Marino v Versatile Homes Pty Ltd
[2017] FCCA 1830
•4 August 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MARINO v VERSATILE HOMES PTY LTD | [2017] FCCA 1830 |
| Catchwords: BANKRUPTCY – Costs – costs of application to set aside bankruptcy notice – where bankruptcy notice was an abuse of process. |
| Legislation: Bankruptcy Act 1966, s.41(6A)(b) |
| Brunninghausen v Glavanics [1998] FCA 230 Rankine v Lord [2011] FCA 478 Stanford v Stanford [2012] HCA 52 |
| Applicant: | FRANK MARINO |
| Respondent: | VERSATILE HOMES PTY LTD |
| File Number: | BRG 588 of 2016 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 3 August 2017 |
| Date of Last Submission: | 3 August 2017 |
| Delivered at: | Brisbane |
| Delivered on: | 4 August 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Seaholme |
| Solicitors for the Applicant: | Legend Legal Group |
| Counsel for the Respondent: | Mr Christie |
| Solicitors for the Respondent: | CBD Law |
ORDERS
Bankruptcy notice BN191556 be set aside;
Otherwise all outstanding applications, including applications as to costs be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 588 of 2016
| FRANK MARINO |
Applicant
And
| VERSATILE HOMES PTY LTD |
Respondent
REASONS FOR JUDGMENT
This application commenced as an application to set aside a bankruptcy notice issued by the respondent against the applicant. The debt upon which the bankruptcy notice was based has now been paid. The respondent’s counsel told me the notice would be withdrawn or discontinued. However, I think that the respondent is unable to do either of those things. In the circumstances it is appropriate to order that the bankruptcy notice be set aside. I will so order.
The parties are at odds about the costs of this application. Each wants the other party to pay the costs of the application on an indemnity basis.
I have concluded that it is appropriate that there be no order as to costs.
The respondent secured a judgment against the applicant for an amount of about $190,000 plus costs, including the costs of some interlocutory proceedings.
The applicant, the sole director of the respondent a Mr Sardi, and the applicant’s former wife were friends as well as business associates, at least prior to the judgment. The applicant and his former wife are involved in property adjustment proceedings in the Family Court of Australia consequent upon the breakdown of their marriage. The evidence shows that Mr Sardi remains friendly with and in weekly contact with the applicant’s former wife.
As part of the matrimonial proceedings there are funds held on trust for the applicant and his former wife which are subject to an injunction made by the Family Court. The applicant applied for an order that an amount sufficient to pay the judgment sum be released from those funds. The Family Court made that order and the judgment sum was paid. The evidence shows that Mr Sardi knew that the applicant’s cash was secured by the orders of the Family Court and that an order of that Court was necessary for the applicant to get access to them to meet the judgment. The evidence is that the respondent, under the directorship of Mr Sardi, waited for an appropriate order to be made to secure the funds to pay the judgment sum, although it had resorted to the issue of a bankruptcy notice based upon the judgment debt.
There were negotiations between the parties about the quantum of the costs that the applicant was ordered to pay, but they were unable to reach agreement about that. On the evidence, the applicant had difficulty getting his former wife to agree to release some funds from the cash reserves preserved by the Family Court injunction.
Subsequently, on 16 May, 2016 the costs ordered to be paid by the applicant to the respondent were assessed and fixed. The respondent demanded payment but the applicant did not pay. He says he did not receive the demands. In any event, his access to cash was proscribed by the injunction made in the Family Court.
On 31 May, 2016 the Official Receiver issued bankruptcy notice BN191556 against the applicant at the request of the respondent. The respondent made no other attempt to execute the judgment before it issued the bankruptcy notice. He says that on the basis of the evidence relied upon by the applicant in a failed application to secure an instalment order in respect of the principal judgment debt, he thought that the applicant did not have assets of any real worth. He did, however, know that there was a fund that had been preserved in the Family Court proceedings from which the principal judgment had been paid. There was no attempt to execute on the applicant’s interest in that fund.
The bankruptcy notice was served on the applicant on 9 June, 2016. Time for compliance with the bankruptcy notice would expire on 30 June, 2016 in the absence of an extension of that time.
On 22 June, 2016 “debt and insolvency” consultants retained by the applicant wrote to the respondent’s solicitors in the following terms:
We have to hand your client’s Bankruptcy Notice. Mr Marino instructs us that he does not have the funds to pay this debt as all his monies are frozen by the Family Court and that his estranged wife has refused to allow these funds to be released so he can pay the debt due to your client. The Family Court have indicated that a Judgment is presently pending and excepted to be delivered by Justice Hogan on 19 July 2016.
We are instructed by our client to seek an extension of time until 7 days after the judgment is delivered to allow our client to have the funds released by the Court so he can pay your client’s debt. Please obtain instructions and let us know your client’s position.
The response to that request was to the effect that the respondent required payment of the debt “in compliance with the bankruptcy notice”.
