Fulton Lane Bldg Services v Marchesi
[2000] FMCA 10
•18 December 2000
FEDERAL MAGISTRATES COURT OF AUSTRALIA
Fulton Lane Building Services Pty Ltd v Brendan Marchesi (as trustee for Fotis Zafiris) [2000] FMC 10
BANKRUPTCY – Application for leave to commence assessment of damages against bankrupt in Supreme Court proceedings – Bankruptcy Act 1966
ss 58(3), 82
Applicant: Fulton Lane Building Services Pty Ltd
Respondent: Brendan Marchesi (as trustee for Fotis Zafiris)
File No:MZ268/00
Delivered on: 18th December 2000
Delivered at: Melbourne
Hearing Date: 30th November 2000
Judgment of: McInnis FM
REPRESENTATION
Counsel for the Applicant: Mr P A Norris
Solicitors for the Applicant: Russo Pellicano Carlei
Counsel for the Respondent: Mr M E Lhuede
Solicitors for the Respondent: Gadens Laywers
ORDERS:
The Applicant have leave to proceed with an application to assess damages in the judgment it obtained against Fotis Zafiris (also known as Frank Zafiris) in Supreme Court proceeding number 2272 of 1996.
The Applicant have leave to proceed with an application to have costs taxed by the Taxing Master of the Supreme Court in the judgment it obtained against Fotis Zafiris (also known as Frank Zafiris) in Supreme Court proceedings number 2272 of 1996.
Costs including reserved costs be payable out of the bankrupt estate.
Grant liberty to apply to the parties.
IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
MELBOURNE REGISTRY
No MZ268 of 2000
BETWEEN:
FULTON LANE BUILDING SERVICES PTY LTD
Applicant
And
BRENDAN MARCHESI (AS TRUSTEE FOR FOTIS ZAFIRIS)
Respondent
REASONS FOR JUDGMENT
Introduction
This Application is made pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (the Act) whereby Fulton Lane Building Services Pty Ltd (the Applicant) seeks relief against Brendan Marchesi (the Respondent) who is the trustee of the estate of Fotis Zafiris (also known as Frank Zafiris).
The Applicant seeks leave to proceed with an application to assess damages in the judgment it obtained against Fotis Zafiris in the Victorian Supreme Court. The Applicant further seeks leave to proceed with an application to have costs taxed by the Taxing Master of the Supreme Court of Victoria in the Judgment obtained by the Applicant against Fotis Zafiris.
Legislation
Section 58(3)(b) of the Bankruptcy Act 1966 provides:-
“Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) …
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.”
The Evidence
The Applicant relied upon the following material:-
Affidavit sworn by Apostolos Ntontis on 15 November 2000.
The Respondent relied upon the following material
Affidavit of Brendan John Marchesi sworn 28 November 2000.
Affidavit it of Michael Edward Lhuede sworn 29 November 2000.
In addition to the Affidavit material the Court also received as an exhibit a photocopy of the further Amended Statement of Claim which had been filed and served pursuant to leave granted by Master Kings of the Victorian Supreme Court on 14 May 1997 in action no. 2272 of 1996 (the Supreme Court proceedings).
Background Facts
There is no dispute about the background facts which are set out in the Affidavits to which I have referred. In brief terms it is common ground that Frank Zafiris (the bankrupt) became bankrupt on 23rd September 1998 as a result of a sequestration order against his estate (the estate) on that day on the petition of Woodroffe Industries Ltd. The Official Trustee in Bankruptcy became the trustee of the estate as at 23rd September 1998 and the Respondent was appointed trustee of the estate on 29 August 2000 as a result of a resolution of creditors past pursuant to s 157 of the Act.
At the date of his bankruptcy the bankrupt was the registered proprietor of a property at 16 Glenmorgan Street Brunswick in the State of Victoria (the property).
According to the Affidavit of Brendan John Marchesi sworn 28 November 2000 the property was due to be auctioned on 9 October 1999 but was withdrawn from sale by the Official Trustee in Bankruptcy after the bankrupt made submissions in relation to the quantum of claims in the estate. The Official Trustee in Bankruptcy subsequently rescheduled the auction to take place on 24 June 2000. The property was again withdrawn from sale by the Official Trustee in Bankruptcy immediately before the auction date after agreement was reached with the bankrupt pursuant to which the bankrupt paid the Official Trustee in Bankruptcy the sum of $10,000 as compensation for costs thrown away arising out of abandoning previously scheduled auctions.
10. On 7 October 2000 Westpac Banking Corporation as mortgagee in possession entered into a contract of sale of the property with a contract price of $270,700. Settlement was due to take place on 7 December 2000 As at 1 December 1999 the amount due to Westpac was $107,282. It was agreed during the course of submissions that after allowing for additional expenses the net proceeds of sale would be somewhere in the region of $140,000. It was agreed that there is significant equity left available to the ordinary unsecured creditors and that the Applicant is the largest single creditor with potential to benefit from the administration of an estate in excess of $100,000. Other creditors claims amount to approximately $10,000 to $15,000.
