Homebuilding Pty Ltd v Cappello

Case [2022] FedCFamC2G 576

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Homebuilding Pty Ltd v Cappello [2022] FedCFamC2G 576

File numbers: SYG 1827 of 2021
SYG 1828 of 2021
Judgment of: JUDGE CAMERON
Date of judgment: 19 July 2022
Catchwords: BANKRUPTCY – Creditor’s petitions – solvency – refusal of tender of payment – unwillingness to pay debts.   
Legislation:

Bankruptcy Act 1924 (Cth) s. 95

Bankruptcy Act 1966 (Cth) ss 52, 302

Evidence Act 1995 (Cth) s 140

Cases cited:

Allison v Murphy [2021] FCAFC 232

Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399

Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548

McIntosh v Shashoua (1931) 46 CLR 494

Psevdos v First Mortgage Company Home Loans Pty Ltd [2019] SASC 130

Re Sarina; Ex parte Wollondilly Shire Council (1980) 48 FLR 372

Sandell v Porter (1966) 115 CLR 666

Whitton as Trustee of Estate of Rose v Regis Towers Real Estate Pty Ltd (in admin) (2007) 161 FCR 20
Division: General Division
Number of paragraphs: 61
Date of hearing: 4 April 2022
Place: Sydney
Counsel for the Applicant: Mr D. P. O’Connor
Solicitors for the Applicant: Adams & Partners Lawyers
Counsel for the Respondents: Mr D. Edney
Solicitors for the Respondents: Hall Partners

ORDERS

SYG 1827 of 2021
SYG 1828 of 2021

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

IN THE MATTER OF ROSARIO CAPPELLO AND MARIA CAPPELLO
BETWEEN:

HOMEBUILDING PTY LTD

Applicant
AND:

ROSARIO CAPPELLO

First Respondent

MARIA CAPPELLO

Second Respondent

ORDER MADE BY:

JUDGE CAMERON

DATE OF ORDER:

19 JULY 2022

SYG 1827 of 2021

THE COURT ORDERS THAT:

1.The creditor’s petition be dismissed.

SYG 1828 of 2021

THE COURT ORDERS THAT:

1.The creditor’s petition be dismissed.

Note: The form of the order is subject to the entry in the Court’s records.

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

REASONS FOR JUDGMENT

JUDGE CAMERON

INTRODUCTION

  1. On 1 October 2021 the applicant, Homebuilding Pty Ltd (“Homebuilding”), presented creditor’s petitions seeking sequestration of the estates of the respondents, Mr and Mrs Cappello, on the ground that they had failed to comply, on or before 25 August 2021, with bankruptcy notice BN252616 (“Bankruptcy Notice”) issued on 22 April 2021.  The Bankruptcy Notice was based on Supreme Court of New South Wales first instance and appeal judgments in favour of Homebuilding (“Supreme Court Proceedings”). 

  2. In their amended notices of grounds of opposition filed on 28 March 2022, Mr and Mrs Cappello opposed the making of sequestration orders on the ground that they are solvent.  Other allegations were not pursued. 

  3. The proceedings were heard together and the evidence in one case is evidence in the other.

    BACKGROUND FACTS

  4. The Bankruptcy Notice…

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Homebuilding Pty Ltd v Cappello [2022] FedCFamC2G 576
Case
[2022] FedCFamC2G 576
Decision Date

CaseChat Overview and Summary

In the Federal Circuit and Family Court of Australia, Homebuilding Pty Ltd brought proceedings against Mr and Mrs Cappello seeking a declaration of insolvency and a sequestration order against their estate. The case centered on the respondents’ ability to satisfy their outstanding judgment debt and whether the statutory requirements for a sequestration order had been met. The court had to determine whether the failure to provide the "fullest and best" evidence of solvency by the respondents, coupled with their act of bankruptcy, justified a sequestration order despite their solvency.

The primary legal issue before the court was whether the respondents had discharged their onus to provide the "fullest and best" evidence of their solvency. The court examined whether the respondents’ failure to mention the National Australia Bank (NAB) loans in their early affidavits, and the inaccuracies in their later affidavits, constituted a breach of their evidentiary obligations. Another issue was whether the tender of a bank cheque for $55,000, which was rejected by Homebuilding, had any bearing on the substantive part of the proceeding.

The court found that the respondents had not discharged their onus to provide the "fullest and best" evidence of solvency. The omission of the NAB loans in the 8 December 2021 affidavits was a mistake caused by inattention, but this did not undermine the court's conclusion that the respondents had not provided the necessary evidence. The rejected tender of the bank cheque had no practical significance unless coupled with an actual payment into court, a condition that was not met. The court concluded that the statutory requirements for a sequestration order had been satisfied but dismissed the creditor's petition on the grounds that the respondents were solvent and had the means to satisfy their debts.

