Psevdos v Commonwealth Bank of Australia
[2016] FCCA 978
•28 April 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PSEVDOS v COMMONWEALTH BANK OF AUSTRALIA | [2016] FCCA 978 |
| Catchwords: BANKRUPTCY – Bankruptcy notice – review of decision – application to set aside – validity – hearing de novo. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40(1)(g) & 41 Enforcement of Judgments Act 1991 (SA) |
| Cases cited: Commonwealth Bank of Australia v Psevdos [2015] SASC 66 Clyne v Deputy Commissioner of Taxation (No.4) (1982) 66 FLR 301 Seller v Deputy Commissioner of Taxation [2011] FCA 865 Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 Kerin v Deputy Commissioner of Taxation [2001] FMCA 128 Commissioner of State Taxation v Merifield Cooksey Holdings Pty Ltd (1994) 30 ATR 21 Vacuum Oil Co. Pty Ltd v Wiltshire (1945) 72 CLR 319 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Austrust Pty Ltd v Astley and Ors [1993] SASC 3969 Muir v City of Glasgow Bank & Liquidators (1879) 4 App Cas 337 Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296 Direen v Deputy Commissioner of Taxation [2007] FMCA 895 |
| Applicant: | SPIROS PSEVDOS |
| Respondent: | COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124 |
| File Number: | ADG 434 of 2015 |
| Judgment of: | Judge Heffernan |
| Hearing date: | 16 March 2016 |
| Date of Last Submission: | 16 March 2016 |
| Delivered at: | Adelaide |
| Delivered on: | 28 April 2016 |
REPRESENTATION
| The Applicant: | In person |
| Counsel for the Respondent: | Mr B C Roberts SC |
| Solicitors for the Respondent: | Fisher Jeffries |
ORDERS
The Application to set aside the bankruptcy notice dated 23 November 2015, the Application for Review dated 4 January 2016, and the Amended Application for Review dated 6 January 2016 are dismissed.
The applicant do pay the costs of the respondent.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 434 of 2015
| SPIROS PSEVDOS |
Applicant
And
| COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124 |
Respondent
REASONS FOR JUDGMENT
This is an application dated 4 January 2016 for review of a decision of Registrar Colbran. On 14 December 2015, Registrar Colbran dismissed the applicant’s application to set aside the bankruptcy notice. The bankruptcy notice was served on the applicant on 2 November 2015. That notice, in which the Commonwealth Bank of Australia is creditor (“the respondent”), put the applicant on notice that the respondent claims he owes it a debt in the amount of $121,121.64 inclusive of interest. On 6 January 2016, the applicant filed an Amended Application for Review which sought additional final orders that the respondent pay the applicant’s costs of and incidental to the application and that he be awarded “compensation for loss and damage sustained”.
A considerable amount of supporting material has been put on file by the applicant. He seeks to rely on affidavits sworn by him dated 23 November 2015; 26 November 2015; 27 November 2015; 9 December 2015; 14 December 2015; and 16 March 2016.
In addition to the affidavit material, the applicant has filed Outlines of Submissions dated 11 March 2016 and 16 March 2016. His affidavit of 16 March 2016 (the day of the hearing in this matter) annexes approximately 300 pages of material consisting inter alia of journal articles, academic papers, transcript of proceedings in the Supreme Court Action No. 683/2014, and various documents filed during the course of those proceedings.
In opposing the application for review, the respondent has put on file and relies on the affidavit of Ms Kasia G Dziadosz-Findlay dated 11 December 2015. The respondent has also provided the Court with an Outline of Submissions dated 23 February 2016 and an Outline of Submissions in Reply dated 15 March 2016.
This application is made pursuant to s.104(2) of the Federal Circuit Court Act 1999 (Cth) (‘the FCC Act’). Pursuant to s.104(3) of the FCC Act, this Court may review the exercise of power by a Registrar and make such orders as it thinks fit in relation to the matter in respect of which the power is exercised. Such a review proceeds by way of a hearing de novo and as such is a rehearing of the applicant’s original application to set aside the bankruptcy notice.
At the heart of the applicant’s argument that the bankruptcy notice should be set aside, is the simple contention that he is not personally liable for the debt claimed. He bases that contention on the proposition that at all relevant times he was acting in the capacity of a trustee for the Orio Investment Trust (‘Orio’). The applicant claims that it was known to the respondent at all material times that the Supreme Court action was defended in his capacity as trustee for Orio.[1]
[1] See Affidavit of Spiros Psevdos filed 23 November 2015 at [9].
