Laba-Sarkis v Moussa

[2012] FMCA 717

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LABA-SARKIS v MOUSSA & ANOR [2012] FMCA 717

PRACTICE AND PROCEDURE – Adjournment – where matter adjourned three times previously – where previous adjournments to allow for leave to appeal – where leave to appeal to New South Wales Court of Appeal summarily dismissed – where merits not considered – where applicant seeks leave to appeal to Full Bench of New South Wales Court of Appeal – where no indication of error in summary dismissal – where prospects of success small – whether to adjourn.

BANKRUPTCY – Trustee – conduct of trustees – where trustees refused to allow applicant to appeal judgment upon which bankruptcy notice and subsequent sequestration order based or to undertake appeal themselves – where applicant continued appeal – where dismissed on ground that bankrupt had no standing – where application to appeal trustee decision not made within 60 days – whether 60 day time limit mandatory or can be extended – whether prospects of success in appeal proceeding – whether to make orders sought.

Bankruptcy Act 1966, ss.33(1)(b), 58, 60, 178
Supreme Court Act1970 (NSW)

Cummings v Claremont Petroleum (1996) 185 CLR 124
Baulkham Hills Shire Council v Stankovic [2009] NSWCA 281
Raniere Nominees Pty Ltd trading as Horizon Motor Lodge v Daley (2006) 67 NSWLR 417
David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265

Applicant: TOUFIC LABA-SARKIS

First Respondent: MAHMOUD MOUSSA

Second Respondent: ANTHONY DE VRIES & DAVID SOLOMONS

File Number: SYG 1332 of 2011

Judgment of: Raphael FM

Hearing date: 1 August 2012

Date of Last Submission: 1 August 2012

Delivered at: Sydney

Delivered on: 1 August 2012

REPRESENTATION

Counsel for the Applicant: Ms F Sinclair

Solicitors for the Applicant: Benjamin & Khoury Solicitors & Attorneys

Counsel for the First Respondent: Mr K Rollingson

Solicitors for the First Respondent: George Khoury & Co. Solicitors

Solicitors for the second Respondent: Sally Nash & Co.

ORDERS

1. Adjournment refused.

2. Application dismissed.

3. Applicant to pay the costs of both respondents, such costs to be paid from the estate of the bankrupt.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1332 of 2011

TOUFIC LABA-SARKIS

Applicant

And

MAHMOUD MOUSSA

First Respondent

ANTHONY DE VRIES & DAVID SOLOMONS

Second Respondent

REASONS FOR JUDGMENT

Application for adjournment

1. This matter, which seeks review of a decision of trustees in bankruptcy made in December 2011, has been before the court on a number of occasions since the application was made originally on 9 March 2011.  On 19 March I adjourned it until 3 May.  It was further adjourned until 8 June and on 8 June it was adjourned until today.  The ground upon which I granted those adjournments was that the bankrupt was seeking leave in the Court of Appeal to appeal a decision of Latham J of the New South Wales Supreme Court dismissing an appeal from a decision of Magistrate O’Shea which formed the basis of the debt that has resulted in Mr Laba-Sarkis’ bankruptcy. 

2. The application before the Court of Appeal was the subject of a notice of motion brought by the petitioning creditor (the plaintiff in the original action) seeking summary dismissal of the application for leave to appeal on the grounds that the applicant, Mr Laba-Sarkis, had no standing to bring it given the existence of the sequestration order.  That matter was heard by Beazley JA on 19 and 27 March 2012.  Her Honour handed down judgment on 14 May 2012.  Her Honour considered in a judgment of some 56 paragraphs, the relevant law relating to the standing of a bankrupt to bring an application for leave to appeal.  She did not consider the merits of the appeal. 

3. It is to be remembered that her Honour was, before elevation to the New South Wales Court of Appeal, a justice of the Federal Court of Australia, as a result of which she has some considerable familiarity with the Bankruptcy Act 1966 (Cth)[1].  In her judgment she deals at some length with all the arguments raised on behalf of Mr Laba-Sarkis, particularly those relating to the effect of subsection 60(2) and 60(3) of the Act and his argument that the decision in Cummings v Claremont Petroleum (1996) 185 CLR 124[2] was authority for the proposition that an application for leave to appeal was not property of the bankrupt and thus not governed by s.58 of the Act.

   [1] The “Act”.

   [2] “Cummings”.

4. Perhaps the strongest point that Mr Laba-Sarkis could make in that regard was to refer to a decision of her Honour in Baulkham Hills Shire Council v Stankovic [2009] NSWCA 281 as providing guidance as to the effect of the High Court’s decision in Cummings. Her Honour considered these matters in her 14 May decision, concluding at [51]:

   “It follows, in my opinion, that Want v Moss and Cummings v Claremont Petroleum provide a complete answer to the contention presently under consideration. To the extent that Mr Sarkis relied upon my decision in Baulkham Hills Shire Council v Stankovic, I need only say that that decision was on an entirely different point and is not relevant to the issues raised on the notice of motion before me.”