11. At the date of the hearing the Respondent had not admitted or rejected in whole or in part any proofs of debt in the estate. The proofs of debt received are as follows:-
Fulton Lane Building Services Pty. Ltd. $348,092.25
Commonwealth Bank of Australia $2,286.19
Oria Pty. Ltd. $20,628.52
Constantinos Kouremenos $4,892.00
12. It was indicated by the Respondent in the Affidavit material to which I have referred that it was intended to reject the proof of debt of the Commonwealth Bank of Australia on the basis that it had previously written to the Official Trustee in Bankruptcy confirming it had accepted payment due to it in full and final satisfaction of any claim. In relation to the claim by Oria Pty Ltd the Respondent intended to admit the proof only to the extent of $6,572.50 representing the amount for which judgment was entered in its favour against the bankrupt. The Respondent is seeking further information from Constantinos Kouremenos in relation to the proof of the amount claimed which relates to damage allegedly caused to that creditor’s motor vehicle by the bankrupt.
13. According to the Affidavit of Apostolos Ntontis sworn 15th November 2000 the Applicant as Plaintiff in Supreme Court proceedings number 2272 of 1996 (the Supreme Court proceeding) obtained orders on 23rd March 1998 before Master Kings. In the Supreme Court proceedings there were three Defendants namely Roman Point Pty Ltd, (First Defendant), Frank Zafiris the bankrupt (Second Defendant) and Georgina Zafiris (Third Defendant). The orders made by Master Kings which appear as exhibit AN1 of the said Affidavit of Apostilos Ntontis include the following relevant orders:-
“…
4.A declaration that each of the Second and Thirdnamed Defendants are constructive trustees for the Plaintiff in respect of the profits made by the Firstnamed Defendant from the joint venture business referred to in paragraph 5(a) of the Plaintiff’s Further Amended Statement of Claim dated May 1997 and which the Firstnamed Defendant has failed to account to the Plaintiff.
5.The Second and Thirdnamed Defendants pay to the Plaintiff, by way of equitable compensation, damages to be assessed.
6.The damages and compensation referred to in paragraphs 2, 3 and 5 above be assessed by a Master of this Court in accordance with Order 51 of the Rules of the Court.
7. …
8.…
9.…
10.The Defendants pay to the Plaintiff the costs of the proceedings (including reserved costs and costs of this day), to be taxed.”
14. Paragraph 5(a) of the Plaintiff’s Further Amended Statement of Claim dated May 1997 provides:-
“5(a)The plaintiff and the first defendant would work together to establish as a joint venture a building contracting business, in particulars, in relation to the provision of concrete formwork services to the building industry (the Joint Venture Business).”
15. The crucial issue in the present case is whether the Applicant should be granted leave to now pursue assessment of damages against the bankrupt in the Supreme Court proceedings.
Applicant’s Submissions
16.The Applicant submitted it is more appropriate for damages to be assessed in proceedings in which the judgment was obtained by a Master of the Supreme Court for the following reasons:-
· Under s 98(6) of the Bankruptcy Act it is difficult for the debt to be readily estimated by the trustee based upon the information currently before the trustee.
· There is a risk that the if the trustee is unable to estimate the damages on the material before him then a conclusion may be reached that it is not a provable debt.
17. It was submitted by Mr Norris for the Applicant that the lodgment of a proof of debt to comply with the time limit imposed by the trustee should not be seen as an acceptance by the Applicant that the most appropriate forum was the procedures available in this Court pursuant to the Bankruptcy Act. He asserts quite properly in my view that the Respondent had indicated from the start that it would seek leave to proceed against the bankrupt.
18. During the course of submissions Mr Norris referred me to the following passage from McDonald Henry and Meek “Australian Bankruptcy Law & Practice” where at paragraph 58.3.25 the learned authors state:-
“The Court can grant leave to take fresh steps in existing proceedings where satisfied that the existing proceeding will have the “relevant issues better and more comprehensively dealt with” than allowing the dispute to be litigated in the Federal Court in the context of an appeal against a trustee’s disallowance of a proof of debt (Re Midland Credit, The Official Trustee and Allanson (1982) 68 FLR 53). Or where it will be “less satisfactory” for some reason to have the dispute litigated there than to allow the existing proceeding to continue: Allanson v Midland Credit (1977) 30 FLR 108, 114.”
19. In the present case Mr Norris submitted that the creditor proceeded as the Plaintiff in the Supreme Court proceedings and obtained judgment. In the circumstances he submitted that it was more appropriate that the assessment be completed by the Court in which judgment had been obtained.
20. In relation to the foreshadowed denial of debt by the bankrupt it was submitted by Mr Norris that that matter could also be dealt with as a separate issue before the Supreme Court of Victoria and/or in the course of the process of the assessment of damages before that Court.
21. Mr Norris submitted that the bankrupt would be entitled to lodge any Affidavit in opposition to the assessment of damages.
Respondent’s Submissions
22. Mr Lhuede appeared on behalf of the Respondent indicated that the application is not opposed. He then proceeded to indicate that some reservations were expressed by way of concern at the course to be embarked upon by the Applicant is potentially not the appropriate course and that the matter may be better dealt with pursuant to s 82 of the Bankruptcy Act.
