Hadjimouratis v Casanova
[2005] FMCA 1468
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HADJIMOURATIS v CASANOVA | [2005] FMCA 1468 |
| BANKRUPTCY – Application to set aside sequestration order – bankrupt solvent – whether the Trustee’s costs for administration of the bankrupt’s estate should be paid by the bankrupt – whether the bankruptcy should be annulled or be set aside – order that sequestration order set aside. |
| Bankruptcy Act 1966 (Cth), ss.153B, 154 Federal Magistrates Court Act 1999 (Cth), s.103(1) Federal Magistrates Court Rules 2001 (Cth), rr.20.01, 20.03 |
| Austral Brick Co Pty Ltd v Daskalovski [1998] FCA 782 Capsalis v Ozdemir [2005] FMCA 1163 (19 August 2005) Ivanhoe Grammar School v Raschilla [2003] FMCA 30 Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 (22 October 2004) Re: Gollan; Ex Parte Gollan (1992) 113 ALR 475 |
| Applicant: | JOHN HADJIMOURATIS |
| Respondent: | LYRMA CASANOVA |
| File Number: | MLG 256 of 2005 |
| Judgment of: | Connolly FM |
| Hearing date: | 3 October 2005 |
| Date of Last Submission: | 3 October 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 7 October 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr M.J. Galvin |
| Solicitors for the Applicant: | Tasiopoulos Lambros & Co. |
| Counsel for the Respondent: | Mr P. Fary |
| Solicitors for the Respondent: | Mendelsons |
| Counsel for the Trustee: | Mr P.F. Agardy |
| Solicitors for the Trustee: | Leonard Deane Lawyers |
ORDERS
That the time for filing the application heard this day be extended to 22 July 2005.
That the sequestration order made on 3 May 2005 be set aside.
That otherwise all extant applications be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 256 of 2005
| JOHN HADJIMOURATIS |
Applicant
And
| LYRMA CASANOVA |
Respondent
REASONS FOR JUDGMENT
The proceedings
Pursuant to a notice of motion filed on 22 July 2005 the applicant sought orders as follows:
i.An order pursuant to sub-rule 20.02 of the Federal Magistrates Court Rules 2001 (“the Rules”) extending the time fixed under sub-rule 20.01 for applying for a review of the sequestration order made on 3 May 2005.
ii.An order pursuant to subsection 104(2) of the Federal Magistrates Act 1999 (Cth) and Rule 20.02 of the Rules setting aside the said sequestration order.
iii.Alternatively, an order under rule 16.05(2)(a) of the Rules setting aside the said sequestration order on the ground that it was made in the respondent’s absence.
iv.Alternatively, an order pursuant to section 153B of the Bankruptcy Act 1966 setting aside the sequestration order on the ground that it ought not to have been made and annulling the bankruptcy thereunder.
v.Such further or other orders as the Court deems necessary.
The respondent (petitioning creditor) in a notice filed on 18 August 2005 opposed the orders sought by the applicant trustee. Ultimately, however, the respondent consented to the extension of time necessary for the review of the Registrar’s decision and neither opposed nor consented to the substantive orders. The Trustee of the Bankrupt Estate, being Paul Anthony Pattison, filed an outline of submission on behalf of the Trustee on 30 September 2005. Each of the parties and the Trustee filed affidavit material.
The history
The respondent (judgment creditor) obtained a judgment against the applicant (debtor) for $2,208.67 in the Magistrates’ Court of Victoria on 20 May 2004. On 13 October 2004 the applicant was served with a bankruptcy notice. On 8 March 2005 a consent was signed by the Trustee. The creditor’s petition was served on 23 March 2005 and the sequestration order was made on 3 May 2005.
The Law
If, on the re-hearing of a petition in which a Registrar has made a sequestration order, the sequestration order is set aside, without a further order annulling the bankruptcy, the Trustee has no means of recovering his costs and expenses (see Ivanhoe Grammar School v Raschilla [2003] FMCA 30). If, on the other hand, an order is made annulling the bankruptcy under section 153B of the Bankruptcy Act, section 154 of the Bankruptcy Act permits the Trustee to apply the property of the bankrupt in payment of the costs and expenses of the administration of the bankruptcy including the remuneration and expenses of the Trustee. The question is then raised as to when should the Court set aside the sequestration order and when should it annul the bankruptcy.
Section 103(1) of the Federal Magistrates Court Act 1999 (Cth) provides:
103 Delegation of powers to Registrars
(1) The Rules of Court may delegate to the Registrars any of the powers of the Federal Magistrates Court, including (but not limited to) all or any of the powers mentioned in subsection 102(2).