   Her Honour dismissed the notice of motion on all grounds. 

5. The effect of her Honour’s decision was that the appeal commenced by Mr Laba-Sarkis against the creditor must be abandoned.  Mr Laba-Sarkis seeks to appeal the decision of Beazley JA to a Full Bench of the Court of Appeal and in the meantime asks for an adjournment of the current proceedings before me.  A notice of appeal has only just been lodged and with respect to Ms Sinclair who appears for Mr Laba-Sarkis I have not been given any indication as to why her Honour’s decision might not be correct.   From my position at the very base of the legal hierarchy, it seems to me to be clear, well-argued and difficult to fault.  In my view prospects of success are small. 

6. The application before me seeks review of the trustees’ decision not to pursue the appeal against the decision of Latham J.  If I was to find in favour of Mr Laba-Sarkis, there would be no need for the current proceedings in the Court of Appeal against the decision of Beazley JA to be proceeded with.  In my view it is best that the substantive action before me now be heard as it has been programmed and that no adjournment should be granted. 

Substantive application

1. This application was initially commenced on 9 March 2012.  It was amended on 18 June 2012, and now seeks orders in the following form:

   “1. Order pursuant to s178 Bankruptcy Act 1966 that the Applicant may exercise the right of appeal in the Court of Appeal proceedings no:2010/292546.

   2A.Further or alternatively to order 1, an order reviewing the decision of the Respondent’s Trustee made on or about 20 December 2011 that the[y] “do not propose to prosecute the bankrupt’s application for leave to appeal” in the Supreme Court of NSW Court of Appeal proceedings No:2010/292546 and/or for an order having the effect of maintaining or reinstating the said application for leave to appeal.

   2B.The applicant have leave to discontinue the proceedings against the First Respondent with no order as to costs.

   3.Such further or other orders as the court sees fit.

   4.Costs.”

2. The background to this matter is as follows.  The bankrupt, Mr Laba-Sarkis entered into what appears to have been a joint venture arrangement with Mr Moussa, the petitioning creditor.  Under the terms of that arrangement, the parties were to buy furniture in Lebanon, import it into Australia and sell it through Mr Laba-Sarkis’ showroom.  It was proposed that the joint venturers would each raise $50,000 to purchase the furniture and to fund the joint venture.

3. It appears that Mr Laba-Sarkis told Mr Moussa that he had made arrangements with relatives in Lebanon to pay the money to Mr Moussa when he went over to Lebanon to purchase the furniture.  The agreed money did not appear and Mr Moussa funded the whole joint venture himself.  Eventually, after the furniture had been purchased and brought to Australia, efforts were made to sell it.

4. Mr Laba-Sarkis suffered as a consequence of at least two fires in his showrooms, and it would appear that the efforts to sell the furniture did not prove particularly fruitful.  Eventually, Mr Moussa determined to commence proceedings against Mr Laba-Sarkis in the Local Court of New South Wales.  He did so, and the matter was heard before Local Court Magistrate O’Shane.  Her Honour gave judgment in the matter on 9 August 2010.  She found on the facts that she accepted Mr Moussa’s evidence about the joint venture and rejected Mr Laba-Sarkis’ evidence that he had agreed to sell the furniture on commission.

5. At the end of the hearing there was handed up to her a schedule headed “particulars of damage”.  The total of that schedule came to $53,136.50 and it was for that sum that judgment was entered.  The schedule was apparently supported by documentation.  Mr Laba-Sarkis was not satisfied with the decision of Magistrate O’Shane and he appealed that decision to the Supreme Court of New South Wales, where the appeal was heard by Latham J.

6. Her Honour dismissed the appeal, including those parts of the appeal that related to the assessment of damages, on 30 September 2011.  In regard to the assessment of damages, her Honour said at [40-41]:

   “[40] Ground 5 may be briefly dealt with. The particulars of Mr Moussa’s expenditure were detailed in annexures to his affidavit in the Local Court. They included his return airfare to Lebanon, his travel and accommodation expenses, the interest and expenses incurred on the funds borrowed against his home, the purchase of furniture in Lebanon, shipping costs and rent for a storage unit as and from August 2004 until June 2006.

   [41] There was clearly a significant body of evidence constituted by these annexures, and by the evidence of Mr Moussa in the course of the hearing itself, that justified an award of damages in the sum calculated as one half share of the out-of-pocket expenses incurred by Mr Moussa.”

