not satisfied good cause has been shown to extend time, quite apart from any discretionary consideration as to whether relief should be granted.
The third issue concerns the BANP Nominees Pty Limited proof of debt in the amount of $84,234 which it is accepted requires an extension of time. The proof of debt lodged by BANP Nominees Pty Ltd set out an explanation of alleged debt under the heading “Annexure” which appears on p.271:
At the Request of the Bankrupt, the Creditor borrowed $96,500 from the National Australia Bank Limited and lent it to the Bankrupt on or about 8 March 2005. It was a term of the loan that the Bankrupt would repay the loan from the bank and indemnify the Creditor for all payments as and when they fell due. Between March 2005 and October 2006 and in partial discharge of his liability the Bankrupt made principal repayments totalling $24,000.00. He also made interest payments until June 2008 (although generally, the Bankrupt’s interest payments did not cover the entire interest charge for the month, so there was always a “shortfall”).
In June 2008, his payments ceased.
On 17 March 2010, the Creditor paid the bank outstanding loan balance in full.
Accordingly, the Creditor claims:
(i) $72,500 principal outstanding: plus
(ii) Interest “shortfall” between October 2006 and June 2008 of $3737.28: plus
(ii) Interest payments between June 2008 and 17 March 2010 of $5932 when facility was paid out in full: plus
(iv) interest calculation for period 17 March 2010 to date based on term deposit rate of 5% of $9,900.
Total amount claimed: $92,070
On 6 July 2012, the Trustee requested further information concerning that proof of debt and relevantly, further information was provided by BANP Nominees Pty Ltd which showed that the funds had been provided by BANP Nominees Pty Ltd to different corporate related to the bankrupt.
BANP Nominees Pty Ltd provided a further summary explanation in answer to the request by the trustee for information and in particular, a schedule of advances with a further explanation:
The amount of $96,500 was advanced on 8 March 2005 from the BANP Nominees Pty Ltd National Australia Bank FlexiPlus Mortgage Choice account (Acc. 575553968). Between March 2005 and September 2006, this account was also being utilised by the directors of BANP Nominees. Accordingly, while interest payments made by M Fode during this period may have been less than the bank interest referable to Marko Fode’s debt, any shortfall during that period has not been included in the table above given the “mixed use” of the account during that period. Marko Fode made repayments totalling $24,000.00 in May and July 2006. As at September 2006, the outstanding amount owing by Marko Fode was $72,500. This amount was transferred to a National Australian Bank Market Rate Facility (Acc. 795882878). This facility was not used for any other purpose by BANP Nominees during the period September 2006 until it was closed in March 2010.
The Applicant sought to argue that the reference in a cheque butt to loan to a corporate name was inconsistent with the loan being in fact one to the bankrupt and the Applicant pointed to the want of documentation identifying an agreed personal liability in writing by the bankrupt. However, the Applicant accepted that there was a conflict of assertion between the evidence of the bankrupt in which he sought to contest that this was a proper debt (Applicant’s affidavit 9 January 2014):
11. I have seen a copy of a bank deposit slip received from the Trustee in December. It contains the words “loan to MGD Australia” and is dated 3 March 2005. I cannot see an account number. At the time, Gordon was running the office of MGD Australia., I was working in the warehouse. I was still not a director. I do not recognize the handwriting. I have no knowledge of this deposit and cannot explain it.
Now produced and shown to me and marked MF 5 is a copy of the bank deposit slip.
12. Between May 2007 and February 2008, the premises was owned by a Unit Trust of which BANP was a unit holder. Rent was paid to the individual unit holders of which there were 4. We had set up an account specifically to pay rent in the name of BJMGD Nominees Pty Ltd. I have now seen copies of cheques provided in December 2014 by the Trustee, signed by me from the MGD Australia account, apparently with notations on top indicating interest for 2 months. It is my handwriting. By this time, I was a director of MGD Australia but I did not work in the office, that was Gordon’s role. I cannot explain the cheques with the word “interest”. They would have been written out on Gordon’s instructions because, apart from regular rent cheques, he would tell me which cheques to prepare.
