Puddick v Hatzipapas
[2020] FCCA 1070
•8 May 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PUDDICK v HATZIPAPAS | [2020] FCCA 1070 |
| Catchwords: BANKRUPTCY – PRACTICE AND PROCEDURE – Application by debtor for adjournment of hearing of creditor’s petition because of pending application in another court and for other reasons – whether the determination of the pending application has any bearing on the determination of the issues in the creditor’s petition – whether circumstances of debtor merit adjournment being granted – application for adjournment refused. |
| BANKRUPTCY – Application for a sequestration order – whether money that had been paid into court in a proceeding in which the co-obligor of the debtor had been wound up constitutes a sufficient cause for a sequestration order not to be made – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.43, 44(1), 47(1), 52(1), 52(2)(b), 156A |
| Cases cited: Ahern v The Deputy Commissioner of Taxation (QLD) [1987] FCA 312; (1987) 76 ALR 137 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Canmer Investment Inc v UK Mutual Steamship Assurance Association Ltd [2005] EWHC 1694 Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8 Deputy Commissioner of Taxation v Mei Yan (aka Quinnie Wong) [1998] FCA 783 Dyamond Developments Pty Limited v Puddick [2020] NSWCA 32 Harman v Secretary of State for the Home Office [1983] 1 AC 280 McIntosh v Shashoua (1931) 46 CLR 494 Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431 Puddick v Dyamond Developments Pty Ltd (No 2) [2019] NSWSC 738 Rotstein & Associates v Slaveski [2010] FCA 493 |
| Applicant: | JUSTIN FRANK PUDDICK |
| Respondent: | GEORGE HATZIPAPAS |
| File Number: | SYG 2496 of 2019 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 29 April 2020 |
| Date of Last Submission: | 29 April 2020 |
| Delivered at: | Sydney |
| Delivered on: | 8 May 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Cobb-Clark |
| Solicitors for the Applicant: | O’Loughlin Westhoff |
| Counsel for the Respondent: | Mr J T Johnson |
| Solicitors for the Respondent: | Tomaras Lawyers |
THE COURT ORDERS THAT:
The application by the respondent, George Hatzipapas, for the adjournment of the hearing of the creditor’s petition is dismissed.
The estate of the respondent, George Hatzipapas, is sequestrated under the Bankruptcy Act 1966 (Cth).
The applicant creditor’s costs (including any reserved costs) be taxed and paid from the estate of the respondent, George Hatzipapas, in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES THAT:
The date of the act of bankruptcy is 27 August 2019.
The consent to act as trustee signed by Barry Anthony Taylor has been filed under s.156A of the Bankruptcy Act 1966 (Cth).
A copy of these orders is to be provided to the Official Receiver in Sydney within two business days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2496 of 2019
| JUSTIN FRANK PUDDICK |
Applicant
And
| GEORGE HATZIPAPAS |
Respondent
REASONS FOR JUDGMENT
Introduction
On 29 April 2020 there came before me for hearing a creditor’s petition. At the commencement of the hearing the respondent, Mr Hatzipapas, through his counsel, applied for an adjournment for four weeks. He did so principally because there is pending before the Supreme Court of New South Wales (Supreme Court) a dispute about the person or persons to whom money that had been paid into the Supreme Court in a winding up proceeding should be paid (Payment Out Dispute); and counsel for Mr Hatzipapas submitted that the outcome of that dispute will have a bearing on the determination by this Court of the ground on which Mr Hatzipapas relies to oppose the making of a sequestration order (Ground of Opposition).
After I heard argument on the application for an adjournment, I decided to reserve judgment on that application, but nevertheless to proceed with the hearing of the creditor’s petition. I so decided because it appeared to me that the matters on which Mr Hatzipapas relied for the adjournment substantially overlapped with the Ground of Opposition; and that I needed to understand both the Ground of Opposition and the nature of the Payment Out Dispute before I could determine what, if any, bearing the determination of that dispute may have on the determination of the Ground of Opposition.
The hearing of the creditor’s petition then proceeded. At the end of the hearing I reserved my judgment on the creditor’s petition on the understanding that I would give my judgment on the creditor’s petition only if I were to refuse the application for an adjournment.