23. Mr Lhuede conceded however that there are options and that the Court has a discretion pursuant to s 58(3) of the Act.
24. Whilst indicating that the trustee was aware the bankrupt has and continues to maintain or deny any liability at all to the Applicant, Mr Lhuede agreed that although that is a relevant consideration as it is a factor which the Court could give weight to in exercising its discretion, it was unable to take the matter much further. He conceded that the solicitors acting for the bankrupt could fully participate in any assessment of damages which may occur in the Supreme Court.
25. Mr Lhuede agreed that there is no evidence that the bankrupt has taken any steps whatsoever to set aside the default judgment obtained against him in the Supreme Court.
26. Mr Lhuede properly made reference to other options which may be pursued against other Defendants in the Supreme Court proceeding but acknowledged that it is open to a Plaintiff in proceedings where judgment is obtained against multiple defendants to select the defendant which it wishes to pursue by way of recovery of damages.
27. It was suggested that if orders were made then they should be subject to the condition that if a claim is made in respect of any property which is otherwise vested in the trustee in bankruptcy no step is taken to recover that without leave of the Court. He asserted this was simply because “we may need to argue about those matters”.
28. There is no suggestion by the Respondent at all that the Applicant is to blame for any delay.
29. Mr Lhuede did not take issue that a default judgment with a declaration and order for assessment of damages would be insufficient to constitute a provable debt. He did refer to examples such as fraud and specifically referred to s 82(2) of the Act which deals with claims other than claims arising by virtue of breach of trust, contract or promise. Putting the argument at its highest he was prepared to accept that a declaratory judgment with damages to be assessed may constitute a provable debt. Finally Mr Lhuede stated, “I don’t take strong issue at all with a finding that this is in respect of a proof of debt”.
Reasoning
30. Having regard to the material to which I have referred and the submissions of law, it is my view that in this case it is appropriate to make the orders sought in the application.
31. I am satisfied that s 58(3) provides a power to the Court to grant leave to the Applicant to take a fresh step in a proceeding in respect of a provable debt and that such a step includes assessment of damages.
32. I am further satisfied that there is a discretion which can be exercised by the Court in a matter of this kind.
33. In this matter a complex assessment of damages will be required in relation to the bankrupt and other defendants in the Supreme Court proceedings where a default judgment has already been granted. That process of an assessment of damages will be better undertaken by the Court in which the proceedings have been commenced and presumably documents filed which relate to the issue of damages.
34. The parties are already before the Supreme Court and in the event that the bankrupt seeks to set aside judgment and/or participate in the assessment of damages he will have the opportunity to do so before a Court where judgment has been entered.
35. The assessment of damages in a case of this kind is a complex matter and in my view would be better dealt with by the Supreme Court in the normal course of an assessment of damages. It would be artificial and unreasonable to expect a Court in bankruptcy to undertake a discreet task of assessment of damages in circumstances where effectively re-litigation may occur arising out of the same facts in the Supreme Court proceedings where judgment has already been entered. This is an undesirable course to follow and granting leave to pursue the assessment of damages in all the circumstances will provide an opportunity to deal with the issues better and more comprehensively than allowing the dispute to be issued in this Court.
36. For the sake of completeness I should also refer to the fact that Counsel for the Respondent did suggest that any leave granted should be conditional that to the extent that a claim is made in respect of any property which it otherwise vested in the trustee in bankrtupcy, no step is taken to recover that without leave of the Court. I do not believe it is appropriate to impose that condition on the leave granted in this application though I will grant general liberty to apply to the parties should any difficulties arise out of the orders made by this Court. The trustee otherwise has remedies available pursuant to the Bankruptcy Act which he may wish to pursue at a later date.
37. I am satisfied that in the present case having regard to the Amended Statement of Claim in the Supreme Court proceedings to which I have referred that the unliquidated damages in this case do arise by reason of contract, promise or breach of trust and accordingly the debt is a provable debt for the purpose of the Act. It cannot be regarded as a debt that is not provable pursuant to s 82(2) of the Act.
Orders
Accordingly I make the following orders:-
- The Applicant have leave to proceed with an application to assess damages in the judgment it obtained against Fotis Zafiris (also known as Frank Zafiris) in Supreme Court proceeding number 2272 of 1996.
- The Applicant have leave to proceed with an application to have costs taxed by the Taxing Master of the Supreme Court in the judgment it obtained against Fotis Zafiris (also known as Frank Zafiris) in Supreme Court proceedings number 2272 of 1996.
- Costs including reserved costs be payable out of the bankrupt estate.
- Grant liberty to apply to the parties.
I CERTIFY THAT THE PRECEDING PARAGRAPHS NUMBERED 1 TO 38 CONSTITUTE A TRUE COPY OF THE REASONS FOR JUDGMENT OF McINNIS FM
DATED 18th DECEMBER 2000
ANTONIJA CURIC, ASSOCIATE
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