Now produced and shown to me and marked MF 6 is a bundle of copy cheques.
It is not contested that the bankrupt was a director of the relevant companies and has provided no explanation in relation to the transactions beyond the information set out in his affidavit of 9 January 2015 quoted above. The Applicant was in a position, in my opinion, to provide the greater information about those transactions and in those circumstances, where the explanation wasn’t provided, I accept the contention as identified from BANP Nominees Pty Ltd as to the advance being a personal advance secured by the estate of the Applicant.
In my opinion, it is perfectly explicable that the loan made to Applicant by BANP Pty Ltd would have funds provided to corporate entities related to the Applicant. In coming to that finding, I take into account that this appears to have been an activity in which the Applicant sought loans from other parties relating to the corporate entities in which he was involved. I also take into account the evidence of Mr Horne which would have caused considerable disquiet in matters of discretion where he said in his affidavit of 16 December 2014, para.7:
Throughout the course of the bankruptcy, the Applicant has failed to cooperate with my investigations, resulting in delays and additional costs being incurred in the administration of the bankrupt estate.
I have not taken into account in this regard what was said by Judge Riley as to credit. It is of considerable concern when one comes to any excise of discretion that a bankrupt has not cooperated with the Trustee. The Trustee has a number of specified duties to perform in relation to the bankruptcy. Relevantly, under s.19(1) part of those duties involve taking appropriate steps under para.(f) to recover property for the benefit of the estate. The full nature of the duties of the Trustee are fully and usefully identified by Stone J in Young, In the Matter of Macryannis [2011] FCA 1272 at paras. 26-30:
26. The duties of a trustee of the estate of a bankrupt include the steps in the administration of the bankrupt estate that are set out in s 19(1) of the Act. By force of s 248(3)(f) the nominated duties apply equally to the trustee of the estate of a deceased person in respect of whose estate an order for administration under Part XI has been made. The duties include, “determining whether the estate includes property that can be realised to pay a dividend to creditors”, “taking appropriate steps to recover property for the benefit of the estate” and “exercising powers and performing functions in a commercially sound way”: ss 19(1)(b), (f) and (k) respectively.
27. The principles governing the performance of those duties were summarised by the Full Federal Court in Adsett v Berlouis (1992) 37 FCR 201 at 208-9 (authorities omitted):
A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt’s estate. The trustee is bound to administer that estate in accordance with the Bankruptcy Act and Bankruptcy Rules 1968 (Cth). The trustee has a dual function: first, to administer the estate in the interests of creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed under the Act. The conduct of the trustee is subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee. The trustee is required to bring reasonable skill to the performance of his or her duties.
A trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money. A trustee in bankruptcy is in no different position. The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee’s obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt. We adopt, as a correct statement of the duty of a trustee and the property manner of its performance, the words of Smithers J in Mannigel v Aitken (1983) 77 FLR 408-409:
In the case of bankruptcy the trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and if there be any surplus for the benefit of the bankrupt. It is clear that the minimum standard required of the Trustee is that he shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt. Obviously a great deal of discretion and judgment is required to be exercised by the Trustee.
28. The Full Court, at 209, also referred with approval to the statements in Halsbury’s Laws of England (3rd ed), Vol 38, p967, that “a trustee must take all reasonable and proper measures to obtain possession of the trust property and to get in all debts and funds due to the trust estate, and to preserve it, and to secure it from loss”: see also Freeman v National Australia Bank Limited [2003] FCA 1233 at [22] where Spender J commented that:
The duty of the trustee in bankruptcy is to exercise judgment so as to save the estate unnecessary expenditure of money. Further it is to discharge the public duty imposed by the Act conformably with his obligation to administer the estate in such a manner as to maximise the return from estate assets, thereby maximising satisfaction of the creditors’ claims and any possible surplus for the bankrupt.
