Naudi and Reid as Trustees of Bankrupt Estate of Albarouki v Albarouki (No.3)

[2020] FCCA 2369

FEDERAL CIRCUIT COURT OF AUSTRALIA

NAUDI & REID AS TRUSTEES OF BANKRUPT ESTATE OF ALBAROUKI v ALBAROUKI (No.3) [2020] FCCA 2369

Catchwords:
BANKRUPTCY – Where order for vacation of property – warrant of possession in the event of non-compliance – STAY – application by respondent to stay previous orders to vacate property – where application in Federal Court for extension of time to appeal substantive judgment – where appeal out of time by many months – where respondent had sufficient notice of trustee’s intention to sell property – application for say dismissed.

Legislation:

Bankruptcy Act 1996 (Cth), s 30

Enforcement of Judgments Act 1991 (SA) s 11

Family Law Act 1975 (Cth), ss 79, 79A and 90K(1)(b) & (c)

Federal Circuit Court Rules 2001 (Cth), rr 16.05H and 29.11

Cases cited:

Finch v The Heat Group [2015] FCA 182

Applicant: ROBERT WILLIAM NAUDI AND STUART GEORGE REID IN THEIR CAPACITIES AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF NIDAL ALBAROUKI

Respondent: SHARON BUSHRA ALBAROUKI

File Number: ADG 92 of 2017

Judgment of: Judge Heffernan

Hearing date: 27 July 2020

Date of Last Submission: 27 July 2020

Delivered at: Adelaide

Delivered on: 29 July 2020

REPRESENTATION

Counsel for the Applicant: Ms Walker

Solicitors for the Applicant: Mellor Olsson

Counsel for the Respondent: Ms Harris

Solicitors for the Respondent: Brander Smith McKnight

ORDERS

1. The Application in a Case filed by Ms Albarouki on 23 July 2020 for a stay of the orders made on 25 June 2020 is dismissed.

2. In the event that by 10.00am (SA) time (10.30am EST) on Friday 31 July 2020, the Trustee has not received written confirmation from Ms Albarouki that she has vacated the property situated at 205 Denham Court Road, Denham Court, in the State of South Australia, a Warrant for Possession of the property in favour of the Trustee will be issued pursuant to r 29.11 of the Federal Circuit Court Rules2001 (Cth) and s 11 of the Enforcement of Judgments Act 1991 (SA) on written request of the Trustee directed to chambers.

3. Ms Albarouki pay the Trustee’s costs of and incidental to the application dated 23 July 2020.

4. The Trustee’s solicitor’s costs of Ms Albarouki’s application dated 23 July 2020 and the Trustee’s application dated 24 July 2020 fall within the scope of order 2(a) made on 25 June 2020.

5. The parties have liberty to apply.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT ADELAIDE

ADG 92 of 2017

ROBERT WILLIAM NAUDI AND STUART GEORGE REID IN THEIR CAPACITIES AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF NIDAL ALBAROUKI

Applicant

And

SHARON BUSHRA ALBAROUKI

Respondent

REASONS FOR JUDGMENT

(Reasons settled from transcript)

Introduction and Background

1. I have before me an Application by Ms Albarouki filed 23 July 2020 for a stay of the orders that I made on 25 June 2020.  I have a further Application in a Case filed by the Trustee on 24 July 2020 seeking that that application be dismissed and, alternately, that a warrant of possession for the property at 205 Denham Court Road, Denham Court, New South Wales be issued in favour of the Trustee in the event that Ms Albarouki has not vacated the premises by 9.00am on Friday, 31 July 2020.  These are short-form reasons, given orally, obviously, and I reserve the right to include any extracts from my judgment of 19 August 2019, the relevant statutory provisions, and excerpts from affidavit material, should I see the need to do so when written reasons are published.

2. The background of this matter is that, in August of last year, I delivered a judgment in favour of the Trustee. I made a declaration that the transfer of the bankrupt Mr Naudi’s interest in 205 Denham Court Road, 125 Fox Valley Road, Denham Court, and 2 Carbasse Crescent, St Helens Park, all located in New South Wales, were all void as against the Trustees by operation of ss 120 and 121 of the Bankruptcy Act 1966 (Cth) (‘the Act’). I should point out at this stage that 205 Denham Court Road is where Ms Albarouki was residing at the time of that judgment and where she continues to reside, and is, in effect, the former matrimonial home.