The court dismissed the creditor’s petition in each matter and made no order as to costs, subject to any application for costs.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The proceedings were heard together and the evidence in one case is evidence in the other.BACKGROUND FACTS The Bankruptcy Notice required payment of $50,097.32. On 31 January 2022, Mr Cappello caused a $55,000 bank cheque in favour of Homebuilding to be delivered to its solicitors. They later returned it. The judgment debt of $50,097.32 (“Judgment Debt”) grounding the Bankruptcy Notice remains outstanding. Further, costs certificates in relation to the Supreme Court Proceedings have been issued and, upon review, affirmed. The costs owed by Mr and Mrs Cappello to Homebuilding have been certified in the total sum of $203,131.54. The costs reviews may be appealed but the Court is unaware of whether or not this has occurred. The statutory requirements for the making of sequestration orders have been satisfied. The question is whether, nevertheless, such orders ought be made.RELEVANT LEGISLATION Section 52 of the Bankruptcy Act 1966 (Cth) (“Act”) relevantly provides:52Proceedings and order on creditor’s petition (1)At the hearing of a creditor’s petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. …(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition.…RESPONDENTS’ EVIDENCE Mr and Mrs Cappello made a number of affidavits and were not cross-examined on them.16 November 2021 affidavit In his affidavit affirmed 16 November 2021, Mr Cappello referred to properties owned by him and Mrs Cappello at:(a)39 Empire Street, Haberfield;(b)15 Miller Street, Haberfield;(c)9 Northcote Street, Haberfield; and(d)41 Empire Street, Haberfield,and stated in respect of the first three that, although the related loans had been repaid, the associated mortgages to the ANZ Bank had not been discharged by the bank. He deposed that the property at 41 Empire Street, Haberfield was unencumbered. Mr Cappello also referred to properties at:(a)425 Great North Road, Abbotsford; and (b)11 Napier Street, Petersham,but did not depose to their loan or mortgage status. Nonetheless, annexed copies of their respective certificates of title recorded the National Australia Bank (“NAB”) as mortgagee of both of them. Each certificate of title referred to the same dealing reference for those mortgages, indicating that the mortgages over the two properties secured the one loan.8 December 2021 affidavits In their affidavits affirmed 8 December 2021, Mr and Mrs Cappello referred to mortgages registered on the titles of the properties at:(a)39 Empire Street, Haberfield;(b)15 Miller Street, Haberfield;(c)9 Northcote Street, Haberfield; (d)425 Great North Road, Abbotsford [sic]; and(e)11 Napier Street, Petersham [sic],and deposed that the ANZ loans secured by those mortgages had been extinguished in about October 2017. Mr Cappello deposed that the ANZ Bank had not caused the discharges to be registered.

Evidence

Evidence Before The Court

Mr Karam is a property valuer who, on 11 March 2022, carried out the valuations of Mr and Mrs Cappello’s properties to which Mr Cappello referred in his final affidavit. Mr Karam affirmed an affidavit in which he discussed those valuations.APPLICANT’S EVIDENCE The applicant’s solicitor, Mr Singh, swore two affidavits on 1 April 2022 and the one of 10 paragraphs was read. In it, Mr Singh deposed to the assessments of the Supreme Court Proceedings’ costs. He deposed that on 24 January 2022 Mr and Mrs Cappello had sought review of those costs assessments and that the review panels’ determinations were issued on 29 March 2022 in respect of the appeal stage and on 31 March 2022 in relation to the trial stage. RESPONDENTS’ SUBMISSIONSTender In their second written submissions, filed on 1 February 2022, Mr and Mrs Cappello contended they had made a valid tender of the Judgment Debt by proffering the bank cheque. They submitted that the tender was at least evidence of their solvency and ability to satisfy their debts and, in particular, the Judgment Debt. Solvency Mr and Mrs Cappello submitted that solvency is a defence to creditors’ petitions and that:(a)insolvency is not to be imputed simply from the fact that a debtor who may have an obligation has chosen not to tender payment; and(b)when considering the possibility of insolvency it is necessary to distinguish between an endemic shortage of working capital and a temporary lack of liquidity capable of being overcome or addressed in the short term, in which event one is not insolvent. On the question of their ability to pay their debts, Mr and Mrs Cappello argued that the evidence of their solvency was overwhelming and that although the cash flow test was the one to apply when determining solvency, their net asset position was nevertheless relevant. They submitted that a cash flow approach revealed the following: Mr and Mrs Cappello particularised a balance sheet that revealed a significant surplus of assets over liabilities. They argued that although on the cash flow test they were clearly solvent with an abundance of working capital, real property in Sydney is fairly promptly convertible to cash. Noting the cash resources available to them, particularly as a result of the funds made available by the private lender, the respondents submitted that they had the means to pay the Judgment Debt, and the assessed costs too if they were ultimately enforceable after any appeal. It was also argued that the proceeds of sale of the property under contract would be more than sufficient to cover the sums owing to the NAB and that those funds would be available shortly after the delay in settlement, caused by the pendency of this proceeding, was ended by dismissal of the petitions. The respondents’ position could be summarised by this submission in addresses:… The respondents are very asset rich individuals with relatively simple affairs who have cash available to pay all of the applicant’s debts on the evidence, who have – who are drowning in real property which can – can be refinanced, or indeed one has been sold … Costs

