Giuca, J.C. v Brick & Pipe Industries Ltd
[1995] FCA 363
•31 May 1995
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
GENERAL DIVISION VP 158 OF 1995
RE: JEAN CLAUDE GIUCA and SHARON GIUCA
Debtors
Ex Parte: BRICK & PIPE INDUSTRIES LTD
Petitioning Creditor
Coram: Olney J
Place: Melbourne
Date: 31 May 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
A sequestration order issue against the estates of the debtors.
The petitioning creditor's costs of and incidental to the petition including any reserved costs be taxed and paid in accordance with the statute.
NOTE: Act of bankruptcy - Jean Claude Giuca - 30 November 1994
Act of bankruptcy - Sharon Giuca - 30 November 1994
Trustee - Official Trustee
NOTE:Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
GENERAL DIVISION VP 158 OF 1995
RE: JEAN CLAUDE GIUCA and SHARON GIUCA
Debtors
Ex Parte: BRICK & PIPE INDUSTRIES LTD
Petitioning Creditor
Coram: Olney J
Place: Melbourne
Date: 31 May 1995
REASONS FOR JUDGMENT
On 14 February 1995 Brick & Pipe Industries Limited (the creditor) presented a petition seeking sequestration orders against the estates of Jean Claude Giuca and Sharon Giuca (the debtors). The petition was served on each debtor on 8 March 1995.
The petition alleged that the debtors each committed an act of bankruptcy on 30 November 1994 by failing to comply with a 21 day bankruptcy notice served on each of them on 9 November 1994.
The bankruptcy notice was based upon a judgment obtained by the creditor against the debtors in the Magistrates Court at Melbourne on 6 October 1994 for the sum of $8,410.24.
On the hearing of the petition on 24 May 1995 evidence was adduced establishing that the debtors had committed the acts of bankruptcy alleged in the petition, that the petition had been duly served and that the debt on which the creditor relied was still owing.
In paragraph 3 of the petition it was alleged that the creditor did not, nor did any person on its behalf hold any security over the whole or any part of the property of the debtors or either of them for the payment of the amount of the judgment debt. During the hearing of the petition the creditor sought leave to amend the petition by substituting for paragraph 3 a new paragraph in the following form:
The petitioning creditor is willing to surrender the security if any held by it over the property of the debtors for the benefit of creditors generally in the event of a sequestration order being made against the estates of the debtors.
The creditor also sought orders dispensing with further verification and service of the petition as amended. The debtors opposed the application for amendment. The question of the amendment was reserved to be dealt with at the same time as the other issues raised in the proceeding.
The original return date for the petition was 11 April 1994. On that occasion the hearing was adjourned to 15 May 1995 and orders were made requiring the debtors to file and serve a notice of opposition and any affidavit in support, and also an affidavit disclosing their current financial position, by 28 April 1995. The creditor was given leave to file and serve any affidavit in reply by 12 May 1995.
The debtors did not file notice of opposition or any affidavit material as ordered. It appears however that on 3 May 1995 their solicitor sent by facsimile transmission to the creditor's solicitor an unsworn affidavit prepared in the name of the first named debtor (Giuca) a copy of which is exhibited to an affidavit sworn and filed herein on 12 May 1995 by Robert John Thomas (Thomas), the creditor's solicitor.
On 10 May 1995 Thomas received a copy of an affidavit sworn by Giuca on 7 May 1995 which was subsequently filed in Court on 15 May 1995 in support of an application for a further adjournment of the petition. This affidavit was not entirely in the same form as the unsworn document previously sent to Thomas and reference will be made below to the variations between the two.
On 15 May 1995, despite the opposition of the creditor, the hearing was further adjourned to 24 May 1995. The debtors were ordered to file and serve their notice of opposition and affidavit material by 19 May 1995 and the creditor was given leave to file and serve any affidavit in reply by 23 May 1995.
The debtors filed their notice of objection on 22 May 1995. The grounds of opposition to the petition are stated thus:
In all the circumstances, the debtors are not insolvent.
In all the circumstances, as the debtors can continue to repay the amount claimed and have already made repayments of the overall debt owed to Brick & Pipe Industries Ltd and given the delay of Brick & Pipe Industries Ltd in enforcing the sum claimed under the guarantee it would not be appropriate to grant the orders sought in the petition.
That, given the personal circumstances of the debtors, it would not be appropriate again to grant the petition.