To make sense of the grounds on which Mr Hatzipapas relies on his application for an adjournment, and the Ground of Opposition, it will be necessary to set out the evidence, most of which is not in dispute.[1] It will also be necessary to set out the Ground of Opposition.
[1] Much of the evidence consist of affidavits (which are annexed to the affidavit of Mr J E O’Loughlin) that have been filed but not read in the two Supreme Court proceedings to which I refer in these reasons. Counsel for Mr Hatzipapas did not object to those affidavits being read, but counsel indicated there may be an issue about the parties relying on those affidavits under the principles stated in Harman v Secretary of State for the Home Office [1983] 1 AC 280. I do not consider there is any issue arising under the principles considered by that case. One or both of Mr Puddick and his father are parties in the two Supreme Court proceedings; Mr Hatzipapas and companies of which he is the controlling mind are also parties to the Supreme Court proceedings; and both parties before me wish to rely on matters relating to the two Supreme Court proceedings.
Background
The starting point is the act of bankruptcy on which the creditor’s petition relies; and that is the failure by Mr Hatzipapas to comply with the requirements of a bankruptcy notice issued on 4 June 2019.
The bankruptcy notice demanded payment of $104,909 (Judgment Debt). That is the amount referred to in paragraph 1 of the orders made on 24 May 2019 by Robb J (Orders) in a proceeding Mr Puddick and his father (the Puddicks) commenced against Mr Hatzipapas, Dyamond Developments Pty Limited (Dyamond) (now in liquidation), and Gaks Investment Holdings Pty Ltd (Gaks) in the Supreme Court of New South Wales (Principal Proceeding).[2] Paragraph 1 of the Orders is as follows:
Judgment be entered in favour of the First Plaintiff [Mr Puddick] against the First Defendant [Dyamond] and Second Defendant [Mr Hatzipapas] in the amount of $104,909 (First Judgment Debt).
[2] Gaks was added as a defendant after the Principal Proceeding was commenced because the Puddicks claimed tracing remedies against Gaks.
The Orders were made and entered with the consent of the parties to the Principal Proceeding to give effect to the findings Robb J made in reasons for judgment his Honour published on 18 April 2019.[3] Those reasons concern a claim the Puddicks each made against Dyamond and Mr Hatzipapas for the return of $100,000 they each transferred into a bank account held by Dyamond.
[3] Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431. See also Puddick v Dyamond Developments Pty Ltd (No 2) [2019] NSWSC 738, at [3], where Robb J said the “Court made final orders on 24 May 2019 in terms that were agreed between the parties”.
Robb J found the Puddicks each paid the $100,000 under an agreement they each made with Mr Hatzipapas that Mr Hatzipapas would use the $100,000 for a specific purpose. The consequence of that finding was that, on receipt of the two amounts of $100,000, Dyamond held those amounts on trust to be used only for the purpose for which the Puddicks paid those amounts to Dyamond.[4] Robb J found, however, that Dyamond applied the two payments of $100,000 for unauthorised ends. In those circumstances his Honour found that “as a defaulting trustee, Dyamond is obliged to replenish the trust funds and is personally liable to each of” the Puddicks “to pay to [each of] them $100,000 as equitable compensation, to the extent that Dyamond had dissipated the trust fund”.[5] His Honour further found that “in principle” the Puddicks “are entitled to trace their money into any assets acquired by the use of the trust fund, in accordance with the principles of tracing”.[6]
[4] Being a trust of the nature found in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
[5] Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431, at [93]
[6] Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431, at [94]
Robb J also held Mr Hatzipapas was liable to pay to each of the Puddicks $100,000, together with interest; and his Honour found Mr Hatzipapas was liable on two bases. The principal basis is that “Equity will have no difficulty in these circumstances judging [Mr Hatzipapas’s] liability as if he were the trustee with the primary liability to honour the terms of the trust actually reposed in him in fact”.[7] His Honour found that was “sufficient to impose upon [Mr Hatzipapas] directly, as a person primarily liable, an obligation to pay each of [the Puddicks] equitable compensation in the same amount as Dyamond, which is strictly a trustee because of its receipt of the funds”.[8] The second basis on which Robb J held Mr Hatzipapas is liable for the misapplication of the two payments of $100,000 is that he was knowingly involved in Dyamond’s breach of trust constituted by its misapplication of the money the Puddicks transferred to it.[9]
[7] Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431, at [98]