7. Mr Moussa sought to enforce his judgment by way of a bankruptcy notice which was not responded to by Mr Laba-Sarkis.  A bankruptcy petition was presented to this court and on 31 October 2011 Registrar Morgan made a sequestration order against the estate of Mr Laba-Sarkis.  Mr Laba-Sarkis sought review of that sequestration order, but the review application was withdrawn. 

8. In about November 2011 Mr Laba-Sarkis, through his solicitors, requested the trustees either to allow him to appeal against the decision of Latham J. in the New South Wales Supreme Court or to undertake that appeal themselves. That application was in all probability made under s.60 of the Act which, pursuant to s.60(2), has the effect of staying proceedings until a trustee makes an election in writing to prosecute or discontinue the action. Subsection (3) provides that if a trustee does not make such an election within 28 days after notice that the action is served upon him, he or she shall be deemed to have abandoned the action.

9. On 14 November 2011 Mr Tibor Karolyi, a manager of the trustees, wrote to Mr Khoury, the solicitor for Mr Laba-Sarkis:

   “…Solicitors acting for the petitioning creditors has [sic] provided me with a copy of the bankrupt’s Summons Seeking Leave to Appeal filed on 14 October 2011 in Supreme Court of NSW and scheduled to be heard on 5 December 2011.

   The Trustees have obtained advice in respect of your client’s appeal in the Supreme Court of NSW and consider that such an appeal is an asset of the bankrupt estate as decided by the High Court in Cummings v Claremont Petroleum NL [1996] 185 CLR 125. Provisions of Section 60(2) of the Bankruptcy Act 1966, provides that an action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. Furthermore provisions of Section 60(3) provide a Trustee with 28 days time limit within which to make its election.

   Whilst the trustees have not been formally served with a Notice under s60 (2) of the Act, the Trustee is seeking the following information to assist them to obtain legal advice in respect of the appeal currently on foot:

   1) Copy of an advice from Counsel as to the prospects of success

   2) Copies of all pleadings relating to the appeal.

   3) A bank cheque for $3,000 made payable to the “Bankrupt estate of Toufic Laba-Sarkis to cover the Trustee’s anticipated legal expenses.””

10. Despite the fact that further letters were written, the trustees advise that to date they have never received a copy of an advice from counsel, copies of the pleadings in the appeal or a bank cheque, although it should be said that to the extent that there are any pleadings in the appeal, they form part of the papers before me. 

11. It is said that on 20 December 2011 the trustees elected not to proceed with the appeal.  It is also agreed that if the manner in which the trustees wrote their letter of election was not in accordance with the Act then the 28 day period after which the action was deemed to have been abandoned ended on 31 December 2011.

12. Mr Laba-Sarkis continued with his application for leave to appeal.  Leave was necessary because the total amount of the judgment was under $100,000 as provided by the Supreme Court Act1970 (NSW). On 19 March 2012 and again on 27 March 2012 that application came before Beazley JA . The trustees were not represented, but Mr Moussa, the respondent to the proposed appeal, was. Mr Moussa’s legal representatives raised with her Honour the fact that Mr Laba-Sarkis had no standing in the appeal, as the High Court had decided in the Claremont Petroleum case.  On 14 May 2012 after these proceedings had commenced, her Honour handed down a judgment.  It is a judgment of some 56 paragraphs which I have described, in an earlier decision not to grant a further adjournment in this matter, as thorough, considered and in all probability correct.  Her Honour found that none of the arguments put up by Mr Laba-Sarkis supporting his right to continue with the proceedings were made out.  Her Honour found that the trustees had made an election on 20 December 2011, but, in any event, the time expired on 31 December 2011 and therefore the appeal had been effectively abandoned.

13. What Mr Laba-Sarkis wishes to do by these proceedings is to persuade this court that it should make orders under s.178 of the Act, the terms of which are:

    “Appeal to Court against trustee's decision etc.

    (1)  If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.

    (2)  The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.”

14. The first point to consider is whether or not the application was made within 60 days of the decision by the trustees. It was clearly not, because even taking the later date of 31 December 2011, such an application should have been made by 1 March 2012. Ms Nash, who appears for the trustees, argues that the 60 day time limit is mandatory and that the court is not entitled to utilise s.33(1)(b) of the Act to extend the time. Alternatively, if the court has power to extend the time under s.33(1)(b) it should not do so because recent thinking in the superior courts in such cases as Raniere Nominees Pty Ltd trading as Horizon Motor Lodge v Daley (2006) 67 NSWLR 417 and the High Court in David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265, indicated that this type of time limit should not be extended. The argument that Ms Nash makes in this regard is an important one, but I do not propose to decide the matter on that basis because I think there are adequate grounds to dismiss the application in any event.

