Homebuilding Pty Ltd v Cappello
[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 2021Judgment 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 2021FEDERAL 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
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”).
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.
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.
Mr and Mrs Cappello also deposed in their 8 December 2021 affidavits that:
(a)other than minor bills not exceeding $10,000, their only liabilities were an unused joint overdraft facility of $1,000,000;
(b)they were prepared to and intended to sell any real property to meet their debts; and
(c)they were willing to give each other funds to meet their debts, including the Judgment Debt, when they became due and payable.
14 December 2021 affidavit
In his affidavit affirmed 14 December 2021, Mr Cappello deposed that he had recently attended the ANZ Bank with further, completed discharge of mortgage authorities in respect of the properties at:
(a)39 Empire Street, Haberfield;
(b)15 Miller Street, Haberfield; and
(c)9 Northcote Street, Haberfield,
and been told that they would be processed.
31 January 2022 affidavits
In his affidavit affirmed 31 January 2022, Mr Cappello deposed that earlier that day he had caused a $55,000 bank cheque to be delivered to Homebuilding’s solicitors in payment of the Judgment Debt.
Mr Cappello also deposed that the mortgages over the properties at:
(a)39 Empire Street, Haberfield;
(b)15 Miller Street, Haberfield; and
(c)9 Northcote Street, Haberfield,
had been discharged and that there were three loans from the NAB secured by mortgages over the properties at 425A and 425B Great North Road, Abbotsford and 11 Napier Street, Petersham.He particularised the couple’s cash at bank and their regular expenses on an annualised basis, the latter being less than the former.Reference was also made to the costs that Mr and Mrs Cappello had been ordered to pay in in the Supreme Court Proceedings but which were not then current liabilities because the costs assessment process had not yet concluded.
In her affidavit of 31 January 2022, Mrs Cappello deposed that in the 2021/22 financial year she had drawn no income from a business she operated separately from her other employment because, during the COVID-19 pandemic, it had only covered its expenses.
24 March 2022 affidavit
Mr Cappello deposed in his affidavit affirmed 24 March 2022 that in March 2022 Homebuilding’s solicitors returned the $55,000 bank cheque.
Mr Cappello also stated that the drafting of his earlier affidavits by his then-solicitors had caused confusion and that he had not paid proper attention to their content when affirming them. He deposed that although his previous affidavits had contained some inaccurate information, those inaccuracies had not been dishonestly intended. He went on to say that he and Mrs Cappello, as joint tenants, owned unencumbered properties at:
(a)39 Empire Street, Haberfield;
(b)15 Miller Street, Haberfield;
(c)1/9 and 2/9 Northcote Street, Haberfield; and
(d)41 Empire Street, Haberfield,
valued in total at an identified figure in excess of $5 million. He deposed in relation to one of those properties that contracts had been exchanged for its sale at an identified figure greater than the amount owing to the NAB.
Mr Cappello deposed that Mrs Cappello was the registered proprietor of the properties at:
(a)425A and 425B Great North Road, Abbotsford; and
(b)11 Napier Street, Petersham.
He said that those properties were valued at more, in total, than the indebtedness secured by the NAB mortgage that he particularised and deposed was over (only) the Great North Road, Abbotsford property.
Mr Cappello deposed that the couple’s properties generated $327,572 pa in rental income, that his annual income from his employment was $170,000 less superannuation, that Mrs Cappello’s salary was $130,000 pa plus superannuation and that Mrs Cappello also earned $120,000 from her separate business.
Mr Cappello deposed that he and Mrs Cappello had not insignificant particularised liquid assets spread over for banks accounts and owned 4 cars which he identified and valued.
It was Mr Cappello’s evidence that in March 2022 he had obtained a 6 month facility from a private lender who, as part of that arrangement, had deposited $222,750 into the trust account of his, Mr Cappello’s, solicitors and was prepared to make further advances up to a total of $500,000 to Mr Cappello. Mr Cappello said that, as at the time of affirming his affidavit of 24 March 2022, he had not yet given any instructions as to the disposition of those funds.