[8] Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431, at [99]
[9] Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431, at [102]
The effect of the judgment to which I refer in paragraph 6 of these reasons is to require Dyamond and Mr Hatzipapas to pay to Mr Puddick the sum of $104,909, which represents the $100,000 Mr Puddick transferred to Dyamond, and interest on that amount. The Orders also include an order that judgment be entered in favour of Mr Puddick’s father against Dyamond and Mr Hatzipapas, also in the amount of $104,909 (the Orders referred to that judgment as the “Second Judgment Debt”). The Orders expressly reserved for the Supreme Court’s consideration paragraphs 4, 5, and 6 of the draft minutes of orders on the basis of which the Orders were made. I infer those paragraphs related to tracing remedies the Puddicks intended to pursue against Gaks. The defendants appealed the Orders but, on 6 March 2020, the Court of Appeal dismissed the appeal.[10]
[10] Dyamond Developments Pty Limited v Puddick [2020] NSWCA 32
In the meantime, on 21 August 2019 Mr Puddick commenced winding up proceedings against Dyamond in the Supreme Court (Winding Up Proceeding). Mr Puddick’s application to wind up Dyamond was based on Dyamond’s failure to satisfy a statutory demand for the payment of the Judgment Debt of $104,909 owing to Mr Puddick.[11]
[11] Affidavit of S Arnautovic 15.04.2020, [8] filed in the Winding Up Proceeding - see affidavit of J E O’Loughlin, 29.04.2020, page 55 of annexures
The application to wind up Dyamond came before Black J on 23 September 2019. His Honour made a number of orders, the fifth of which concerned the payment into Court by 26 September 2019 of the sum of $209,818. That order did not require Dyamond to pay money into Court; it only provided that if that amount were paid into Court by 26 September 2019 orders relating to the filing of evidence on solvency would be vacated, and replaced with a more generous timetable.[12]
[12] The order is set out in paragraph 9 the affidavit of J Tomaras 06.04.2020 filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 23 of annexures
It appears that in making these orders Black J relied on an affidavit Mr Hatzipapas made on 17 September 2019.[13] Mr Hatzipapas there deposed that Dyamond has available to it funds of $210,000 that it would be able to access by about Friday 20 September 2019, “and hold such finds [sic] for the purpose of paying the judgment debt upon which the Originating process is founded, as well as the amount of $104,909 and interest thereon being a judgment entered in favour of John Edward Puddick” (that is, Mr Puddick’s father). Mr Hatzipapas deposed that Dyamond had not paid the judgment debts that were entered against it in the Principal Proceeding because Dyamond had filed a notice of appeal against the Orders, and there remained pending the Puddicks’ claims for tracing relief against Gaks. Mr Hatzipapas deposed that, in “light of the undetermined issues between” Dyamond, Gaks, and the Puddicks, “I have deferred procuring the Company [that is, Dyamond] paying either of the Judgment Debts until those issues are finally resolved”.
[13] Affidavit of G Hatzipapas 17.09.2019 filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 30 of the annexures
On 26 September 2019 $209,818 was paid into the Supreme Court (Fund). According to an affidavit made by the defendants’ lawyer, Mr Tomaras, the $209,818 “was obtained as a loan from the Third Defendant [Gaks] for the express purpose of the First Defendant [Dyamond] obtaining an extension of time to file evidence as to its solvency and evidence of its ability to access funds to satisfy its indebtedness to the Plaintiffs [the Puddicks]”.[14] In an affidavit made on 21 November 2019 in the Winding Up Proceeding Mr Hatzipapas deposed that following the orders Black J made on 23 and 26 September 2019 “I made arrangements for monies to be made available in order for the express purpose of satisfying the respective indebtedness of myself and the Defendant [that is, Dyamond]”.[15] On 11 December 2019 the Supreme Court made an order to wind up Dyamond and appointed a liquidator (Liquidator).[16]
[14] Affidavit of J Tomaras 06.04.2020 filed in the Principal Proceeding - see affidavit of J E O’Loughlin, 29.04.2020, page 24 of annexures
[15] Affidavit of G Hatzipapas 21.11.2019 filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 27 of the annexures
[16] Affidavit of S Arnautovic 15.04.2020, [10] filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 56 of annexures
In an affidavit made on 21 November 2019 Mr Hatzipapas deposed that on 19 November 2019 “an application made on behalf of the Defendant [that is, Dyamond] on my instructions for the payment out of” the Fund to Mr Puddick “was opposed on 19 November 2019”. [17] There is no evidence before me about who opposed the payment to Mr Puddick of this amount.