3. Those orders were then amended on 17 January 2020, and I will summarise the orders I made in the judgment. The transfer of 205 Denham Court Road from the bankrupt to the respondent, Ms Albarouki, was set aside. I ordered that Ms Albarouki do all things necessary to cause that property to be registered in the name of the Trustee, and I ordered, pursuant to s 30 of the Act, that Ms Albarouki account to the Trustee for 50 per cent of the proceeds of 2 Carbasse Crescent and the entirety of the proceeds of 125 Fox Valley Road, Denham Court, with Ms Albarouki to pay to the Trustee an amount equal to any rent received and/or payable to her in relation to 205 Denham Court Road from the period of 3 April 2013 until the date of judgment.

4. On 17 January, I amended and clarified that order pursuant to r 16.05H of the Federal Circuit Court Rules 2001 (Cth) (‘the Rules’). So order 3 of the 19 August orders were clarified to read:

   “Pursuant to section 30, the respondent account to the applicants for 50 per cent of the proceeds of the sale of 2 Carbasse Crescent, being the sum of 214,000, and the entirety of the proceeds of the sale of the Fox Valley Road property, being the sum of $1 million.”

   So it will be seen that the judgment amount came to be $1.2 million plus any outstanding rent, pursuant to order 4 of my orders on 19 August last year.  That judgment was not the subject of an appeal, and time for an appeal in that matter expired on 10 September 2019.

5. On 14 November 2019, Ms Albarouki filed proceedings in the Family Court seeking to be appointed as the trustee for the sale of the property and giving her sole occupation of the property pending any further order of the Family Court.  That application to the Family Court came after the Trustee, Mr Naudi, had told Ms Albarouki in late September that all necessary steps to enforce the final judgment would be made in the event that no compromise agreement was reached between the parties.  No compromise agreement was reached at or about that time or since.

6. The solicitor for the Trustee, in a letter of 30 September 2019 to Ms Albarouki’s solicitor, required her to vacate the property within 14 days or face eviction.  There was no response from Ms Albarouki’s solicitors.  The solicitor for the Trustee sent a letter on 5 November 2019 advising Ms Albarouki, through her solicitors, that the Trustee had provided instructions to evict Ms Albarouki from the 205 Denham Court Road property.

7. On 11 September 2019, Ms Albarouki’s solicitor sent a letter to the Trustee’s solicitor saying that she was not able to vacate the premises with her children.  On 13 November 2019, Mr Gowans, the solicitor for the Trustee, sent a letter again telling Ms Albarouki that she would have no option but to vacate the property.  On 28 November 2019, the Family Court proceedings that were issued by Ms Albarouki were amended to seek that 205 Denham Court Road be transferred into her name.

8. The Trustee continued in his attempts to negotiate the matter with Ms Albarouki.  On 1 April, the Trustee put Ms Albarouki on notice that she was trespassing on the property at 205 Denham Court Road.  On 1 May 2020, the Family Court proceedings were summarily dismissed, presumably on the basis that they were incompetent and misconceived.  Costs were ordered against Ms Albarouki.  The Trustee served a Bankruptcy Notice shortly thereafter, in the amount of approximately $1.2 million, on Ms Albarouki with respect to the judgment debt.

9. On 13 March, on the last day for compliance with the Bankruptcy Notice, Ms Albarouki filed proceedings in the Federal Court seeking to set aside the Bankruptcy Notice.  On 26 May 2020, the Federal Court dismissed the application to set aside the Bankruptcy Notice and ordered costs against Ms Albarouki, that is, the second set of costs awarded against Ms Albarouki in separate proceedings since the date of my judgment. 

10. The day before the application to set aside the Bankruptcy Notice was dismissed, Ms Albarouki filed an application in the Federal Court seeking an extension of time in which to appeal my judgment of August 2019.  It is now about 11 months since I delivered my reasons in that matter, and at the time the application for an extension of time was sought, it was eight and a half months out of time.