In support of their opposition to the petition the debtors relied upon affidavits sworn by Giuca on 7 May 1995 (previously referred to) and 22 May 1995 and an affidavit of Joe Rigoli (Rigoli) sworn 22 May 1995. An unsworn version of the affidavit of 22 May 1995 had been faxed to Thomas on 19 May 1995. The document as sworn was not in entirely the form of the faxed document and reference will be made below to the differences between the two.
Objection was taken to Rigoli's affidavit on the grounds that it was said to refer to without prejudice negotiations and further that it was irrelevant to the question of the debtors' solvency. After hearing brief submissions I ruled that the affidavit was admissible. According to his affidavit Rigoli is a friend of the debtors. On 16 May 1995 he contacted Thomas by telephone and offered $1,000 to pay out the debt. Thomas said that he was under instructions to bankrupt Giuca and would have to speak to his client. Rigoli then telephoned a Mr Wall (Wall) an officer of the creditor and offered $1,000 to resolve the matter. Wall said he would have to speak to his solicitor and later telephoned to say that all negotiations should be through the debtors' solicitor. Rigoli then telephoned Thomas again who repeated the same instruction. Rigoli again offered Thomas $1,000 to which he says Thomas replied:
I am instructed by my client to bankrupt Mr Giuca at any cost regardless of whatever offers you come up with.
The final paragraph of Rigoli's affidavit is pure hearsay and its contents will be entirely disregarded.
Giuca's affidavit of 7 May 1995 although originally filed in support of an application for adjournment was relied upon in opposition to the petition. Giuca deposed to having on 27 April 1995 made an application to the Melbourne Magistrates Court for an order for the payment of the judgment debt by instalments. He exhibited to the affidavit a copy of the application for instalment order which is dated 27 April 1995. In the final paragraph of the application, under the heading of "Reasons for Application", the following statement appears:
The debtor is unable to pay the full amount of the debt and wishes to pay the judgment debt by way of instalments.
Giuca said that at the time of swearing the affidavit that he had not been advised of the result of the application. (Other evidence establishes that on 4 May 1995 the application was refused on the ground that the debtors had insufficient means and ability to pay instalments).
The affidavit sworn on 7 May 1995 contains the following paragraph:
We own the house we live in at 8 Leonard Drive, Shepparton East. Apart from other usual weekly expenses the only major debt we owe is to the judgement (sic) debtors. Now exhibited to me and marked "JCG-1" is a true copy of our application for judgement (sic) debt instalments.
The unsworn document faxed to Thomas on 3 May 1995 contained the following paragraphs which did not appear in the sworn version:
We own the house we live in at 8 Leonard Drive, Kialla which, by market value, is worth between $140,000 to $160,000. The amount owed on the mortgage is approximately $135,000. Apart from other usual weekly expenses the only major debt we owe is to the judgment debtors. Now exhibited to me and marked "JCG-1" is a true copy of our application for judgement (sic) debt instalments.
At present, should our property be sold we would be able to pay out the amount owing under the mortgage and the debt, the subject of the Petition.
Giuca's affidavit sworn 22 May 1995 (omitting formal parts) stated:
It is my belief the guarantee, the subject of the Court proceedings which founded the judgement (sic) the subject of the Bankruptcy Notice was signed by me approximately ten years ago. It was signed by me and my wife for our business of Whitehawk Landscaping and Paving Pty Ltd pursuant to which we purchased materials from the judgement (sic) creditor. We purchased materials on a running account and, my belief is, that our turnover was in the vicinity of $150,000.
My belief is also that, when we stopped trading approximately two years ago we owed $7,200. I believe that I had been paying it off at the rate of $200-$300 per month until about 6 October 1994 when the sum owed was $5,880. These monthly payments came about through a mutual verbal agreement between myself and Mr V. Wall, Credit manager of Brick and Pipe Industries until the debt was paid.
I could have kept paying at least $200 per month from the time that judgment was entered but, unfortunately, the judgment debtor would not accept my repayments. Certainly, I am able to continue to make repayments at the sum if I am able to get occasional work and I am told by my friend, Joe Rigoli, that he will guarantee such repayments.
As to my bank account, I have approximately $15 in the Bank of Melbourne account at Shepparton.
We do not own our furniture as we regretably (sic) had to sell them to pay off some of the debt that we owed to Brick and Pipe and legal expenses.