29. Sections 178 and 179 combine to give the Court a high degree of supervision and control over the conduct of trustees however the roles of these two sections are different: Wilson v Commonwealth of Australia [1999] FCA 219 at [38]- [44]. The former section focuses on a particular “act, omission or decision of the trustee”; the scope of the latter is wider, being concerned with “the conduct of a trustee in relation to a bankruptcy”. Section 178 is an important element in the context in which s 179 must be construed. In Re Tyndall; Ex parte Official Receiver [1977] FCA 15; (1977) 30 FLR 6 at 9-10, Deane J described s 178 as conferring “the widest possible discretion as to the appropriate order which should be made in the particular case” albeit that the court should not “unduly interfere with the day-to-day administration of a bankrupt’s estate by a trustee”. His Honour’s views were approved by the Full Court in Re Dingle; Westpac Banking Corporation v Worrell[1993] FCA 619; (1993) 47 FCR 478 at 485 and in McGoldrick v Official Trustee in Bankruptcy [1993] FCA 636; (1993) 47 FCR 547 at 552-553.
30. In Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 at [38] French J, as the Chief Justice then was, emphasised the importance of s 178 “in providing for wide ranging supervision by the Court of trustees who are appointed to administer the interests of bankrupts in the interests of creditors and, in so doing, to have regard also to the interests of the bankrupts”. Section 179 has been regarded as of similarly wide application and analogous to s 178: Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262; Official Receiver in Bankruptcy v Todd (1986) 70 ALR 119 at 122 per Fisher J; Macchia v Nilant at [43]-[46]. In that context the role of s 179 in providing for the Court to exercise that supervisory role, not just in respect of a specific act or omission but in relation to the trustee’s conduct as a whole should not be construed in the narrow sense advocated by the Trustee.

The trustee also has power subject to the Act relevantly under s.134 (1)(a):
Sell all or any part of the property of the bankrupt,
And under s.134 subs.(3):
Subject to this Act, the trustee may use his or her own discretion in the administration of the estate.
Upon the making of the sequestration order, the divisible property of the bankrupt was vested in the trustee. The trustee has a duty to get in that estate and a duty to realise that divisible property to meet the expenses that have been incurred, including expenses that have clearly been added to as a result of the conduct of the Applicant, and for the benefit of any distribution to the creditors.
At the time these proceedings were commenced, the trustee had recovered default judgment for recovery of land on 27 March 2014 and obtained a warrant for possession on 5 September 2014. That judgment was obtained by default. There was no explanation about the obtaining of that default judgment in the proceedings that were brought in this court in seeking the interim relief as well as the other relief that has been referred to in the interim judgment of Judge Riethmuller on 22 December 2014 as a ‘scattergun approach’.
In the second further amended application, relief was also sought to restrain the trustee from selling the property at 2/19 Nicholas Grove, Heatherton, being property that the trustee had properly got in his own name, obtained a writ of possession and was seeking to discharge his duties consistent with his obligations under the Act. There was no existing legal right for the Applicant to be discharged from bankruptcy, a matter conceded by the Applicant. There was no equity identified in the affidavit material before me that could support any basis to restrain the First Respondent from selling that property and performing his duties. Moreover, I am satisfied that the second Respondent is properly seeking to perform his duties and is not in any way acting unconscionably by proceeding with the steps that were sought to be restrained.
In these circumstances, there is no basis upon which any relief could be granted as sought in para. 4 of the second further amended application, and it follows that the interim restraining orders should be dissolved. The court has a discretion in relation to exercising its power of review under s.104. In the circumstances of this case and given the conduct of the Applicant, even if I had been persuaded by the arguments advanced by the Applicant I would have as a matter of discretion declined to exercise the power granted to vary the proofs of debt in the circumstances of this small estate and the conduct I have referred to. For these reasons, I dismiss the second further amended application. I dissolve the interim injunction continued by Judge Riethmuller.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Judge Street

Associate: KM

Date: 15 January 2015