Mestanza v Sandland

[2016] FCCA 223

FEDERAL CIRCUIT COURT OF AUSTRALIA

MESTANZA v SANDLAND [2016] FCCA 223

Catchwords:
BANKRUPTCY – Application in a Case for reinstatement of an annulment application dismissed due to non appearance of the applicant – explanation for the non appearance accepted – reinstatement application nevertheless denied as the annulment application had no prospect of success.

Legislation:

Bankruptcy Act 1966 (Cth), ss.55, 153B, 267, 267B

Federal Circuit Court Rules 2001 (Cth)

Applicant: MANUEL MESTANZA

Respondent: CAROL SANDLAND

File Number: SYG 2268 of 2015

Judgment of: Judge Driver

Hearing date: 9 February 2016

Delivered at: Sydney

Delivered on: 9 February 2016

REPRESENTATION

The Applicant appeared in person

The Respondent appeared in person

INTERLOCUTORY ORDERS

1. The Application in a Case filed on 15 October 2015 is dismissed.

2. There is no order as to costs.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2268 of 2015

MANUEL MESTANZA

Applicant

And

CAROL SANDLAND

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. I have before me an Application in a Case for reinstatement of an annulment application under the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). The Application in a Case was filed in consequence of orders made by Registrar Ng on 12 October 2015, dismissing the annulment application, pursuant to rule 13.03C(1)(c) of the Federal Circuit Court Rules 2001 (Cth), as there was no appearance by the applicant, Mr Mestanza, on that occasion.

2. Mr Mestanza has presented evidence explaining why he did not attend court on that day[1].  The evidence is, in essence, that he was suffering from a serious medical condition, which required his temporary hospitalisation.  None of the affidavit evidence in the case has been tested by cross-examination today, but I have no reason to disbelieve Mr Mestanza, and I accept that he has advanced a satisfactory explanation for his non-attendance.  That, however, is not the end of the matter.  In considering whether I should reinstate the annulment application, I have considered whether there is any merit in that application.

   [1] Affidavit of Manuel Mestanza made on 15 October 2015

3. The application was brought by Mr Mestanza, essentially because of his dissatisfaction arising out of the acceptance of a debtors petition presented by the respondent, Ms Sandland. Mr Mestanza, by his application, sought both final orders as well as interim orders. The final orders were to annul the bankruptcy of Ms Sandland, pursuant to s.153B of the Bankruptcy Act and s.55(3AA)(b)(i) of the Bankruptcy Act.

4. Following the making of those orders, that is, the annulment of the bankruptcy of Ms Sandland, Mr Mestanza sought orders, pursuant to s.133(9) of the Bankruptcy Act, to transfer real property at 447 East Walnut Street, York, Pennsylvania, in the United States of America that was in the name of Ms Sandland (the Property) into the name of Mr Mestanza. He also wanted Ms Sandland to pay legal costs associated with that transfer of property.

5. Mr Mestanza also sought orders pursuant to ss.267(2) and 267B of the Bankruptcy Act that Ms Sandland be penalised for offences, and requiring Ms Sandland to pay a debt claimed by him, which may or may not be provable, amounting to US$26,879.25 plus interest and costs. Mr Mestanza also sought interim orders, which essentially was to freeze Ms Sandland’s Citibank account in the United States, in order to block withdrawals, but allow deposits from a Ms Julia Rivera, the buyer of the Property which was the subject of a dispute between him and Ms Sandland. Mr Mestanza also sought substituted service orders in relation to serving documents on Ms Sandland.

6. On 21 September 2015, Registrar Tesoriero dispensed with the need for personal service and made orders that the application be served by handing over to any person apparently over the age of 16 years at the human resources office of Ageing, Disability and Home Care, Department of Human Services, where Ms Sandland was employed.

7. The orders also provided for sending the same documents by post at an address in Westmead.  The orders by Registrar Tesoriero also required a text message to be sent to Ms Sandland on her mobile number, stating that Mr Mestanza had filed an affidavit with the Court, that the documents had been sent to Ms Sandland’s disclosed address and referred to the next court listing.  The substituted service orders were complied with by Mr Mestanza on 30 September 2015.  So in terms of service, he had effectively achieved service.  This is verified in an affidavit of service filed with the Court.  That is the procedural history. 

8. I accept that the application was properly instituted and served, and I also accept that, by reference to Mr Mestanza’s affidavit made on 14 August 2015, he has deposed to matters which might support his application for relief.