Joseph Karam
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’ SUBMISSIONS
Tender
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:
Sources of funding: Income: Ross Cappello: $170,000.00 pa Maria Cappello: $130,000.00 pa Business income – insert names [sic] $180,000.00 pa Rental income $144,000.00 pa Cash in hand $215,966.27 Line of credit $222,750, (deposited). [Private lender] $500k, (approved).
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
The respondents submitted that there had been no reason to be concerned that that payment of the Judgment Debt by the $55,000 bank cheque would be repayable as a preference and argued that there was no rational explanation for the rejection of the tender other than a desire to bankrupt them.
The respondents argued that once they had identified to Homebuilding that they were relying on a defence of solvency, and had made the basis of that clear by the evidence of wealth set out in their affidavits, Homebuilding proceeded at its own risk particularly after their tender of funds sufficient to pay the only amount which was then payable, namely the Judgment Debt.
Mr and Mrs Cappello submitted that Homebuilding was entitled to its costs of the petition up to the point when the notice of opposition was filed, or alternatively when their first affidavits were filed or, at the very worst, when the tender was refused. They argued that from the latter point it was unquestionable that Homebuilding was proceeding at its own risk.
Reference was made to a Calderbank offer made to the respondents by Homebuilding on 1 April 2022. In it, Homebuilding offered dismissal of the creditor’s petition if it was paid $253,210.22, being the Judgment Debt and the costs of the Supreme Court Proceedings. Mr and Mrs Cappello argued that the offer was irrelevant on the basis that solvency is determined by whether one can pay not whether one does pay. They further argued that acceptance of the offer would have necessitated abandonment of their right to appeal from the costs review panels’ decisions and, because of that requirement, the offer could not be given any meaningful weight.
It was further argued that there was ample authority to the effect that where a respondent defends a creditor’s petition on the ground of solvency and ultimately shows that they are solvent, they have a good basis to seek costs from the applicant, although perhaps not for the whole proceeding.
APPLICANT’S SUBMISSIONS
Tender
Homebuilding submitted that it was entitled to reject the tendered bank cheque because it believed the respondents to be insolvent and because, in any event, a petitioning creditor is entitled to refuse payment and proceed with a creditor’s petition.
Solvency
Homebuilding submitted that Mr and Mrs Cappello had failed to demonstrate that they were able to pay their debts as and when they fell due.
Reference was made in addresses to the alleged exchange of contracts in relation to one of the respondents’ properties and it was noted that no counterpart of the contract for sale of land bearing the purchaser’s signature, nor any (documentary) evidence of the payment of a deposit, had been adduced. Homebuilding submitted that, given the paucity of evidence on the subject, the Court ought to conclude that there had been no sale as alleged. Homebuilding went on to refer to the private lender who had deposited $220,750 into the trust account of Mr Cappello’s solicitors and noted that funds appeared to be held on trust for the lender, not for Mr Cappello. It argued that the availability of those loan funds had not been demonstrated and that the respondents’ failure to satisfy the costs orders arising out of the Supreme Court Proceedings suggested that “Mr Cappello just can’t pay”.
Homebuilding also referred to the NAB mortgages to which reference was made in the evidence and submitted that, in the circumstances, the following mortgage terms had the effect of accelerating the loan’s repayment obligations with the consequence that Mr and MrsCappello could not be said to be solvent unless they were in a position to repay the entirety of what they owed to that bank:
About this mortgage
1.1You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from NAB.
...
Your basic assurances
2.1You agree to carry out on time, or promptly if no time is specified, all your obligations to NAB under every arrangement including to pay the amount owing as agreed or where there is no agreement on demand.
2.2You declare that:
…
(h)you are not in default under clause 15;
…
2.4You must tell NAB immediately if at any time anything happens which would prevent you from truthfully repeating the declarations in clauses 2.2 and 2.3.