Rule 20.00A(1)(c) of the Federal Magistrates Court Rules 2001 (Cth) (“the FMC Rules”) states:
20.00A Delegation of powers to Registrars
(1) For subsection 103 (1) of the Act, the following powers are
delegated to each Registrar:
…
(c) a power of the Court under a provision of the Bankruptcy
Act mentioned in Schedule 4.
The review conducted under rule 20.01(1)(a) and (2)(a) of the FMC Rules must be made as follows:
20.01 Time for application for review
(1) For subsection 104 (2) of the Act, application for review of the exercise of a power by a Registrar must be made within:
(a) for the exercise of a power of the Court under a provision
of the Bankruptcy Act mentioned in Schedule 4 — 21 days
…
(2) A time prescribed under subrule (1) may be extended in a
proceeding:
(a) by the Court or a Registrar on any terms as the Court or
Registrar thinks fit; or
Pursuant to rule 20.03(a) of the FMC Rules:
20.03 Procedure for review
The review of an exercise of power by a Registrar:
(a)must proceed by way of a hearing de novo.
A sequestration order can be set aside on the ground that it was made in the respondent’s absence as provided in rule 16.05(2)(a) of the FMC Rules.
Conclusions & findings
The circumstances in which a Court should extend the time for filing of the application are governed by rule 20.01(2)(a) of the FMC Rules. The delay in this matter is from 24 May 2005 which was the 21 day deadline to the 22 July 2005, the date of filing the notice of motion. While the applicant indicates that he instructed solicitors to make the application on 10 May 2005, there is no explanation as to why the application is not actually filed until 22 July 2005. However it is a relatively short delay and more importantly the respondent (judgment creditor) consents to the extension of time. In those circumstances and in circumstances where I am satisfied on the affidavit evidence that the applicant is solvent and on the basis of what the respondent says that the respondent is satisfied that there are funds which will be used to satisfy the debt and the respondent’s legal costs it is appropriate to extend the time for the application for review.
The applicant submits that in the circumstances of this matter, where the applicant is solvent and was not present at the time the sequestration order was made, that the appropriate course to take is to set aside the sequestration order. It was further contended on behalf of the applicant that there had been no substantial administration of the estate and that whilst there had been a delay it had been relatively short. In support of his submissions that it would not be appropriate to make an order for an annulment, Counsel for the applicant relied on the decision of Weinberg J in Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 (22 October 2004) (“Kyriackou”) and the Federal Magistrates Court decision of Capsalis v Ozdemir [2005] FMCA 1163 (19 August 2005).
Counsel for the Trustee submitted that the cases of Re: Gollan; Ex Parte Gollan (1992) 113 ALR 475 and Austral Brick Co Pty Ltd v Daskalovski [1998] FCA 782 were authority for the proposition that there was power to make an order for the former bankrupt to pay the Trustee’s costs on the setting aside of a sequestration order and that this process should be followed even if there was no order for annulment.
The Trustee further submitted that the Trustee is an officer of the Court who played no role in his own appointment, he simply signed a consent in the ordinary course, has been appointed, has done the work as he has been required to do, and he should not be left out in the cold when it comes to payment of his costs.
The substance of what Weinberg J determined in Kyriackou is contained as follows in [37]-[43]:
37 The next question that arises is whether the Official Trustee, as second respondent to this appeal, is entitled to any order for costs arising out of the appeal. The Official Trustee chose to be represented in the appeal in order to advance arguments relating to the costs that he had incurred in administering the estate, and in relation to his remuneration. He did not participate in the substance of the appeal. In my view, there should be no order as to the Official Trustee’s costs relating to the appeal.
38 The final and most difficult issue to be determined is whether, as the appellant contends, the sequestration order should simply be set aside, or whether, as the Official Trustee contends, the bankruptcy should be annulled.
39 In the normal course, it would be appropriate simply to allow the appeal, set aside the sequestration order, and leave the Official Trustee to pursue whatever remedies he might have under the Act, or by virtue of the general law, in order to recoup expenses incurred. It is highly unlikely that the Court has power to order the first respondent to meet these costs, given that they do not arise out of the litigation itself.
40 It would be quite wrong, in my view, to burden Mr Kyriackou, who is the successful appellant in this proceeding, with the costs of administering a bankrupt estate that should never have been made the subject of a sequestration order. Regrettably, that leaves the Official Trustee with no obvious and immediate recourse against either the appellant, or the first respondent. It also leaves him with what might be considered to be a legitimate sense of grievance. He may be out of pocket for doing no more than what he was required by statute to do.