On 25 June, 2016 lawyers acting for the applicant wrote to the respondent’s lawyers recording the correspondence that passed on 22 June, 2016 and the response to it, some other correspondence that had passed from the applicant’s family law solicitors to the respondents solicitors and pointed out that:
1. Our client is not insolvent
2. There is no evidence that Mr Marino is unable to pay his debts
3. Your client and your firm is aware that there are Family Court Property Proceedings between Mr and Mrs Marino
4. There is considerable acrimony and dislike between your client’s director and Mr Marino
5. Indeed you are aware that Mr Marino paid the Judgment sum due to your client of $190,297.54 after making an Application in the Family Court Proceedings for release of the funds
6. We attach a copy of a bank statement showing a balance of $745,550.90 being held in trust by Cornerstone Law Office as Trustee for Frank Marino & Maria Alice Marino as at 17 June 2016
7. You have been advised that the Family Court matter is likely to be before the Family Court of 19 July 2016 where our client intends if his estranged wife will not agree to seek an order of the release of the sum noted in the Bankruptcy Notice to your client
8. Your client has not taken any action to enforce its money Judgment nor sought to garnishee the fund currently held on trust for our client and his estranged wife nor taken any other action to enforce its judgment
9. The issue of the a Bankruptcy Notice and your client’s insistence on strict compliance with same and your client’s refusal to allow an extension of time until after the next Family Court hearing (19 July 2016) when our client will seek an order or direction for the release of the funds is evidence that your client is using the Bankruptcy Notice not only as debt collection tool but in an attempt to embarrass Mr Marino
The letter sought:
1. That [the respondent] agrees that the Bankruptcy Notice has been issued for an improper purpose and as such is an abuse of process;
2. That [the respondent] undertakes not to reply upon the Bankruptcy Notice and any non-compliance with same by Mr Marino as an Act of Bankruptcy
3. That [the respondent] undertakes not to communicate with any person about the issue of the Bankruptcy notice and any non-compliance with same by Mr Marino
The letter pointed out that in the absence of a satisfactory response, the applicant would commence these proceedings. There was no satisfactory response and these proceedings are the result.
For reasons outside of the applicant’s control, he was unable to seek an order from the Family Court that he foreshadowed he would ask for on 19 July, 2016.
The parties now agree that an order of the Family Court was secured to authorise the release of sufficient funds to meet the assessed costs and that the bankruptcy notice should be set aside or withdrawn.
The present application sought that the Court set aside the bankruptcy notice pursuant to s.41(6A)(b) of the Bankruptcy Act 1966 on the ground that the notice is an abuse of process.
The respondent concedes that if the true purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court’s jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process: Brunninghausen v Glavanics [1998] FCA 230. The applicant’s submissions directed me to Rankine v Lord [2011] FCA 478 where an appeal from a finding by a Federal Magistrate that the bankruptcy notice in that case should be set aside on the basis that it was an abuse of process was dismissed.
The conclusion that the bankruptcy notice was issued, not to force the hand of a recalcitrant debtor, but to embarrass him is open on the evidence. The respondent knew that the applicant had access to a source of funds from which the debt could be paid. That fund had been accessed for the purpose of paying the principal debt. After the issue of the bankruptcy notice, if not before, the respondent was given details of the amount available from that source. It was told that an order of the Family Court was required to access the funds and that the applicant’s former wife was being uncooperative.
The applicant and the respondents’ director Mr Sardi dislike each other intensely. So do the applicant and his former wife, who remains a friend of and in weekly contact with Mr Sardi.
In those circumstances, the applicant invites the Court to draw the inference that the respondent’s insistence on payment of the debt and the use of the bankruptcy notice was designed to bring illegitimate pressure to bear upon him in circumstances where the consequences of his failure to meet the terms of the bankruptcy notice might bring some advantage, illegitimate or otherwise, to his former wife.
There was at least one alternative to the issue of the bankruptcy notice open to the respondent, namely to seek its own order, by garnishee or charging order, over the applicant’s interest in the protected fund. The respondent argues that it could not garnish funds to which the applicant has no present entitlement on basic principle; the money is legally owned by the trustee on trust for “unknown beneficiaries in unknown portions”. But that is factually incorrect. The evidence shows that the beneficiaries of the fund are the applicant and his former wife. There is no suggestion of any other person being entitled to the funds. It is reasonable to infer in the circumstances that the trustee holds the funds for them jointly and equally. A subsequent order of the Family Court for property adjustment will be just that – an order adjusting the parties’ interests in their legal or, in the case of the trust fund equitable interest, in their property: see generally Stanford v Stanford [2012] HCA 52. It will not determine their present entitlement to those funds.
That the applicant was able to secure an order once to access the fund to meet his (not he and his former wife’s) liability for the principal judgment debt makes it clear that he had an interest, and I would say a substantial interest, in the protected fund. However, it could not be said, on the material before me, that at the time of the issue of the bankruptcy notice it was certain that the applicant would secure another order for the payment out of the fund for the costs.
No doubt the delay with which the respondent had to contend in getting payment from the applicant was frustrating, but that delay was answered by the accumulation of interest on the outstanding amount until payment.
Notwithstanding those matters, however, I think that the applicant has not demonstrated that the bankruptcy notice was an abuse of process. I am not satisfied on the balance of probabilities that it was. The respondent was entitled to be paid. The information before it demonstrated that the applicant was a man, on his own sworn evidence used in another court to secure an instalment order, of little worth. Whilst there was a fund that might be called upon to meet the debt there was no certainty that it would or that a judge of the Family Court would be persuaded to release more funds from that account.
Rather than an order setting aside the bankruptcy notice, a more likely outcome in the proceeding was that the time for compliance with the bankruptcy notice would have been extended so as to expire a short period after the delivery of a decision on the applicant’s application to the Family Court for release of the requisite funds.
In those circumstances, each party should bear their own costs of these proceedings.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Judge Jarrett
Date: 4 August 2017
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