The events leading up to the claimed debt and the service of the bankruptcy notice are somewhat complicated and I will set out the pertinent aspects of the chronology below.
Background and submissions
Both the respondent and the applicant loaned money to Schutura Pty Ltd (‘Schutura’). The applicant did so in his capacity as a trustee for Orio. Schutura gave each of them a mortgage over real property located at Bonython Road, Bugle Ranges (‘the property’).
The applicant and the respondent became involved in proceedings in the Supreme Court of South Australia, Action No. 683/2014. This action was a dispute over competing equitable interests, namely, which of them had priority over the property.
On 30 April 2015, Justice Parker found against the applicant in those proceedings[2] and awarded costs against the applicant. An application by Mr Psevdos to stay the judgment was dismissed on 13 May 2015.[3] The applicant was unhappy with the judgment and filed a Notice of Appeal.[4] The applicant was ordered to pay security for costs on the appeal in the amount of $15,000. He did not do so. The respondent pursued the matter of its costs on the trial, and on 18 September 2015 an interim allocator was issued in the amount of $120,068.98 by consent, with execution to be stayed by agreement until 30 October 2015. The applicant was represented by a solicitor at the time that this order was made.[5] A sealed copy of the interim allocator was served on the solicitor for the applicant, who had instructions to accept service. That letter indicated that if payment in satisfaction of the allocator was not received by 30 October 2015, the respondent reserved the right to serve the applicant with a bankruptcy notice.[6]
[2] See Affidavit of Spiros Psevdos filed 9 December 2015 – Annexure“SP-4” Judgment of Justice Parker, Commonwealth Bank of Australia v Psevdos [2015] SASC 66.
[3] See Affidavit of Kasia G Dziadosz-Findlay filed 11 December 2015 - Annexure“KDF4”.
[4] See Affidavit of Spiros Psevdos filed 9 December 2015 – Annexure “SP-6”.
[5] See Affidavit of Kasia G Dziadosz-Findlay filed 11 December 2015 - Annexure“KDF5”.
[6] See Affidavit of Kasia G Dziadosz-Findlay filed 11 December 2015 – Annexure “KDF6”.
Payment of the allocator was not received. The bankruptcy notice was served on Mr Psevdos on 2 November 2015 and the amount claimed was the amount of the unsatisfied allocator. The applicant takes no issue with the manner or circumstances of the service of the bankruptcy notice on him.[7] The applicant filed his Application to set aside the bankruptcy notice in this Court on 23 November 2015. This was, as it turns out, the final day on which the applicant could have complied with it. The applicant made an application in the Supreme Court to stay the allocator for costs to which he had previously consented. On 24 November 2015, that application was dismissed, having effectively been abandoned by the applicant during the course of submissions.[8] The time for compliance with the bankruptcy notice was 23 November 2015. The appeal filed by the applicant against the decision of Parker J was dismissed according to the Supreme Court Rules for want of prosecution, it not having been set down for hearing within 6 months of its commencement. Mr Psevdos acknowledged that the appeal had lapsed when he appeared before Judge Dart on 24 November 2015,[9] but indicated that he would pay the outstanding security for costs and apply for re-instatement of the appeal. There is no evidence before me that the appeal has been re-instated, or that the applicant has applied for it to be re-instated. The applicant does not contend otherwise.
[7] See Amended Outline of Submissions of Spiros Psevdos, dated 16 March 2016 at [7].
[8] See Affidavit of Kasia G Dziadosz-Findlay filed 11 December 2015 – Annexure “KDF8” and “KDF10”.
[9] See Affidavit of Kasia G Dziadosz-Findlay filed 11 December 2015 – Annexure “KDF10” page 117-118 of transcript.
The applicant submits that he is not liable for the amount of the allocator or for any costs associated with the trial. He submits that he had at all material times a “clear and reasonable belief that the action that was brought on in Honourable Supreme Court of South Australia … was not against me personally but in my capacity as Trustee for Orio”.[10] The effect of his submission is that the respondent knew at all material times that he was a trustee of Orio and that all relevant things done by him, both with respect to matters that were the subject of the trial and the conduct of the trial itself, were done in that capacity and not in his personal capacity. For that reason, he submits that the debt is the responsibility of Orio.
[10] See Affidavit of Spiros Psevdos filed 9 December 2015 at [6].