9. In essence, those matters are that he and Ms Sandland, and possibly other members of Mr Mestanza’s family, entered into an arrangement for the purchase of the Property.  The Property was acquired solely in the name of Ms Sandland, although Mr Mestanza has an interest in it from the time of purchase.  I should say that that interest is not disputed by Ms Sandland, who, at the time she lodged her debtors petition, disclosed a debt to Mr Mestanza in the sum of approximately $35,000, referable to his interest in the property.

10. More recently, an agreement was reached with Ms Rivera for her to purchase the property by instalments.  By letter dated 2 November 2015[2], Ms Rivera confirms that arrangement, including the arrangement to make instalment payments into Ms Sandland’s Citibank account in the United States.  Mr Mestanza was concerned, when he found out about the arrangements for the sale, that he was not receiving any part of the instalment payments.  He brought proceedings in the Local Court at Parramatta.  He received two judgments in his favour[3].  The first was a judgment for $9,241.86 cents on 9 May 2013 based, it would appear, on instalment payments made into the Citibank account to that point.

    [2] Exhibit A1

    [3] MFI A2 and A3

11. Secondly, he received a further judgment from the Local Court on 22 January 2014 for the sum of $28,303.61 based, it would appear, on instalment payments between that date and the date of the earlier judgment.

12. The sale agreement with Ms Rivera calls for instalment payments to be made until 1 June 2016, whereupon title to the property will transfer to her.  It follows that Mr Mestanza has some further claim for his share of instalment payments between the date of the second Local Court judgment on 22 January 2014 and 1 June 2016.  Ms Sandland did not appeal against or otherwise dispute the two Local Court judgments.  Rather, she sought the opportunity to pay by instalments, but very few instalment payments were made prior to her debtors petition.

13. Mr Mestanza complains about the accuracy of the financial statement made by Ms Sandland in support of that petition.  In particular, neither the Property nor the Citibank account in the United States were disclosed.  I accept, however, from exhibit R1, being an email from Ms Sandland to the Official Trustee, that she did subsequently disclose the relevant facts to her trustee.  More importantly, from Mr Mestanza’s viewpoint, the Official Trustee has disclaimed any interest in both the Property and the instalment agreement by notice dated 2 October 2014.  This presents Mr Mestanza with a problem.

14. On the one hand, he has an undisputed interest in the property and in the proceeds of the sale.  He has two judgments of the Local Court in his favour.  On the other hand, the Trustee in Bankruptcy will not take any action either to secure the real estate or the proceeds of sale.  There is, therefore, very little to be gained by Mr Mestanza in lodging a proof of debt.

15. There are other creditors disclosed in Ms Sandland’s statement of affairs.  There may also be some property, although very little is disclosed in that statement.  The prospect of Mr Mestanza recovering anything in the bankruptcy on account of his interest in the property seems remote.  It was with these concerns in mind that Mr Mestanza commenced his proceedings to annul the bankruptcy and seek other relief.

16. In my opinion, this Court does not have jurisdiction to make any orders affecting either the sale of the Property in the United States or the management of the Citibank account in the United States.  In short, the Court’s jurisdiction does not run beyond the national boundary.

17. Theoretically, it would be open to Mr Mestanza to seek to register the Local Court judgments in the United States and to obtain satisfaction of them there.  He could, presumably, also institute proceedings in the United States.  He has not taken either of those courses.

18. In my opinion, the Court would not make the annulment order sought by Mr Mestanza, both because of the interests of other creditors and because, in my opinion, Mr Mestanza is a secured creditor, based upon his interest in the Property.  It appears undisputed that he contributed to the purchase of the property, and he thereby has an interest in it.  It would seem to me highly probable that he has security in the form of that property, which he could enforce if he wished.  Because he is a secured creditor, he does not need to lodge a proof of debt and surrender that security for the benefit of creditors[4].  He has an election to retain the security and seek to enforce it.  That would seem to be the logical course for him to follow, especially in circumstances where the Official Trustee has disclaimed any interest in the Property or the proceeds of sale. 

    [4] Section 90 of the Bankruptcy Act

19. With those considerations in mind, I have decided that I should not vacate the dismissal order made by the Registrar, and I should not reinstate the substantive application.

20. Both parties are not legally represented and have not incurred any legal costs, other than filing fees and the like.  The Official Trustee has been notified of the proceedings[5] but has taken no part in them.

    [5] Affidavit of Manuel Mestanza made on 2 February 2016

21. I will order that The Application in a Case filed on 15 October 2015 be dismissed and that there be no order as to costs.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Judge Driver

Date: 11 February 2016