Mortgage Ezy Australia Pty Ltd v Turco

[2019] FCCA 1693

FEDERAL CIRCUIT COURT OF AUSTRALIA

MORTGAGE EZY AUSTRALIA PTY LTD v TURCO [2019] FCCA 1693

Catchwords:
BANKRUPTCY – Creditor’s petition – application for a sequestration order – whether an adjournment is warranted pending the outcome of proceedings the subject of a notice of appeal in the Family Court of Western Australia –  whether the Court should go behind the judgment debt – application for an adjournment is refused – sequestration order made – application for a stay is refused.

Legislation:

Bankruptcy Act 1966 (Cth), ss.27, 43, 52, 74, 82, 153

Applicant: MORTGAGE EZY AUSTRALIA PTY LTD

Respondent: MARIO TURCO

File Number: PEG 423 of 2018

Judgment of: Judge Street

Hearing date: 19 June 2019

Date of Last Submission: 19 June 2019

Delivered at: Perth

Delivered on: 19 June 2019

REPRESENTATION

Counsel for the Applicant: Mr P van der Zanden and Mr N Kalmund

Solicitors for the Applicant: Hotchkin Hanly Lawyers

Counsel for the Respondent: Mr C Brown

Solicitors for the Respondent: MGM O'Connor Lawyers Pty Ltd

ORDERS

1. The application for an adjournment is refused.

2. A sequestration order is made against the estate of Mario Turco.

3. The applicant creditor’s costs of these proceedings, including all reserved costs, and its costs of its interim application for orders for substituted service of the petition, be paid out of the estate of the respondent in accordance with the Bankruptcy Act 1966 (Cth), on a party and party basis.

4. The application for a stay under s 52(3) of the Bankruptcy Act 1966 (Cth) is refused.

NOTES

1. The act of bankruptcy occurred on 14 June 2018.

2. A consent to act as trustee has been filed by Malcom Field.

DATE OF ORDERS: 19 June 2019

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT PERTH

PEG 423 of 2018

MORTGAGE EZY AUSTRALIA PTY LTD

Applicant

And

MARIO TURCO

Respondent

REASONS FOR JUDGMENT

1. This is an application for a sequestration order within the Court’s jurisdiction under s 27 of the Bankruptcy Act 1966 (“the Act”) in respect of a judgment debt arising from a judgment obtained by the petitioning creditor in the Family Court of Western Australia on 9 November 2017 by orders of Walters J.

2. The judgment debt has not been the subject of any attempted challenge until, on 29 May 2019, there was purportedly filed a notice of appeal by the respondent seeking to identify the grounds upon which the appellate Court should interfere with the judgment debt.

Application for an adjournment

1. At the commencement of the proceedings, Mr Brown of counsel on behalf of the respondent sought an adjournment relying on the affidavit of Mario Turco sworn 13 December 2018 in respect of the steps taken by the respondent to challenge the judgment debt, the affidavit of Tihomir (Tim) Galic sworn 18 June 2019, and the affidavit of Mario Turco sworn 24 May 2019. Mr Brown submitted that the proceedings the subject of the notice of appeal identified real issues. As a result, Mr Brown submitted that these proceedings should be adjourned pending the outcome of the proceedings the subject of the notice of appeal.

2. There is no proper explanation for the inordinate delay in seeking to challenge the judgment debt. The respondent submitted that it was only belatedly that it became apparent that the petitioning creditor was seeking to pursue a loan in respect of which the respondent had entered into prior to an earlier act of bankruptcy. The respondent also submitted that the petitioning creditor’s debt had been the subject of statutory provisions in the Act, in particular ss 74, 82, and 153, by reason of which the debt was extinguished. The respondent also submitted that, accordingly, no real judgment debt existed and the Court should go behind the judgment debt.

3. The respondent’s submissions do not identify circumstances which the Court regards as special circumstances justifying going behind the judgment or justifying an adjournment of these proceedings which were commenced on 9 August 2018.

4. The purported grounds advanced in the respondent’s notice of appeal arise in circumstances where there was a contested proceeding before a learned Judge in the Family Court of Western Australia. Whilst the respondent may have ultimately been unrepresented in those proceedings, that does not give rise to circumstances which the Court regards as warranting the Court going behind the judgment debt in the present case. The Court does not regard any of the purported grounds identified in the notice of appeal as having any realistic prospect of success or being the subject of a grant of leave given the inordinate delay by the respondent in seeking to challenge the judgment debt and the lack of merit in the purported grounds.  

5. The Court is not satisfied that the proceedings the subject of the notice of appeal have any real prospect of success. The Court does not regard those proceedings as identifying a proper basis to go behind the judgment debt obtained in the Family Court of Western Australia.

6. Mr Brown took the Court to the events which gave rise to an earlier bankruptcy of the respondent. Mr Brown also took the Court to the arguments that he sought to develop in relation to ss 82, 74 and 153 of the Act and the loan liability that became the subject of the judgment of Watson J in the Family Court of Western Australia. Mr Brown submitted that the issue of inclusion of the debt in the earlier bankruptcy, so as now to be extinguished, was not an issue raised before Watson J.

7. The parties are bound by the conduct of their proceedings. There is no basis why the Court should permit the re-agitation of a matter such as this in circumstances where the respondent, even though unrepresented, participated in contested proceedings and the matter could be the subject of substantial answer by reason of s 153(2)(b) of the Act.

8. Section 153(2)(b) of the Act relates to the release of a bankrupt from a debt incurred by means of fraud or fraudulent breach of trust to which the respondent was a party or a debt of which the respondent has obtained forbearance by fraud. It is apparent in the circumstances of the present case that the petitioning creditor identifies forbearance by fraud where, at the time of the act of bankruptcy, the respondent failed to disclose the loan to the petitioning creditor. The respondent subsequently entered into a compromise and, on the evidence before the Court, continued to fail to disclose the existence of the loan to the trustee in bankruptcy or the trustee in relation to the proposed compromise.