Decision

Reasons for decision

At this point, and subject to any application for costs, the appropriate course is to make no order as to costs.CONCLUSION The creditor’s petition in each matter will be dismissed.

Ratio Decidendi

Legal Principle Established

Homebuilding submitted that the NAB loans had not been mentioned in the early affidavits, which was relevant to the obligation to provide the “fullest and best” evidence because the failure to satisfy the Bankruptcy Notice, being an act of bankruptcy, engaged provisions in the relevant mortgage memorandum that accelerated the loan payments, making those loans due and payable and debts that the respondents were not in a position to satisfy. Homebuilding argued that the Court could not find that Mr Cappello had:… discharged his onus to put the fullest and best evidence forward in circumstances where, prima facie, he’s in breach of his covenants to the NAB bank and has chosen to say nothing about it. CONSIDERATIONTender Homebuilding had not been obliged to accept the tender of $55,000 by bank cheque and was entitled to reject it and proceed with the petitions: McIntosh v Shashoua (1931) 46 CLR 494 at 505; Allison v Murphy [2021] FCAFC 232 at [46]. In circumstances where the tender was not accepted, the debt in question continued to subsist. The refused tender was no answer to the claim unless there was a continued readiness to pay coupled with an actual payment into court: Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399 at 303 per Meagher JA, Samuels and Priestley JJA agreeing, and that test has not been shown to have been satisfied. In the circumstances, the tender of the $55,000 by bank cheque has no practical significance for the substantive part of this proceeding apart from showing that the respondents had access to those funds.Solvency“Fullest and best” evidence Homebuilding’s argument concerning the “fullest and best” evidence of solvency appeared close to suggesting that it was some sort of evidentiary threshold that had to be crossed before the respondent to a creditor’s petition could prove that they were solvent. That is not, however, what Finkelstein J was saying in Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd. The level of satisfaction necessary to be reached in order to find that a fact has been proved in civil proceedings always remains that prescribed by s.140 of the Evidence Act 1995 (Cth) and so it is not surprising that his Honour noted in De Simone Consulting that:… Dependant upon the degree of doubt justified by the facts, a judge may say that the only evidence he will treat as probative is “the fullest and best” evidence available - the kind that in Commonwealth Bank of Australia v Begonia (1983) 11 ACSR 609 Hayne J said was often necessary although interesting enough, not in that case. (at [14]) Proof of solvency in circumstances where there has been an act of bankruptcy, as in this case, is difficult and so the allegation is unlikely to be made out if the debtor does not put before the Court the “fullest and best” evidence available to them on the issue. However, what will be sufficient in any particular case will turn on the circumstances. An alternative understanding of Homebuilding’s argument is that the respondents’ failure to fully articulate their evidentiary case in their early affidavits, coupled with the inaccuracies in their 8 December 2021 affidavits, are evidence of lack of candour, at least in relation to the NAB loans over the 425 Great North Road, Abbotsford and the 11 Napier Street, Petersham properties. However, I disagree and conclude that omission of reference to the NAB loans in the 8 December 2021 affidavits was a mistake caused by inattention. What the respondents said in their 8 December 2021 affidavits was that, along with the properties at:(a)39 Empire Street, Haberfield;(b)15 Miller Street, Haberfield; and(c)9 Northcote Street, Haberfield; the properties at(d)425 Great North Road, Abbotsford; and(e)11 Napier Street, Petershamhad been mortgaged to the ANZ Bank and that all those loans had been paid but the mortgages not removed from the titles of those properties. There is no evidence that the latter two properties had ever been mortgaged to the ANZ Bank and it is patent that the statement that they had been, and were now unencumbered because all ANZ loans had been paid, was just a mistake, given that relevant certificates of title had been annexed to Mr Cappello’s 16 November 2021 affidavit and disclosed the mortgages to the NAB. Further, read in context the statements in the affidavits of 8 December 2021 that no money was owed to “the bank” were references to the ANZ Bank only. Mr Cappello also explained the mistake in his affidavit of 24 March 2022 and, as he was not called to be cross-examined on that evidence, I accept his explanation.