I am otherwise an unemployed Landscape Gardner and on unemployment benefits.
In 1991 my wife was involved in a motor car accident, which was not her fault, and as a result, our youngest son who was, at the time, unborn suffers from cerebral palsy. At present, we have action commenced in the Supreme Court of Victoria and have
instructed solicitors to prosecute the claim. We are advised by our solicitors that the claim is an extremely large one and there will be a verdict expected of at least $4 million.
However, my ability to be able to prosecute the claim would be severly (sic) impaired if it were that my wife and I became bankrupt especially as, I believe, that my wife is the next friend for my child for the commencement of Court proceedings.
It should also be said that the strain upon my wife and I prosecuting the Court proceedings and looking after our disabled son has made it extremely difficult for us to repay the debt.
If the Court were to dismiss the petition I believe that I can continue to repay the debt at the rate of $200-$300 per month because I believe Mr Rigoli will guarantee the above payments per month.
I should also say that we have attempted to make a number of offers to resolve the matter, in particular payment of lump sums from Mr Rigoli to the judgement (sic) debtor. We have been met at all times with no response except to say that they will not deal with us and that they are under instructions to bankrupt me.
That the judgment creditor has secured its debt by registering a caveat on the property at 8 Leonard Drive, Shepparton East ("JCG 001") on the 27th May 1994, reference no SEK 22203. That the creditor is a secured creditor and that the creditor is in the wrong court and this petition should be dismissed on these grounds alone.
In all the circumstances I believe that as this is the only debt that is outstanding that my wife and I face considerable personal hardship and that we would be able to pay the debt off at the rate of $200 per month in all the circumstances it would be appropriate to dismiss the petition.
The unsworn version faxed to Thomas on 19 May 1995 contained the following paragraph which was omitted from the sworn version:
I should add that the only asset we have is the house at 8 Leonard Drive, Shepparton East valued at $140,000 to $160,000 for which there is a mortgage to the ANZ Bank of approximately $130,000.
The final sentence of paragraph 5 of the sworn affidavit did not appear in the unsworn version and in the unsworn version the paragraph corresponding with paragraph 9 stated:
We do not own our furniture as we gave a chattel mortgage to Mr Rigoli to pay off some of the debt that we owed to Brick & Pipe.
Paragraph 15 of the affidavit did not appear in the unsworn statement.
The only other significant variation is that in the unsworn document the estimate that appears in paragraph 10 was $1 million rather than $4 million.
Giuca annexed to his affidavit a copy of a caveat lodged on behalf of the creditor at the Land Titles Office pursuant to s 89 of the Transfer of Land Act 1958 (Vic) on 27 May 1994. The land the subject of the caveat is the land comprised in Certificate of Title Volume 9774 Folio 887 (It appears to be common cause that this land is the same as that identified in Giuca's affidavit as 8 Leonard Drive Shepparton East). In the caveat the creditor claimed an equitable interest as chargee pursuant to a charge granted to the creditor by the debtors by charge document dated 9 October 1989.
The creditor relied on 2 affidavits in response to the debtors' opposition to the petition. Both were sworn by Thomas; the first on 8 May 1995, the second on 22 May 1995.
Thomas' first affidavit was filed in response to the debtors' foreshadowed application for adjournment on 15 May 1995. The only matter of relevance in this affidavit to which reference has not already been made was a reference to the deponent's belief that the ANZ Banking Group Limited (ANZ) had instituted proceedings in the County Court of Victoria against the debtors and his belief that such proceedings relate to the debtors' mortgage with ANZ.
The second affidavit (which was filed in Court on 24 May 1995) makes reference to the statement in paragraph 16 of Giuca's affidavit of 22 May 1995 that the debt due to the creditor is the debtors' only outstanding debt. Thomas exhibited to his affidavit an order in proceedings in the Supreme Court of Victoria at Shepparton (the Supreme Court proceedings) between Giuca as plaintiff and 6 named defendants evidencing the taxation of the defendants' costs in those proceedings pursuant to an order of Master Evans made on 4 October 1994. The costs were taxed and allowed in the sum of $5,464.85. Thomas deposed to the fact that the defendants in the Supreme Court proceedings were the directors of the creditor, its credit manager and a principal of his own firm.