9. Whilst it is not necessary for the Court to do so, there is no basis to support the respondent’s submission in the affidavit of Mario Turco sworn 13 December 2018 at [29] that he believed a related company had assumed responsibility for the debt in relation to the petitioning creditor. There is no material before the Court to support any such novation or any basis for such assumption. On the face of the evidence before the Court, it is apparent that the respondent deliberately remained silent in circumstances where he was required to identify his creditors.

10. On the face of the evidence before the Court, the Court finds that there was an intentional failure to disclose the existence of the loan to the earlier trustee. Had the respondent included the loan in the statement of affairs, there might be substance in the respondent’s submission that there are special circumstances warranting going behind the judgment debt. In the circumstances of the present case, however, there is a strong case that meets the requirements of the last limb of s 153(2)(b) of the Act. Any purported release of the debt was obtained by forbearance on the fraud of the respondent.

11. It is not necessary for the Court to deal with the whole of the facts in respect of the background, as invited to by the respondent. It is sufficient to identify that the statement of affairs is not a document in respect of which it could be said that the conduct of the respondent was one of mere omission. There was a statutory obligation on the respondent to identify his unsecured creditors. The fact that there was a company continuing to make payments in respect of the loan means it is patent that the respondent must have been aware of the loan.

12. The real explanation advanced by the respondent in relation to the circumstances of the present case is that he was allegedly unaware of the argument he might have had available to him at the time of the hearing before Watson J as to the impact of the provisions of the Act. The respondent’s submission that he believed the company had assumed responsibility for the debt is not the subject of any identified basis to support such a belief.  The respondent knew there was a loan and knew there was a proposed transaction where it was intended that the existing security continue, which did not occur, and which must have also been known by the respondent.

13. There are no special circumstances in the present case that warrant the Court going behind the judgment debt. The Court is not satisfied that any proper basis has been made out by the respondent for an adjournment in respect of these proceedings because of the recent filing of the notice of appeal by the respondent which, for the reasons the Court has already given, is doomed to fail and is not an appeal that has any real prospect of success and which has no real prospect of obtaining an extension of time.

14. In the circumstances, the Court is not satisfied that an adjournment is warranted in the interests of the administration of justice. The Court has taken into account the general principle that, where there are proceedings on foot in respect of the judgment debt being challenged in an appellate Court, ordinarily the Court will defer the proceeding until determination of the matter. The Court is satisfied that these are proceedings in which the appeal has no prospect of success and is doomed to fail. The notice of appeal does not identify an application for an extension of time, has no proper explanation for the extension of time application and any extension has no prospect of success.

15. It is in these circumstances that the Court refuses the adjournment application.

Application for a sequestration order

1. The Court is satisfied by reason of the evidence which has been read that the respondent committed an act of bankruptcy on 14 June 2018. The Court is satisfied that the applicant has proved under s 43 of the Act that the act of bankruptcy occurred at a time when the applicant was present in Australia.

2. The Court is satisfied on the evidence of the service of the bankruptcy notice, the verification of the petition, the service of the petition, the verification of the debt outstanding, and a current search in respect of the status of the applicant in accordance with the Federal Circuit Court (Bankruptcy) Rules 2016. The Court is satisfied that this is an appropriate matter in which the applicant established proof of the requirements of s 52(1) of the Act.

3. The respondent has submitted that the Court should go behind the judgment debt. For the reasons already given, the Court is not satisfied that this is an appropriate matter in which to go behind the judgment debt and declines to do so.

4. The respondent submitted that the existence of the appeal proceedings and the contentions raised in respect of the Act are other sufficient causes why a sequestration order ought not be made. On the evidence before the Court, the respondent is unable to pay his debts. The Court is not satisfied that other sufficient cause not to make a sequestration order has been made out. For the reasons given, there is no substance in the contention that the Court should go behind the judgment debt.

5. The Court finds that, even if it did go behind the judgment debt, the Court would find that the applicant had made out the requirements of s 153(2)(b) of the Act in respect of the respondent obtaining forbearance by fraud. The Court takes into account that this is not a case of mere silence, but one where the respondent had a positive duty to disclose who his unsecured creditors were. The submission advanced by Mr Brown that the statement of affairs could be added to does not in any way detract from the proposition that it is open to the Court to find, and the Court does find, that there was a deliberate failure by the respondent to disclose the loan to the former trustee which gave rise to a forbearance obtained by fraud upon the petitioning creditor.

6. The Court also finds that there was an ongoing and deliberate failure by the respondent to disclose the existence of the loan up to and including the time of composition, all of which gave rise to forbearance of steps being taken for the recovery of the loan by the petitioning creditor. The Court regards the intentional conduct as amounting to fraud within s 153(2)(b) of the Act and to forbearance by the petitioning creditor to pursue the loan and/or, at that time, an assertion in equity that the petitioning creditor had an equitable lien or charge in respect to the property that had been the subject of the original loan. That forbearance was obtained by the fraud of the respondent. No sufficient cause has been made out.

7. Accordingly, the Court is satisfied that this is an appropriate matter in which there should be made a sequestration order.

Application for a stay

1. An application has been made for a stay of the proceedings under the sequestration order under s 52(3) of the Act. Mr Brown indicated in that regard that he wishes to potentially pursue the proceedings in the Family Court of Western Australia as well as potentially pursuing an appeal in respect of the orders of this Court.

2. The starting position in respect to the orders of this Court are that the orders of the Court are correct. No grounds of arguable error have been identified. The Court sees no proper basis to grant a stay.

3. The application for a stay is refused.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Judge Street

Date: 18 July 2019