11. On 28 May 2020, the Trustee filed an Application in a Case seeking orders that the Trustee be provided with vacant possession of the property at 205 Denham Court Road within 14 days of any order; that Ms Albarouki be restrained from taking any steps to impede or otherwise take any steps to disrupt any sales campaign for property conducted by the applicants; and further seeking costs.  The Application in a Case set out the history of the matter generally in the terms that I have done at the beginning of these reasons.

12. A Response was filed to that Application in a Case by Ms Albarouki. It sought that the Application in a Case of the Trustee be dismissed; that pending further order, the Trustee be restrained from enforcing any of the orders contained in my judgment as amended; that pending any order, the wife have sole use and occupation of 205 Denham Court Road; further seeking that the Trustee provide full and frank disclosure of all matters pertaining to his claim for remuneration and legal expenses and administration of the bankrupt estate of the husband. I note at this point it is not Ms Albarouki for whom Mr Naudi is Trustee – it is her husband. The basis upon which, as a non-party, to the state of bankruptcy of the husband, she would be entitled to ask for full and frank disclosure of costs relating to the administration of the husband’s estate that was not articulated. The next order she sought was that the proceedings in the Federal Circuit Court of Adelaide, before me, be stayed, pending the filing of an Initiating Application in the Family Court of Australia, under either ss 79, 79A or 90K(1)(b) or (1)(c) of the Family Law Act1975 (Cth), and that the proceedings before me be transferred to a different judicial officer.

13. So at that time, the order was not simply opposed, but Ms Albarouki was indicating her intention to file further proceedings in the Family Court.  Ms Albarouki also sought her costs and that I make a declaration that there was no binding financial agreement between her husband and herself, which is a matter that was dealt with in my judgment of last August.

14. The affidavit supporting that Application in a Case set out the difficult circumstances that Ms Albarouki was presently in with respect to her children; the difficult circumstances of her relationship with her husband; it made submissions about assets acquired during the relationship; non-financial contributions that she made in the relationship; and violence by the husband towards her.  It also deposed to circumstances surrounding the separation, the bankruptcy of her husband and the substantive proceedings which I have already delivered reasons on, including Ms Albarouki’s assertion that the binding financial agreement was only ever in draft and had never been signed by her husband.

15. On 25 June 2020, I made orders that the Trustee be provided with vacant possession of the 205 Denham Court Road within 28 days of my order.  That was twice as long as had been sought by the Trustee to enable Ms Albarouki to get her affairs in order.

16. Ms Albarouki was to have vacated, pursuant to those orders, the 205 Denham Court property by 23 July 2020.  At no time during the submissions on the Trustee’s application, or, as far I can see, in the affidavit materials filed before me, did Ms Albarouki make any reference to the extension of time application which had already been filed in the Federal Court.  In fact, as I have already said, her position was that initiating proceedings were going to be filed in the Family Court.

17. My orders of 25 June 2020 were not appealed.  No stay of those orders was sought, even though it should have been abundantly clear to Ms Albarouki and her counsel at the time that such an application would have been a prudent course to take, given, unbeknownst to anyone else, she had made an application in the Federal Court for an extension of time to appeal my August judgment. 

18. On the last day for compliance with my orders of 25 June 2020, Ms Albarouki filed an Application in a Case seeking urgent orders to stay them.  It sought a stay of execution of the orders that Ms Albarouki vacate, and of other orders that the property not be sold.  The stay was sought for a minimum of at least six weeks.  The application seeks that the orders be stayed at least until after the disposition of any extension of time application or appeal in the event that the extension of time application was made.

19. I was not able to hear the Application in a Case on 23 July because I had been in Court all morning and, indeed, after lunch for a period of time until, I think, approximately 3.00pm.  Just how a solicitor competently representing Ms Albarouki could conclude that it was appropriate to wait until one minute until midnight, in effect, before filing such an application has not been adequately explained to me.