[17] Affidavit of G Hatzipapas 21.11.2019 filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 27 of the annexures
By letter dated 20 February 2020 the lawyer for the Liquidator wrote to the lawyer for the Puddicks requesting details of the basis on which the Puddicks claim an interest in the Fund.[18] The lawyer for the Puddicks responded by letter dated 24 February 2020 in which he said that the Puddicks are the equitable owners of the Fund because the Fund constituted the procuring by Dyamond of a loan “to replenish the trust” in favour of the Puddicks, and on Dyamond’s procuring such loan the Fund was “immediately impressed with a trust in favour of the Puddicks”.[19] By letter dated 23 March 2020 the Liquidator’s lawyer informed the lawyer for the Puddicks that the Liquidator proposed to apply to the Supreme Court for an order that the Fund be released, first, to cover the Liquidator’s anticipated remuneration and costs, and then to the Puddicks in equal proportions.[20] On 31 March 2020 the lawyer for the Puddicks wrote to the Liquidator that the Puddicks would consent to the orders the Liquidator proposed to seek.
[18] Affidavit of S Arnautovic 15.04.2020, [13(a)] filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 57 of annexures
[19] Affidavit of S Arnautovic 15.04.2020, [13(b)] filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 57 of annexures
[20] Affidavit of S Arnautovic 15.04.2020, [13(c)] filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 57 of annexures
Mr Tomaras also corresponded with the Liquidator’s lawyer. On 12 March 2020 he sent a letter to the Liquidator in which he stated that the $209,818 was “paid into Court by the defendant pursuant to Court Order 5 of Justice Black dated 23 September 2019 . . . to provide for the satisfaction of the indebtedness of the Company and Hatzipapas, director of the Company, to the Plaintiffs”; and that the money was advanced by Gaks to Dyamond “for the sole purpose of the defendant complying with the above Court Order”. Mr Tomaras stated that an attempt was made to have the money paid out of court before Dyamond was wound up, but that attempt was opposed.[21]
[21] Affidavit of J E O’Loughlin, 29.04.2020, page 34 of the annexures
There remained matters outstanding in the Principal Proceeding. These were identified in submissions the lawyer for the Puddicks sent to the associate to Robb J on 2 April 2020.[22] On 15 April 2020 an employee of Tomaras Legal sent an email to the associate to Robb J attaching submissions dated 2 April 2020 prepared by counsel for the defendants, and draft short minutes of order.[23] In his written submissions counsel for the defendants stated that Gaks seeks an order that the Fund be released to it in circumstances where “the fund of money is money provided by it for the express purpose of payment into Court and release in satisfaction of the First Judgement [sic] Debt and the Second Judgement [sic] Debt by the First Defendant”.[24] The draft short minutes included the following proposed order:[25]
That the monies paid into Court in the sum of $203,818 by the first defendant pursuant to orders made by Darke J [sic] on 23 September 2019 [sic] be released to the third defendant [Gaks] as the purpose for which the monies were provided to the first defendant [Dyamond] by the third defendant has not been satisfied giving rise to a quistclose trust in favour of the third defendant.
[22] Affidavit of J E O’Loughlin, 29.04.2020, pages 11-16 of the annexures
[23] Affidavit of J E O’Loughlin, 29.04.2020, page 19-43 of the annexures
[24] Outline Submissions of defendants on outstanding issues, [17] - see affidavit of J E O’Loughlin, 29.04.2020, pages 39-40
[25] Affidavit of J E O’Loughlin, 29.04.2020, page 42 of the annexures. The draft states it was prepared for the Puddicks. I find that is an error. The lawyer for the Puddicks submitted two forms of draft short minutes of order, but none of these draft contained a draft order relating to the payment out of the Fund.