The respondent submits that there is no good reason to “go behind” either the costs order from the trial (which was not opposed by the applicant)[11] or the interim allocator (to which he consented). It submits that the interim allocator is a final order and enforceable as a judgment. There is no appeal on foot, no application to reinstate the appeal has been made, the application to stay the allocator was not pressed by the applicant and was dismissed; for these reasons alone, the respondent submits that there is no good reason to set aside the bankruptcy notice.
[11] See Affidavit of Spiros Psevdos filed 9 December 2015 - Annexure“SP-4” p 59.
However, the submission for the respondent goes further, to address the contention by the applicant that he is not liable for the costs order on the basis that he was only acting as trustee. It submits that it is well established that a trust has no separate legal existence and that Mr Psevdos was the lender as trustee for Orio. As such, he is personally liable for any debts or liabilities he incurred in that role. In other words, he is liable for the costs incurred as a result of the trial. It is submitted that this remains the case unless personal liability is expressly excluded in the relevant transaction (in this case the conduct of the trial itself). That consideration does not apply here, it submits, because:
a)On its face, the costs order is against Mr Psevdos personally;
b)The respondent was not party to any agreement to confine the applicant’s personal liability. It simply became involved in a priority dispute with the applicant with respect to real property owned by a third party; and
c)Under the terms of the Trust Deed, Mr Psevdos assumed personal liability for debts or liabilities that he incurred.
The respondent supported those submissions with reference to a number of authorities I shall refer to later in these reasons.
The applicant has also submitted that the bankruptcy notice is itself an abuse of process. One of the contentions on which he bases this submission appears to be that the respondent has not attempted to enforce the interim allocator for the costs pursuant to the Enforcement of Judgments Act 1991 (SA). The other basis is his primary contention that in truth no debt is owed by the applicant.
The respondent submits that it is genuinely invoking the regime set forth in the Bankruptcy Act and that it fully intends to pursue the matter. It draws attention to the fact that it filed a Creditor’s Petition on 1 February 2016. There is no collateral purpose in its actions or undue pressure being applied to the applicant by virtue of the notice.
Consideration
It is well established that the Court has jurisdiction to set aside a bankruptcy notice where the exercise of that power is warranted by the circumstances of a case.[12] The circumstances that might give rise to the need to exercise the power are not rigidly defined. The Court has a wide discretion to set aside a bankruptcy notice if satisfied that it is in the interests of justice to do so. Strict compliance with subs.40(1)(g) and 41 of the Bankruptcy Act is required, and a bankruptcy notice may be set aside if those requirements are not met.
[12] Clyne v Deputy Commissioner of Taxation (No.4) (1982) 66 FLR 301 at 307.
Examples of the circumstances in which a bankruptcy notice may be set aside were discussed by Flick J in Seller v Deputy Commissioner of Taxation[13]. His Honour cited a passage in which various instances were identified by Lockhart J in Re Sterling; Ex parte Esanda Ltd[14]. They included circumstances where:
a)The notice is not in accordance with the terms of the judgment;
b)The notice is calculated to perplex the debtor;
c)The notice is issued for the whole of a judgment debt that has been partially satisfied;
d)In truth no debt lies behind the judgment; and
e)Where the debt has been paid by the debtor.
[13] [2011] FCA 865.
[14] (1980) 44 FLR 125 at 129.
Other instances include where the notice has simply been issued in order to place pressure on the debtor to pay the debt, rather than to genuinely invoke the jurisdiction of the Court, and where the notice has been served simply for the purpose of stifling litigation.[15] The onus borne by a party alleging abuse of process on such a basis is considerable. I am not satisfied that the notice is an abuse of process by virtue of being tainted by collateral purpose or undue pressure. There is no evidence that it was served as a means of stifling litigation. The amount identified in the notice, and the identity of the applicant, appear to accord with the interim allocator. The whole of the debt remains outstanding.
[15] Seller (supra) at [16].
The interim allocator is a final order, consented to by the applicant and I am satisfied that it is enforceable as a judgment.[16]
[16] Kerin v Deputy Commissioner of Taxation [2001] FMCA 128.
As I have already noted, an application by the applicant to stay the allocator for costs was dismissed on 24 November 2015. The appeal against the judgment of Parker J has lapsed pursuant to r.296 of the Supreme Court Civil Rules 2006 (SA) and no attempt has been made to reinstate it. There is no reason in principle why the interim allocator should not be the subject of the bankruptcy notice.
I accept the submissions of the respondent that the service of the bankruptcy notice is a bona fide attempt on its part to invoke the regime established by the Bankruptcy Act.
