Gangemi v Osborne
[2008] FMCA 1694
•17 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GANGEMI v OSBORNE | [2008] FMCA 1694 |
| BANKRUPTCY – Application to set aside bankruptcy notice – allegation notice an abuse of process – alternatively, time for compliance be extended pending outcome of appeal – Court of Appeal assessed prospects of success of appeal as low – allegation respondent acting in collusion with another to frustrate the appeal and other legal proceedings – allegation that use of bankruptcy jurisdiction not invoke bona fide – application dismissed. |
| Bankruptcy Act 1966, ss.41(6A) and 41(6B) |
| Brunninghausen v Glavanics (1998) FCA 280 Bryant v Commonwealth Bank of Australia, unreported 9 November 1994 FCA Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Conway v Jackson [2001] FCA 230 O’Loughlin v Glenmont Investments Pty Ltd (2001) 191 ALR 336 William v Spautz (1992) 174 CLR 509 |
| Applicant: | ANTONIO GANGEMI |
| Respondent: | RICHARD OSBORNE |
| File Number: | MLG 916 of 2008 |
| Judgment of: | O'Dwyer FM |
| Hearing date: | 4 December 2008 |
| Delivered at: | Melbourne |
| Delivered on: | 17 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Kohn |
| Solicitors for the Applicant: | Isakow Lawyers |
| Counsel for the Respondent: | Mr Gronow |
| Solicitors for the Respondent: | Christopher Bunnett |
ORDERS
The application filed on 28 July 2008 is dismissed, with costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 916 of 2008
| ANTONIO GANGEMI |
Applicant
And
| RICHARD OSBORNE |
Respondent
REASONS FOR JUDGMENT
Introduction
By his application filed on 28 July 2008, the applicant seeks to set aside bankruptcy notice VN 1222 of 2008 which was served on him on 11 July 2008 on the basis that it was an abuse of process.
Alternatively, he seeks that the time for compliance with the notice be extended to a time not less than 21 days after the Victorian Court of Appeal hands down its decision in an appeal filed by the applicant against the judgment that forms the basis of the notice. The judgment by his Honour Hargrave J of the Victorian Supreme Court ordered the applicant to pay to the respondent the sum of $250,000, plus other charges and interest. With those other charges and interest, the amount due under the judgment is $387,405.51.
Background
In summary, the Supreme Court proceedings centred around a development project where the respondent was found to have conditionally lent money to the applicant that was repayable should a requisite building permit not be obtained by a specified date. The proceeding was conducted over 17 hearing days resulting in a 166 page judgment by Hargrave J which he delivered on 22 May 2008.
The bankruptcy notice was issued on 20 June 2008. It is to be noted that the notice was issued before the applicant had lodged an appeal on 27 June 2008. The service of the bankruptcy notice, I am satisfied, on the evidence of the respondent, was frustrated and only effected on 11 July 2008 which, of course, was after the notice of appeal was lodged and served on the respondent.
When lodging his appeal, the applicant failed to seek a stay of execution on the judgment. I accept that this was an oversight on the applicant's behalf. In any event, a separate application was made to the Court of Appeal for a stay of execution. After hearing argument, much of it reflecting the arguments before me today in support of an extension of time, the Court of Appeal refused to stay the execution of the judgment.
The judgment of the Court of Appeal was that the appeal has low prospects of success. The Court of Appeal articulated at some length why the prospects of success were low, part of which was the observation that the trial judge made findings of fact on an adverse assessment of the applicant's credit. It is trite to say appeals that necessarily challenge a trial judge's assessment of creditworthiness and where there are findings of fact open to the judge on the evidence, as appears to be the case here, are notoriously difficult and rarely successful.
The Court of Appeal also observed that there will be some delay before the appeal is heard in the ordinary course, and for that and other reasons refused to grant a stay of execution.
On the question of when the appeal is likely to be heard, the applicant suggested the first half of 2009 whilst the respondent suggested the latter part 2009, perhaps early 2010. With the permission of the parties, my Associate made inquiries of the Listing Master and was informed that it would be at least seven months from now – by anyone's assessment, a significantly long time off.
