Micheletto (Trustee) v Russell, in the matter of Knight (Bankrupt)
[2018] FCA 865
•29 May 2018
FEDERAL COURT OF AUSTRALIA
Micheletto (Trustee) v Russell, in the matter of Knight (Bankrupt)
[2018] FCA 865
File number VID 1344 of 2017 Judge: STEWARD J Date of judgment: 29 May 2018 Catchwords: BANKRUPTCY AND INSOLVENCY – undervalued transactions – declaration pursuant to s 120 of the Bankruptcy Act 1966 (Cth)
PRACTICE AND PROCEDURE – application for summary judgment pursuant to rr 5.22(b) and 5.23(2)(c) of the Federal Court Rules 2011 (Cth) – failure to file a defence – self-executing orders
Legislation: Bankruptcy Act 1966 (Cth) s 120
Federal Court of Australia Act 1976 (Cth)
Federal Court Rules 2011 (Cth) rr 5.22 and 5.23
Cases cited: Lenijamar Pty Ltd and Others v AGC (Advances) Limited (1990) 27 FCR 388
Pennimpede v Pennimpede [2010] NSWCA 121
Date of hearing: 29 May 2018 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 8 Counsel for the Applicants: Mr D Brayley Solicitor for the Applicants: Mills Oakley Counsel for the Respondent: The respondent did not appear ORDERS
VID 1344 of 2017 IN THE MATTER OF THE BANKRUPT ESTATE OF TAMARA LEE KNIGHT
BETWEEN: FABIAN MICHELETTO AND MICHAEL CARRAFA AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF TAMARA LEE KNIGHT
Applicants
AND: MATTHEW RUSSELL
Respondent
JUDGE:
STEWARD J
DATE OF ORDER:
29 MAY 2018
THE COURT ORDERS THAT:
1.The time within which the respondent is to file a defence is extended to 4pm on 22 June 2018.
2.Should the respondent fail to comply with order 1, pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth), there shall be given, in favour of the applicants against the respondent, default judgment and the following consequential orders shall be made:
(a)it be declared, pursuant to s 120(1) of the Bankruptcy Act 1966 (Cth), that the Transfer (as that term is defined in the applicants’ statement of claim filed 7 December 2017) is void as against the applicants;
(b)the respondent pay the applicants the sum of $53,256.64, together with interest on that sum from 7 December 2017 to 22 June 2018 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), calculated in accordance with the interest rates set out in cl 2.2 of the Interest on Judgments Practice Note of this Court (GPN-INT); and
(c)the respondent pay the costs of the proceeding, including the applicants’ interlocutory application filed 3 May 2018, as agreed or as assessed.
3.There be liberty to apply on 3 business days’ notice.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(revised from transcript)
STEWARD J:
This is an application made pursuant to rr 5.22(b) and 5.23(2)(c) of the Federal Court Rules 2011 (Cth) for summary judgment against the respondent. The respondent had been ordered on 18 March 2018 to file his defence by 28 March 2018. He has not done so, and remains in default for the purposes of r 5.22. The applicants are the trustees of the Bankrupt Estate of Tamara Lee Knight (the “Bankrupt”).
By originating application and statement of claim both filed 7 December 2017, each applicant seeks relief pursuant to s 120 of the Bankruptcy Act 1966 (Cth), in relation to the transfer on or about 18 August 2015 of legal title in land located at 41 Brookfield Avenue, Brookfield, Victoria 3338, described in the certificate of title volume 10964 folio 732, from the Bankrupt to the respondent. The land was said by the applicants to bear a market value at that time of at least $420,000. At settlement it would appear that the existing mortgage and loan to the Bank of Western Australia Ltd was discharged in the sum of $346,416.02 using funds borrowed by the respondent from Citigroup Pty Ltd. A further payment of $20,327.34 was made to third parties, and a payment of $19,213.19 was made to the respondent himself.
The applicants claimed that this was a transfer for no consideration for the purposes of s 120. That may be doubted. There is authority for the proposition that the assumption of a liability for a mortgage is good consideration: see Pennimpede v Pennimpede [2010] NSWCA 121. Having said that, based on the applicants’ pleaded claim, and on the basis that assuming liability was good consideration, there was nonetheless a transfer of land for consideration less than market value for the purposes of s 120, the difference being the sum of $53,256.64.
The power to enter default judgment involves the application of a discretion by this Court, which should be exercised cautiously. It requires the Court to be satisfied that on the face of the statement of claim an applicant is entitled to the relief sought. Each element of the relevant claim must be properly and discretely pleaded, but need not be proven. In Lenijamar Pty Ltd and Others v AGC (Advances) Limited (1990) 27 FCR 388, Wilcox and Gummow JJ said the following in relation to a predecessor of r 5.23 (at 396):
As it is impossible to foresee all of the circumstances under which the rule might be sought to be used, it is undesirable to make any exhaustive statement of the circumstances under which the power granted by the rule will appropriately be exercised. We will not attempt to do so. But two situations are obvious candidates for the exercise of the power: cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period and cases – whatever the applicant’s state of mind or resources – in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent.
The applicants’ application is supported here by an affidavit sworn by Mr Michael Carrafa on 3 May 2018. Mr Carrafa is one of the applicants. His affidavit verifies matters pleaded in the statement of claim and deposes that, by order dated 1 February 2018, this Court adjourned the first case management hearing to 16 March 2018 to enable the respondent, who is not represented, to obtain legal advice.
On 16 March, this Court ordered, by consent, that a defence be filed by 28 March 2018. This order was sent by email to the respondent who otherwise acknowledged receipt. No defence was filed on 28 March 2018 and, accordingly, the respondent thereafter was in default. An email was sent to the respondent by the applicants’ solicitor on 5 April 2018 informing him of his default and stating that, if a defence was not filed by 6 April 2018, the applicants would seek default judgment. The respondent replied to that email with these words:
I want to sign the form how can I file my defense or minute of proposed order so that I get a fair case herd on the next day of court thankyou
(Errors in the original)
A further email was sent by the applicants’ solicitors on 6 April 2018 giving the respondent extra time (until 9 April 2018) within which to file his defence. The respondent was again warned that if he did not file a defence, summary judgment would be sought. The respondent replied with the words "Thank you". No defence has yet been filed and served. On 3 May, an application for default judgment was filed in this Court and served on the respondent on 11 May 2018. Mindful of the fact that the respondent has no legal representation, I am not yet satisfied that the history of non-compliance is such as to indicate an inability or unwillingness to cooperate with the Court and the applicants in having this matter ready for trial.
I must exercise my discretion cautiously and should not readily give summary judgment. In my view, the respondent should be given one further chance to file his defence. For that purpose, and so that the respondent has an opportunity to understand the consequences of his failure to file a defence, I propose to make self-executing orders giving judgment for the applicants if no defence is filed within the time I set today.
I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Steward. Associate:
Dated: 7 June 2018
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