…
NAB's rights on your default
Default
15You are in default if:
…
(g)you or a debtor/guarantor is or becomes insolvent or steps are started to make you or the debtor/ guarantor insolvent;
…
Consequences of default
16.1Subject to clause 16.3, if you are in default for more than one day … :
…
then NAB may do any one or more of the following in addition to anything else the law allows NAB to do as mortgagee, at its option, without the need to give further notice or demand and despite any agreement to the contrary:
(c)treat the amount owing as immediately due and payable;
…
(e)appoint a receiver to the land;
(g)… or
(h)take possession of the land …
Incomplete and inaccurate affidavits
Referring to Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548, Homebuilding argued that if a debtor wished to prove solvency, it was required to provide the “the fullest and best” evidence available, submitting:
He had an obligation to put the fullest and best evidence before the court. That’s the law. That is the correct principle of law.
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.
CONSIDERATION
Tender
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, Petersham
had 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.
In any event, for reasons that follow in the discussion of solvency, I am not persuaded that the early failure to mention those loans was material to the outcome of the petitions.
Ability to pay debts
The applicable test of solvency was stated by Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670:
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.
The words “from his own money” which appeared in the Act’s predecessor (see s 95(1) of the Bankruptcy Act 1924 (Cth) (repealed)) are absent from s.52 of the Act.
The words “able to pay” in s.54(2)(a) of the Act do not mean “willing and able to pay”: Re Sarina; Ex parte Wollondilly Shire Council (1980) 48 FLR 372. As the Full Court of the Federal Court said in that case:
These considerations negate the existence of any policy underlying the Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The words "able to pay his debts" in s.52(2) of the Act do not mean "willing and able" to do so. (at 376)
Homebuilding submitted that Mr Cappello had had to verify his claims of solvency but that is what he did by affirming the relevant information in his affidavits. Perhaps what Homebuilding sought was documentary or other corroboration, rather than verification. In the absence of cross-examination, that is a difficult position to advance and Homebuilding agreed that it had not cross-examined Mr Cappello or put to him that his affirmed evidence was false.
Homebuilding submitted that the Court could not find the Respondents solvent in circumstances where they were in default under the NAB mortgage but I do not find that they were, in fact, in default. The event of default provisions on which reliance was placed turned on the borrower becoming “insolvent” or steps having been initiated to make them “insolvent”. The mortgage memorandum relevantly defined “insolvent” as follows:
A person is insolvent if:
…
·they are a natural person, they commit an act of bankruptcy within the meaning of the Bankruptcy Act 1966 (Cwlth);
·they are otherwise unable to pay their debts when they fall due; or
·something having a substantially similar effect to any of the things referred to above happens in connection with them under any law.
However, s.302 of the Act relevantly provides:
302Certain provisions in bills of sale etc. to be void
(1)A provision in a bill of sale, mortgage, lien, charge or PPSA security agreement:
(a) enabling the grantee, mortgagee, person entitled to the benefit of the lien or charge or PPSA secured party to exercise any power or remedy; or
(b) to the effect that the operation of the bill of sale, mortgage, lien, charge or PPSA security agreement is to be modified;
if the grantor, mortgagor, the person whose property is subject to the lien or charge or the PPSA grantor or debtor becomes a bankrupt or commits an act of bankruptcy or executes a personal insolvency agreement under this Act is void.
…
The effect of s.302(1) is to render void that provision of the mortgage memorandum which purports to empower NAB to accelerate the repayment of the loan, or take other enforcement steps, because of the commission of an act of bankruptcy or an inability to pay debts when they fall due, although in this case there has been no finding to the latter effect: Psevdos v First Mortgage Company Home Loans Pty Ltd [2019] SASC 130 at [6]. I find that the obligations under the mortgage have not been accelerated and that there has been no default. Further, the mortgage was Mrs Cappello’s alone, she being the sole register proprietor of the two properties. Consequently, even if she had been in default under the mortgage, Mr Cappello’s position was unaffected by that and he would not have been obliged to make any payment as a consequence of it.