41 It might be thought that the Act is deficient in failing to provide for the summary recovery by a trustee of the costs of administering an estate, and his or her reasonable remuneration, in circumstances where a sequestration order has had to be set aside. Perhaps the party responsible for those costs having been unnecessarily incurred, in this case the first respondent, ought to be summarily liable for them. There may be some cases, in which it will be appropriate to annul a bankruptcy under s 153B, thereby triggering the operation of s 154, rather than setting aside a sequestration order. Certainly, Emmett J took that approach in Austral. French J, in Symons, was prepared to contemplate a similar course, though not without reservations. In my opinion, this is not such a case.
42 It seems to me that a trustee who administers a bankrupt estate, in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain. I can well understand why, in Austral, given the facts of that case, involving as it did a resolution of a dispute between a debtor and a creditor, Emmett J concluded that it was appropriate to order the annulment of the bankruptcy, rather than simply setting aside the sequestration order. There was something to be said for making the putative bankrupt’s estate meet the costs needlessly thrown away, particularly given the fact that there had been a short administration. The argument for fixing the estate with the costs and expenses of the administration seems to me to be less cogent when the putative bankrupt should never have been the subject of a sequestration order in the first place. That is particularly so when the sequestration order is based upon a bankruptcy notice that has always been attacked as invalid.
43 In this case, a balance must be struck between the rights of the appellant, who should never have been made bankrupt in the first place, and the Official Trustee, who has simply done what the Act requires him to do. In my view, the particular circumstances of this case require that that balance tilt in favour of the appellant. It follows that the Official Trustee must bear his own costs and expenses of the administration unless he elects to institute proceedings to recover them: see generally Wenkart v Pantzer (2003) 132 FCR 204 at 207. That is a matter for the Official Trustee. It does not fall within the ambit of any costs order that can properly be made in relation to this appeal.
The applicant was not present on 3 May 2005 when the sequestration order was made and I am satisfied on the basis of his affidavit material that he is solvent. In those circumstances and where the making of the orders to set aside the sequestration is not opposed, I am satisfied that the appeal should succeed and the sequestration order be set aside. Although there was as I have already indicated a short but unexplained delay in the filing of the application, I note that annexed to the Trustee’s affidavit filed 19 August 2005 is a copy of a letter from the applicant’s solicitors to the Trustee dated 18 May 2005. The letter says as follows:
Dear Sirs,
We have received instructions from Mr John Hadjimouratis who wishes to take steps to discharge himself from bankruptcy. We note that you have been communicating with his former solicitors, Valos Black and Associates.
On our instructions Mr Hadjimouratis is clearly solvent however he simply wishes to pay his debts and discharge himself from his bankruptcy as soon as possible.
As a first step Mr Hadjimouratis has completed all documentation requested by you and has provided it to our office for submission to you.
Accordingly we enclose:
1.Personal Questionairre [sic]
2.Statement of Affairs in duplicate
3.Business Questionairre [sic]
4.Additional documentation in relation to our client’s financial position.
We request that you confirm whether there is additional documentation that you require in this matter.
Once again we reiterate that our client wishes to take urgent steps to pay his debts and to discharge himself from bankruptcy and we request that you confirm your requirements in order to attend to this.
We look forward to hearing from you.
In my view this letter indicates that the Trustee had very early warning of what was being maintained by the applicant. That is, that he was solvent, would pay the debt, and intended to make an application to set aside the sequestration order.
Notwithstanding this the Trustee did work up until 16 August 2005 costing a total of $24,125.98 of which $19,182.68 represented the Trustee’s remuneration and of which all but $8,680.76 was incurred prior to 31 July 2005. While it is clear that the Trustee has certain obligations, the Trustee in this instance had knowledge very early on that the bankrupt was challenging the validity of the sequestration order and was required to exercise some caution when incurring expenses while the status of the bankruptcy remained uncertain.
It would be quite unfair in my view to burden the applicant who is the successful appellant in this proceeding with the costs of administering the estate. For these reasons, I am satisfied it is appropriate to set aside the sequestration order but that it is not appropriate to make the order annulling the bankruptcy. This leaves the Trustee to pursue whatever remedies that he might have by virtue of the general law.
Accordingly it is appropriate that there be an order setting aside the sequestration order but that there should be no order for annulment of the bankruptcy and no order that the applicant pay the costs of the administration of the estate.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Connolly FM
Associate:
Date: 7 October 2005
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