20. I heard argument on Monday of this week.  The Trustee, as I have indicated, filed his own Application in a Case, and I have summarised briefly the orders that are sought.  I will not summarise them again, but I will include the actual terms of the orders sought in any final judgment, if I deem that necessary.

21. The Trustee’s affidavit pointed out very simply that I had made orders for vacant possession; that they had not been complied with; that on 22 July the Trustee’s solicitors had sent a letter to the solicitors for the respondent, Brander Smith McKnight, requesting that arrangements be made for the delivery of the keys and alarm codes to a particular office in Sydney; and on 23 July the Trustee’s solicitor received an email from the solicitors for Ms Albarouki enclosing unsealed copies of the Application in a Case.  That may, after all, be the explanation for why the Application in a Case was filed on 23 July 2020.

22. I will make an observation at this point.  The affidavit material filed by Ms Albarouki does not adequately explain why my decision was not appealed within time, and, on the face of things, it appears to be at least quite likely that it was because a conscious forensic decision was taken to make the misconceived application in the Family Court which was subsequently dismissed.

Submissions

1. I heard submissions from counsel in relation to the matter.  Ms Harris, appearing for Ms Albarouki, acknowledged that the chronology, which I have detailed, was extremely unfortunate.  The application for extension of time is listed for mention only tomorrow before Charlesworth J.  It was conceded that there was no explanation for delay in appealing the decision except the attempt to proceed in the Family Court. 

2. Ms Harris referred me to the matters referred to in the affidavit of her instructing solicitor, and Ms Albarouki.  Ms Albarouki does genuinely intend to pursue her right of appeal, if time is extended, in the Federal Court in relation to my judgment.  In the present circumstances, including circumstances of COVID-19, Ms Albarouki’s parlous financial situation, the difficulties presented by certain of her family circumstances, an order staying my order of 25 June 2020 was warranted.  Further, because it was the entire judgment of August last year that was being appealed there was a real danger that if I did not stay my order, then, ultimately, the subject matter of the appeal would be rendered nugatory.  I acknowledge that that is a valid submission to make if that is the case.

3. Ms Harris said that they were seeking the stay for at least six weeks or until the appeal judgment is delivered, or at least until the application to extend time has been determined.  There were hardship grounds in this matter because Ms Albarouki was a full‑time carer.  She has a claimed surplus from the sale of the 205 Denham Court Road property.  Her son has a disability.  She needs to apply for Centrelink because of her present financial state.  She was told by her solicitors that they intended to appeal the judgment against her, and for that reason she has not taken any steps to prepare herself to vacate the property within the 28 days that I indicated.

4. At this point, I make the observation that it is not simply 28 days that Ms Albarouki has had to prepare herself to vacate the property.  The implications of the orders I made in my judgment had been apparent or should have been apparent to Ms Albarouki from at least the end of August last year, and she has been put on notice repeatedly by the solicitor for the Trustee that the Trustee intended to do all things necessary to properly administer the bankrupt estate, and that included enforcing the judgment.  She had been put on notice by the Trustee that the Trustee regarded her as being a trespasser on the 205 Denham Court Road property.  So the explanation that 28 days has not been long enough in the circumstances must be considered in light of that matter.

5. Ms Harris submitted that Ms Albarouki was entitled to procedural fairness.  I make an observation about that.  To the extent that 28 days was the deadline within which the Trustee was to be given vacant possession, Ms Albarouki had procedural fairness accorded to her when that application was argued.  In terms of procedural fairness and advance knowledge of what might happen, she had the warnings and the notice that I have already referred to from the Trustee.

6. It was submitted that courts will ordinarily exercise discretion to stay proceedings where an appeal is sought and that I should be reluctant to look into the merits of the appeal but some consideration should be given to it where prospects are slight. 

7. Ms Walker for the Trustee submitted that the explanation for not filing an appeal, such as one had been given in Ms Albarouki’s affidavit, that she had to go back through the evidence and get advice, was an inadequate explanation.  She got advice in November 2019 and that was to go to the Family Court.  She was out of time at that stage by six weeks. 