The evidence is quite clear that the liquid assets available to Mr and Mrs Cappello are sufficient to enable them to meet all their current liabilities. The fact that Mr Cappello has sought short term accommodation from the private lender is not material to the present issue, as Homebuilding suggested in its submissions, as no evidence was adduced which suggested that that arrangement was demonstrative of insolvency and given that the loan in question was not repayable at the relevant time: Whitton as Trustee of Estate of Rose v Regis Towers Real Estate Pty Ltd (in administration) (2007) 161 FCR 20 at 22 [1] and 31 [38]-[39]. It is more likely to be a question of convenience.
Homebuilding questioned the truth and reality of that short term funding but the general circumstances support its genuineness. I observe that the Deed of Loan and Mortgage recording the facility is on the letterhead of Mr and Mrs Cappello’s solicitor, Mr Hall, who acts for them in this proceeding. Further, the $220,750 that Mr Cappello has deposed were advanced on the strength of that agreement were evidenced by a trust account receipt also issued by Mr Hall as well as by the following correspondence between Mr Hall and the lender:
On Fri, 11 Mar 2022 at 11:51 pm, Trevor Hall < … > wrote:
Dear …
We confirm your deposit to our trust account for $250,000, which less brokerage, interest up front, and expenses is the sum of $227,500.
We shall be pleased to inform you of the return of satisfactory valuations whereupon we note your concurrence to advance the facility for 6 months.
Sincerely
Trevor Hall
…
To: Trevor Hall < … >Sat, Mar 12, 2022 at 9.14 AM
Dear Trevor,
I'm sure it will be fine just let me know when the valuation is done and will take it from there.
Sincerely
…
…
To: Trevor Hall < … >Tue, Mar 22, 2022 at 2:51 PM
Dear Trevor,
Based on those valuations and the equity position I would advance up to $500,000 without the need for further inquiry or consideration.
Net advance being $250,000 + $222,750 = $472,750; interest in arrears on the second advance of $250,000.
Sincerely
…
It was not suggested that those emails, copies of which were annexed to Mr Cappello’s affidavit of 24 March 2022, were other than what they appeared to be or that the conduct of Mr Hall, as solicitor for Mr and Mrs Cappello in this proceeding and apparent participant in that correspondence, was open to question. I conclude that the emails are indeed what they appear to be and record the concluding stages of the loan agreement between the private lender and Mr Cappello.
Further, although the trust account receipt notes that the funds were held on trust for the lender, the description of the deposit was “Funds for direction” and the related correspondence indicates that the funds were held by Mr Hall on trust for the lender pending the provision of satisfactory valuations, which ultimately occurred. I conclude that the lender’s email of 22 March 2022 was his advice that his lending criteria had been satisfied and that the funds were from that point available to Mr Cappello to apply at his discretion. Moreover, the lender agreed to advance a further $250,000 in addition to what had already been deposited into Mr Hall’s trust account.
FINDING
The respondents have satisfied me that they are solvent and able to pay their debts when they fall due. The evidence that Homebuilding adduced did not give me any reason to believe that Mr and Mrs Cappello were in financial difficulties. It would be wrong to place too much weight on their asset position but it was plainly a very strong one and it would be unusual, particularly in the Sydney property market of earlier this year, to perceive a risk that a couple with such assets would not be able to pay their bills. Plainly the private lender considered them a satisfactory risk. The creditor’s petitions will be dismissed.
COSTS
The parties addressed the Court on the question of costs but it was also suggested that the resolution of that question await the decision on whether sequestration orders would issue. Subject to what the parties might wish to say, it presently appears that it was not unreasonable of Homebuilding to fear insolvency given the respondents’ failure to pay the Judgment Debt, and the inadequate and deficient affidavits they filed in the early stages of the proceeding would not have allayed its concerns. However, at some later point that fear might have come to appear misplaced.
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.
I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron. Associate:
Dated: 19 July 2022
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