Abuse of process claim
In support of his contention that bankruptcy notice should be set aside as an abuse of process, the following was submitted:
a)the bankruptcy notice was issued and served only after the notice of appeal was lodged and served – that it was issued and served in response to the appeal with a view to frustrating the appeal;
b)there was collusion with another interested party – a party with whom the applicant is embroiled in litigation – as evidenced by that third party's involvement in assisting in locating the applicant and thereby the service of the bankruptcy notice. That third party, it is said, also stands to be advantaged by the applicant's bankruptcy. This, it is said, is further evidence of the abusive use of the insolvency jurisdiction of this court;
c)the bankruptcy notice was issued in circumstances where the respondent knew the applicant was solvent, as the respondent had the benefit of title searches showing the applicant was the registered proprietor of five properties;
d)the respondent is the beneficiary of a charge over a property, the registered proprietor of which was a company (now deregistered) and of which at one stage the applicant was a director. It was submitted, in effect, that the respondent's judgment debt was secured by this charge, or that the respondent should have exhausted his rights under this charge before issuing the bankruptcy notice; and
e)the respondent's solicitors wrote to the applicant after service of the notice suggesting that the judgment debt be placed in a joint interest-bearing account pending the outcome of the appeal and that the respondent, if that was to happen, would not pursue the bankruptcy.
The applicant contended that the knowledge of the applicant's solvency, which was to be inferred by the land held in his name, the existence of the charge and the letter suggesting that the judgment debt be held in an interest-bearing account all, necessarily, leads to the conclusion that the respondent did not genuinely wish to invoke the bankruptcy jurisdiction of the court, but wished to use the notice as a means of having a recalcitrant debtor, who is otherwise solvent, pay a debt which he declines to pay – an endeavour, and a means, which amount to an abuse of process and which warrants the notice being set aside.
The applicant relies on the case of Brunninghausen v Glavanics (1998) FCA 280, an unreported judgment of Emmett J, where a notice was set aside after a finding that its issue and service was an abuse of process where an appeal was pending and the judgment debtor was solvent.
Question of solvency
The contention that the applicant was solvent, or more correctly, the respondent knew of his apparent solvency, is unsustainable. There is no evidence as to the financial status of the applicant. There is evidence that he is the registered proprietor of five properties, but there is no acceptable evidence of their value. Some are clearly encumbered, but there is no evidence of the present amount by which they are encumbered and there is no evidence at all of the overall situation of the applicant's assets and liabilities from which a finding can be made as to his net worth and whether it would equal or exceed the judgment debt. In the circumstances, the respondent was not, as he confirmed in evidence, aware of the applicant’s solvency, nor is there ground for any belief he was solvent.
It is to be noted that the applicant has had many months in which to provide acceptable evidence of his financial circumstances but has failed to do so. The applicant's submissions based upon his assertions of solvency, or more correctly, the respondent’s purported knowledge of his solvency, in the circumstances are spurious.
The charge
In respect of the suggestion that the judgment debt was secured by a charge over the applicant's company's land, I say that it is not established on the evidence. There are very real questions as to what, if anything, is secured over this land by the charge. The respondent is justified in not finding any comfort about payment of the judgment debt through a claim pursuant to this charge.
The land over which it is secured is not land of the applicant, for one thing, and the affect and purport of the charge most probably would not establish an entitlement for payment for the debt owed by the applicant to the respondent. The charge is also secondary to a registered first mortgage over the property. In the circumstances, there is no obligation, in my view, on the respondent to pursue any remedy that may exist under the charge before initiating bankruptcy proceedings.
The joint interest bearing account
In respect to the respondent's solicitors negotiating that the judgment debt be placed in a joint interest-bearing account pending the appeal, I find that, in the circumstances of this case, such cannot reasonably be taken as being indicative of the respondent's intention to invoke the court's bankruptcy jurisdiction merely as a means to provoke payment from a recalcitrant debtor who otherwise is solvent. In my view, it was reasonable to adopt this approach.