8. Ms Albarouki’s affidavit, at paragraphs 15 and 16, indicates not that she would have appealed within time but that had she known, in effect, that the Family Court proceedings would be summarily dismissed, she would have made an application to appeal my judgment less late, some time in about October 2019.  Ms Albarouki was out of time when she sought advice as to those matters.  Her entire position has been a reactive one and designed to delay the inevitable.

9. Ms Walker submitted that in addition to the judgment debt, Ms Albarouki now has costs against her on two separate proceedings, which adds to her financial difficulties.  She has, on her own materials, no capacity to meet those costs.  The mortgage debt on the property is increasing.  She cannot afford to pay rent to the Trustee.  She has appeared to accept, on a number of occasions since my judgment debt, that the property will be sold, and her affidavits of June and July do readily bear that inference.  She has taken no steps at all to vacate the property, and, as Ms Walker pointed out, Ms Albarouki is living in a multimillion dollar property where the mortgage is not being paid and which she cannot afford, and that that will not change even if I were to stay those orders.

10. I will intersperse at this point that Ms Harris made the submission in reply that it was still possible for the appeal to be rendered nugatory because it is the entirety of my judgment that is to be appealed.  That would, if successful, presumably mean that the declaration I made would not be made and that there be no requirement for 205 Denham Court to be registered in the name of the Trustee, but, nonetheless, Ms Walker pointed out she has still got two orders of costs against her, even if I were to stay these proceedings and even if, in her parlous financial situation, the appeal against my judgment ultimately were to be successful.

1. Ms Walker’s submission was that the practical reality is that the property is simply not going to be one that she can afford to maintain and it will not simply be returned to her if she is successful on appeal, because of the fact that she cannot even afford to pay the mortgage.  She will not be able to afford to keep the property, and it was submitted that that was a powerful matter that I should take into my consideration in determining the application to stay my orders.  Further, Ms Walker pointed out that if Ms Albarouki is successful on an extension of time, she could always apply to have any money from the sale held pending the appeal. 

2. Ms Walker referred me to the decision of Finch v The Heat Group[1] with respect to the principle surrounding a stay of orders pending an appeal.  Those principles are relatively well settled.  There can be no absolute definitive number of categories, but insofar as matters have been identified by the Courts over time, they are well summarised, in my view, in that decision. 

   [1] [2015] FCA 182.

3. It is to be accepted that the onus is on the applicant to demonstrate a proper basis for the stay, and a proper basis includes a basis which is fair to all parties.  A startling aspect, in Ms Walker’s submission, which has not even been addressed by Ms Albarouki at any stage, is that there are creditors waiting in the background of the administration of Mr Albarouki’s bankrupt estate.  They have been waiting a very long time.  Secondly, there is a prima facie assumption that the judgment is correct.  That is a matter that requires no great amplification.  It is clearly something which has been referred to in a number of authorities, and that is another way of saying that the onus is on an applicant to show that there would be some basic merit in an appeal. 

4. Further, it is commonly accepted that the successful party in proceedings has an expectation and a right to enjoy the benefits of the judgment which has been made in their favour.  Once again, that is a principle that does not require much amplification, if any.  Fourthly, it is a discretionary matter as to whether or not a stay is granted, and Ms Walker submitted that Ms Albarouki’s personal circumstances are not a reason for stay; they are a reason for a consideration of the exercise of the discretion.

5. It is well-established that more is required than the filing of an appeal.  The fact that an appeal or an extension of time to appeal has been filed does not of itself warrant a stay.  Ms Walker submitted that, in reality, the only substantive basis that Ms Albarouki can point to is the question of her financial hardship and the implications that might have for her children and, in particular, her disabled son, in the context of the very difficult financial times caused by the pandemic, but even if the pandemic had not occurred, her financial woes have been present at least for very many months, and Ms Walker’s submission was that that submission from Ms Albarouki is simply not compelling enough to warrant a stay.