15. The case put by Mr Laba-Sarkis is that neither Magistrate O’Shane nor Latham J. really gave any proper consideration to the assessment of damages.  I am advised that the schedule to which I previously referred contains at the very least one element of double counting to the value of approximately $3,000.00 and does not sufficiently consider the credit side of the ledger between Mr Moussa and Mr Laba-Sarkis.  In particular, it is argued that it does not deal with the sale of the furniture.  The difficulty I have with this argument is that, though made articulately and helpfully by Ms Sinclair, it is made without any real evidence and in the face of one deduction of $13,030.25 representing sale of furniture.  I have been given a copy of the transcript of the hearing before Latham J. in which the question of the “what happened to the rest of the furniture?” was raised with her Honour.  And Ms Sinclair tells me that it would appear that this was not taken into account in the paragraph that I have previously quoted of her Honour’s decision.  It seems to me that the best that Mr Laba-Sarkis could hope for out of a Court of Appeal decision would be that the matter be referred back to Magistrate O’Shane to properly assess the damages or to have an account of them taken.  When I say “damages” this is perhaps a misnomer because what is really being sought is not so much a loss of profit but for Mr Laba-Sarkis to meet his share of the net joint venture costs.  There is no suggestion that the findings of fact about the existence of the joint venture can be challenged on appeal.

16. When a trustee is asked whether or not he or she proposes to continue with a proceeding or abandon it, he or she must take into account two very important factors.  The first being the prospects of success in such proceedings.  But it is not required of him or her in a case such as this to go to the expense of taking his or her own legal advice in the first instance.  The person who wishes the trustee to continue with the proceedings must give that trustee some comfort as to the prospects of success.  Ms Sinclair tells me that there is in evidence an indication that this matter was discussed between Mr Laba-Sarkis and Mr Solomon, and that Mr Solomon indicated that as an accountant he thought there was something in the point being raised by Mr Laba-Sarkis.  But that is a long way from an opinion of counsel or of solicitors which would indicate the basis of the appeal and some understanding of why it was likely to succeed.  The second matter that the trustee must take into account is the cost of such proceedings and where any payment of those costs would come from.  In the instant case, the latest information that we have is that Mr Laba-Sarkis is indebted to his creditors at a sum of approximately $300,000 plus the trustees’ fees and expenses.  It is said that he has a half interest in a property which he owns with his wife, and that the property is worth somewhere between $900,000 and $1,000,000.  There is apparently a mortgage on the property of at least $500,000.  I say “it is said” because I do not have any evidence about these matters and I would have expected to have had some from Mr Laba-Sarkis.

17. Against this background, one can see why the trustees were reluctant to continue with the proceedings.  It is a fact that at no time since November 2011, when the first letter was written to Mr Khoury, has there been any real correspondence between the parties as to the prospects of success of the proceedings or the method of paying for them.  Instead, these matters have been fought out in this court in a way that seems to me to be almost an abuse.  It is my view that Mr Laba-Sarkis and those who have agreed to be his legal advisers should have arranged at a very early time to sit down with the trustees and discuss the appeal so that the trustees could come to a measured and proper decision based upon a thorough understanding of the case.  In the absence of such conduct, it is my view that the trustees were entitled to make the decision that they did, and nothing I have heard from those representing Mr Laba-Sarkis today convinces me that this is an appeal that should be proceeded with.  It would appear to me that even a beneficial outcome for Mr Laba-Sarkis would be a Pyrrhic victory when one takes into account the solicitor and own client costs involved plus the costs of an accountant to take the accounts as might be ordered.

1. Turning back to the amended application, I would say in respect of ground 1, or order 1 sought, that Beazley JA decided authoritatively that the applicant had no right to exercise the right of appeal in the proceedings. There is nothing in her Honour’s judgment that would indicate to me that it was clearly wrong. And even if it was, the proper course of action to take is to appeal that decision and not to come back to this court.

2. In regard to order sought 2(a), I have declined, for the reasons given, to review the decision of the trustees and I will not make any order that has the effect of maintaining or reinstating the application for leave to appeal.  In regard to order 2(b), it was the applicant who brought the petitioning creditor into the proceedings initially as first respondent.  The appropriateness of such action was, if I recall, raised by me early on.  The applicant could have, at any time, filed a notice for discontinuance.  Nothing has been put to me as to why such a notice should not have the usual consequences of requiring the applicant to bear the costs of the person against whom he is discontinuing.  In this case, I would certainly not consider granting the order requested. For the avoidance of doubt, the orders I shall make in the proceedings are:

   (1)Application dismissed.

   (2)Applicant to pay the costs of both respondents, such costs to be paid from the estate of the bankrupt.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date:  17 August 2012