Thomas' second affidavit also exhibited a copy of the statement of affairs lodged by the debtors in support of their application for an instalment order. The statement of affairs makes no reference to any amount due to ANZ pursuant to a mortgage.
The debtors objected to the admission into evidence of the material relating to the costs ordered in the Supreme Court proceedings. The objection was based upon the claim that this was new material which took the debtors by surprise and which they wished to answer. As I was informed by counsel that the debtors' answer was to deny that they had been served with the summons for taxation of the costs and to deny they had been notified of the amount so taxed, I allowed the affidavit to be read but gave the debtors the right to give further oral evidence on those issues. The debtors took the opportunity to call Giuca who said that he had not been served with a summons for the taxation of costs and that he had not been notified of the debt for costs. In cross-examination he did however admit that he had instituted the Supreme Court proceedings by writ filed on 5 August 1994 a copy of which was tendered. The amount claimed in the writ was $5,532,000.50.
The classic test of insolvency is that expressed by Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670-1 where his Honour said (in the context of the Bankruptcy Act 1924):
Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.
The debtors have made no serious attempt to establish their claim that they are not insolvent. They have not provided any statement of their assets and liabilities, and indeed, appear to have deliberately attempted to disguise the fact of their liability to ANZ. No valuation of the property at 8 Leonard Drive has been provided. They have not identified any source from which funds could be provided to satisfy their liabilities. In their application for a instalment order they were prepared to rely upon an assertion that they were unable to pay their debts, and even if the amount of the taxed costs in the Supreme Court proceeding is ignored, the evidence overwhelmingly contradicts the assertion in the notice of opposition that they are not insolvent. In my opinion, on any view of the evidence, the debtors are not able to pay their debts within the meaning of that phrase as used in s 52(2)(a) of the Bankruptcy Act.
Nor, in my opinion does the evidence disclose any other sufficient cause to justify a conclusion that a sequestration order ought not to be made. The role of Mrs Giuca as next friend of her infant son in proceedings in the Supreme Court is not likely to be affected by her status as a bankrupt. Obviously, those proceedings are for the benefit of the child and if it became necessary, another next friend could be substituted. And it is unrealistic to suggest, as was suggested by counsel, that if Mrs Giuca becomes a bankrupt she would thereupon cease to have the capacity to provide the necessary financial support for the prosecution of the proceedings. The fact is that she does not presently have the financial resources necessary and any change in her status would not change the situation at all.
It has been urged upon the Court that as the judgment debt owing to the creditor is the debtors' only liability no sequestration order should be made and that the debtors should be allowed to pay off the debt by instalments. This proposition has 2 faults. First, there is some evidence, which the debtors chose not to answer, that they are presently engaged in litigation with ANZ. No evidence has been adduced as to the extent of any liability to ANZ or as to the extent, if any, to which it is secured. Second, the debtors do not have the resources to make payments of the order offered and there is no basis upon which this Court could ensure that recourse could be had to their friend Rigoli.
I turn now to deal with the creditor's application to amend paragraph 3 of the petition.
Apart from the reference to a charge dated 9 October 1989 in the caveat referred to earlier, and the caveator's claim to have an equitable interest as chargee in the subject land, there is no evidence before the Court as to the nature of any security which the creditor may have to secure the judgment debt. The debtors have not asserted positively that the creditor has such a security and they have not opposed the petition on the ground that the creditor is secured.
Given the uncertainty created by the absence of any positive evidence about the charge referred to in the caveat, it seems to me to be entirely appropriate that the creditor should seek to amend the petition in the form indicated earlier in these reasons. The presentation of the debtors' case has not been prejudiced in any way by the need to clarify the creditor's position and they have not been put to any additional cost. In the circumstances the petition will be amended as sought by the creditor. There will also be orders dispensing with the further verification and service of the petition as amended.
CONCLUSION
I am satisfied that the creditor has satisfactorily proved all of the facts required to be proved to justify the making of a sequestration order against the estates of the debtors. I am not satisfied that the debtors are able to pay their debts nor that for any other sufficient cause a sequestration order ought not to be made.
Accordingly, a sequestration order will be made against the estate of each of the debtors.
I certify that this and the preceding 12 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 24 May 1995
Place: Melbourne
Judgment: 31 May 1995
Appearances:
Mr T. Connard (instructed by Wundele & Co) appeared for the petitioning creditor.
Mr B. Gillies (instructed by Lennon Settle) appeared for the debtors.
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