6. As to the nugatoriness of any appeal, Ms Walker submitted that Ms Albarouki’s financial circumstances ultimately mean, short of some sort of miracle, that she is not going to enjoy the benefit of 205 Denham Court Road, even if she is successful on appeal, because her circumstances are so parlous.  Further, it is well-established that the Court must consider the balance of convenience.  It was submitted that Ms Albarouki cannot overcome the assumption of the regularity of the judgment, and that assumption should act with greater force, particularly in circumstances where the matter is so very significantly out of time.

7. As to prospects of success, Ms Walker pointed out that I made credit findings with respect to Ms Albarouki.  An essential tranche of her application to appeal will be that there was no binding financial agreement and that that was, quite clearly, and I accept, contrary to some recent affidavit material which is filed and her evidence at the trial.  There must be a proper basis proffered for the delay in an argument for an extension of time, and that becomes relevant – and I accept Ms Walker’s submission in this regard – for my consideration because it is necessary for me at least to consider the prospects of success in what I will simply call the appeal process, which encompasses not simply an appeal proper but the likelihood that there will be an extension of time. 

8. Ms Walker submitted that, in the usual course, an application for an extension of time would not be granted unless there was a proper excuse for the delay.  That is well-established on the authorities.  I accept that submission, and I have already made comments about the lack of a fulsome explanation or satisfactory explanation in the affidavit material filed to date by Ms Albarouki.  Finally, Ms Walker pointed out that there will be considerable prejudice caused to the respondent by the delay, and extraordinary costs have already been incurred by Mr Naudi, in particular in relation to the two further sets of proceedings.

9. It is a significant matter, in my view, that the applicant has been represented for the entire time that these matters have been before the Court, by the same solicitors, at trial, in the post-trial process, which is described in the affidavits, in the Family Court proceedings, and in the various interim proceedings that have been before me since judgment was handed down.  She has not lacked representation.

10. The process which has occurred since I delivered my judgment has been very slow.  The situation has not been advanced from the point of view of the Trustee, who was the successful party at trial.  Further, as Ms Walker pointed out, there is no evidence before me of any attempts made by Ms Albarouki to obtain refinance, or any evidence that, lurking in the background, there is a benefactor who might assist her to make things right financially.  She does not have, it seems quite clear, on the face of the materials, the financial means to retain that property in any circumstances. 

11. It is also relevant that if the property is to be sold, Ms Albarouki will receive a presumably significant amount of any surplus that remains.  Of course, any surplus that remains has been chipped away by misconceived applications, both in the Family Court and with respect to the Bankruptcy Notice to the Federal Court.

12. As can be seen from my oral reasons, I accept the fundamental premises on which Ms Walker made her submissions on behalf of the Trustee.  I am not satisfied that it has been established that I should make a stay of the orders that I made in June in the circumstances that I have outlined and referred to.  It seems to me that the prospects of an extension of time in which to appeal my judgment being granted are particularly slim. 

13. Further, no basis beyond assertions as to matters, some of which I rejected at trial, have been advanced as to why that judgment should ultimately be set aside.  In other words, the prospects of success on the appeal have not been convincingly demonstrated.  Further, in circumstances where a Trustee is attempting to administer a bankrupt estate where they have obtained the benefit of a judgment that has not, in a timely fashion, been appealed, when there are creditors in the background whose financial circumstances are being impacted by the failure of the Trustee to be able to conclude the administration of the estate, an exercise of judicial discretion for a stay of the orders that I made is not supported. 

14. I am not satisfied that Ms Albarouki has overcome the weight of the presumption in favour of the regularity of the judgment.  I am not satisfied that she has demonstrated that there is a proper basis that would be fair to all parties for the stay of proceedings.  I am satisfied that Ms Albarouki has been on notice for almost a year, that, ultimately, the Trustee would do all things necessary to proceed with the proper and prudent administration of the estate, and that, ultimately, as Ms Albarouki herself has acknowledged on a number of occasions, that would involve the sale of 205 Denham Court Road. 

15. I am not satisfied there is any merit to the Application in a Case filed by Ms Albarouki, and I dismiss it.  I am satisfied that it is appropriate to make the orders sought by the Trustee, subject to an amendment.

16. I make the orders to be found at the beginning of these reasons.

I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Judge Heffernan

Associate: 

Date: 4 September 2020