I note, unlike the situation in Brunninghausen, the applicant (judgment debtor) has not responded with any offers by which the judgment debt could be secured, nor has the applicant been prepared to give any undertaking not to further encumber his properties, or incur further liabilities, or dissipate assets.
Timing of issue and service of the notice, and collusion
In respect to the timing of the issue and service of the notice, clearly it was issued before the appeal was lodged. There is no evidence before me, nor can it be inferred from the factual circumstances, that the notice was issued in response to, or in anticipation of, the appeal or that it was issued to frustrate the applicant's prosecution of the appeal or any other legal proceedings he has on foot.
The respondent gave evidence and was subjected to cross‑examination. I have no hesitation accepting his evidence that on the day judgment was given by Hargrave J, after advice from his legal advisors, he instructed them to initiate bankruptcy proceedings. I am satisfied that the bankruptcy proceeding was on foot before the appeal was lodged and was not in reaction to it, nor in anticipation of it, nor for the purpose of frustrating the appeal. To the extent, therefore, that the applicant relies upon these contentions to support a finding of an abuse of process, he must fail.
In similar vein, the fact that another litigant who is embroiled in litigation with the applicant and who assisted the applicant to locate the respondent to facilitate service of the notice cannot be taken, without more persuasive evidence, to be collusive action to use bankruptcy proceedings to frustrate and perhaps prevent the applicant pursuing legal remedies, and is therefore an abuse of process. The only direct evidence I have about the relationship between the respondent and that other party was from the respondent and again I have no hesitation in accepting his evidence that there was no collusion in this regard.
The applicant has the burden of proving that the bankruptcy notice, its issue and service, is an abuse of process. (See William v Spautz (1992) 174 CLR 509) The applicant has failed in that burden and I find that the issue and service of the notice was not an abuse of process and the notice should not be set aside for that reason.
There is, in my view, a distinction between the facts of this case and those in Brunninghausen – a distinction, incidentally that strengthens the respondent’s position and which highlights the weakness of the applicant’s. In Brunninghausen the debtor offered a first mortgage security for the judgment debt. In this case no offer of a similar nature has been made. Additionally, in Brunninghausen both parties acknowledged the appeal was arguable, whereas in this case the court which will hear and determine the appeal, the Court of Appeal, has already assessed in unequivocal terms that the likelihood of success is low. The applicant's reliance on Brunninghausen in the circumstances is misplaced.
Extension of time for compliance
In the alternative, the applicant seeks that the time for the compliance with the notice should be extended until the appeal has been determined. Here the applicant relies upon sections 41(6A) and 41(6B) of the Bankruptcy Act 1966. Those sections, in short, allow for the extension of time when proceedings are on foot to set aside the judgment debt which forms the basis of the notice, and where such proceedings have been instituted bona fide and have been pursued with due diligence. There is no issue that an appeal, for the purposes of section 41(6A), is taken to be an application to set aside a judgment. (See Conway v Jackson [2001] FCA 230)
There was a delay on the part of the applicant in attempting to stay the execution of the judgment. For the purpose of this judgment, however, I do not find such a delay is evidence of a failure to exhibit due diligence as required by section 41(6B). I accept the explanation given by the applicant.
In respect of an application to extend time for compliance, I must have regard to the likelihood of success of an appeal. I have given considerable weight to the Court of Appeal's assessment of success and that it saw fit not to grant a stay of execution of the judgment. (See Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264; Bryant v Commonwealth Bank of Australia, unreported 9 November 1994 FCA)
Additionally, the time before the appeal is likely to be heard is a significantly long way off, and a delay until then, in all of the circumstances of this case, is likely to cause significant prejudice to the respondent; particularly as there is no understanding of the value of the applicant's assets and liabilities, and further, he has not given any undertakings, or is under any restraint, not to further encumber or dissipate assets. (See O’Loughlin v Glenmont Investments Pty Ltd (2001) 191 ALR 336)
Conclusion
For the above reasons the applicant has failed in his burden of proof of the abuse of process contention and further failed to persuade me to exercise my discretion to extend time for compliance with the notice.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of O'Dwyer FM
Associate:
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