I will now consider the contention of the applicant that the debt is not in truth owed by him. There are a number of difficulties faced by the applicant in making this submission. As the respondent has submitted, those difficulties are founded in general principles of trustee liability. The first is that a trust has no separate legal existence.[17] The Orio Investment Trust was not a principal to the original contract. The applicant himself entered the contract “as trustee for the Orio Investment Trust”.[18] He was personally liable for any debts he incurred in that capacity. He in turn is entitled to be reimbursed from the property of the trust for any debts he incurred. That much is made clear from clause 19 of the Orio Trust Deed itself,[19] but in any event, those propositions accord with established authority.[20]
[17] Commissioner of State Taxation v Merifield Cooksey Holdings Pty Ltd (1994) 30 ATR 21.
[18] See Affidavit of Kasia Dziadosz-Findlay filed 11 December 2015- Annexure ‘KDF2’ p 11.
[19] See Affidavit of Spiros Psevdos filed 9 December 2015 - Annexure “SP-2”.
[20] Vacuum Oil Co. Pty Ltd v Wiltshire (1945) 72 CLR 319; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360.
The applicant seeks to bring himself within the exception to personal liability, namely, circumstances in which personal liability is expressly excluded in the relevant transaction “in clear and unambiguous terms”.[21]
[21] Austrust Pty Ltd v Astley and Ors [1993] SASC 3969.
The basis for this submissions is the assertion by Mr Psevdos that he “engaged in the Supreme Court Action only in (his) capacity as trustee for the Orio (sic) and declared that fact in the most transparent way from the outset of the litigation.”[22] By that, he is referring to the second paragraph of his Defence to the action in which he pleaded as follows:
“2.With respect to paragraph 2 (of the Statement of Claim), states that the Defendant, with respect to the issues raised in these proceedings, acted as trustee of the Orio Investment Trust and not in his personal capacity”. (parentheses added).
[22] See Amended Outline of Submissions of Spiros Psevdos, dated 16 March 2015 at [35].
This ignores the fact that the respondent was not a party to any contract with the applicant, either in his personal capacity or in a capacity as a trustee, that expressly limited his personal liability as a trustee. I reject the applicant’s submission on this matter. As the respondent submits, the Supreme Court action was an equitable priority dispute between the applicant and the respondent relating to real property owned by a third party. The respondent of course knew that the applicant had acted as trustee when it loaned the money to Schutura. They knew when they became involved in legal action against him that he was a trustee of the Orio Investment Trust. But as the respondent submitted in its Outline of Submissions, it had “no choice but to deal with an individual acting as trustee”. The respondent cites in support of its’ submission the following extract from Muir’s case:
“But meanwhile it will not be doubted that a person who, in his capacity of trustee or executor, might choose to carry on a trade for the benefit of those beneficially interested in the estate, in the course of which trade debts to third persons arose, could not avoid liability on those debts by merely shewing that they arose out of matters in which he acted in the capacity of trustee or executor only, even though he should be able to shew, in addition, that the creditors of the concern knew all along the capacity in which he acted…”[23] (emphasis added)
[23] Muir v City of Glasgow Bank & Liquidators (1879) 4 App Cas 337 at [368].
Clearly, mere knowledge that the applicant had acted in his capacity as trustee is not sufficient to limit the respondent’s entitlement to recover only against any assets of Orio Investment Trust. As stated by Lang Innes J:
“(it) falls far short of establishing that the respondent had expressly stipulated that the payment would be made out of the assets of the trust estate so as to exclude the personal liability of the respondent …”[24]
[24] Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296 at [300].
A submission similar to that made by the applicant was put to the Court in Direen’s case.[25] The Court rejected a submission that a bankruptcy notice should be set aside because the applicant was acting as a trustee of the Direen Family Trust. The Court held:
“Without hesitation, therefore, I find that the application by the applicant in relation to this proceeding, seeking an order for the bankruptcy notice served upon her personally to be set aside, is fundamentally flawed. The bankruptcy notice is properly served. It is appropriate that the trustee in a personal capacity be liable for the debts of the Trust, in the event of the Trust not, for whatever reason, being able or in a position or willing, to meet those debts.”
[25] Direen v Deputy Commissioner of Taxation [2007] FMCA 895.
The interim allocator made by the Supreme Court was not expressed in terms limiting the applicant’s liability. It did not say that he was not personally liable for the costs to the respondent. He is personally liable for the reasons identified above.
I am not satisfied that it is in the interests of justice that the bankruptcy notice be set aside. I dismiss the applications and make the orders to be found at the beginning of these reasons.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Judge Heffernan
Associate:
Date: 28 April 2016
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