It appears that Robb J has reserved judgment on the outstanding issues raised by the Puddicks and the defendants in their exchange of written submissions, although there is a dispute about whether one of the matters on which his Honour has reserved judgment is a claim for an order that the Fund be released to Gaks.[26]
[26] Affidavit of J E O’Loughlin, 29.04.2020, pages 61-65 of the annexures
On 15 April 2020 the Liquidator filed an interlocutory process in the Winding Up Proceeding in which he seeks the following orders:
An order that pursuant to Rule 41.3 of the Uniform Civil Procedure Rules 2005 (NSW), the amount of $209,818.00 paid into Court in these proceedings, in accordance with the orders the Honourable Justice Black made on 23 September 2019, be released to the following parties in the following order of priority:
(a)the Liquidator of the First Defendant Mr Sule Arnautovic for an amount equivalent to all his anticipated remuneration to the date of these orders and legal costs incurred by him in these proceedings; and
(b)Justin Frank Puddick and John Edward Puddick, the plaintiffs in Supreme Court proceedings number 2018/00185865, in equal proportions, which amount will be taken to have satisfied in full all costs incurred by the Plaintiff in these proceedings which would otherwise be payable in accordance with section 556(1)(b) of the Corporations Act.
Ground of Opposition
The Ground of Opposition is as follows (errors in original):
[A]s a consequence of the unconditional payment of money in to court in the Supreme Court of New South Wales Proceeding No: 2019/260656 between Justin Frank Puddick, the Applicant in these proceedings, and others v Dyamond Developments Pty Ltd and others in satisfaction of the coordinate liability of Dyamond Developments Pty Ltd and the Respondent in the amount of $209,818.00 (due to the Applicant and John Edward Puddick proportionately as to 50% severally), the proceedings Plaintiffs in Proceeding No: 2018/185865 on or about 27 September 2019:
(a)the Applicant has ceased to be a creditor entitled to have standing to commence and maintain the present proceeding in terms of s.44(1)(a) of the Bankruptcy Act 1966;
(b)the payment having been made unconditionally but refused by the Applicant and also by John Edward Puddick, the continuation of the present proceeding constitutes an abuse of the process of the court.
Should an adjournment be granted?
Before I consider that question, it will be useful to set out the principles that govern the determination of an application for the adjournment of the hearing of a creditor’s petition.
Principles
The principles relating to applications for an adjournment of the hearing of a creditor’s petition were stated by Bromberg J in Rotstein & Associates v Slaveski:[27]
It is evident that s 33(1)(a) gives the Court a wide discretion in relation to the grant of an adjournment. As Sweeney J (with whom Franki J agreed) stated in Field v Commercial Banking Co of Sydney Ltd [1978] FCA 46; (1978) 37 FLR 341 at 349, it would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the Court should pay regard in considering an application for an adjournment of a creditor’s petition. However, the Court’s discretion should be exercised with a mind to the policy objectives of the Bankruptcy Act. Relevantly to the issues before me, those objectives include the public interest in stopping individuals who are unable to meet their debts from continued insolvent trading and assisting creditors who are unable to recover debts owed to them: See Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407at 414.
[27] Rotstein & Associates v Slaveski [2010] FCA 493, at [17]
Other factors that have been held to be relevant include whether the debtor’s assets would be in jeopardy if an adjournment is granted,[28] and whether the debtor has filed an appeal based on genuine and arguable grounds against the judgment on which the application for a sequestration order is based.[29]
[28] Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998] FCA 783 (Emmett J)
[29] Ahern v The Deputy Commissioner of Taxation (QLD) [1987] FCA 312; (1987) 76 ALR 137 (Davies, Lockhart and Neaves JJ), at page 148
It is also useful to refer to the following passage from the judgment of the Full Federal Court in Culleton v Balwyn Nominees Pty Ltd:[30]
In considering the question of an adjournment of the hearing of a creditor’s petition, it is fundamental to keep firmly in mind, at all times, the nature of the jurisdiction. Bankruptcy is not just a variety of inter partes litigation; it does not deal only with the private rights and obligations of the debtor and creditor; it is not a form of judgment execution. It is directed to the estate of a person who is insolvent. In that sense it has a public interest, through the general body of creditors and potential creditors of the debtor and prospective bankrupt, and through what is referred to as the change of status of the person who becomes a bankrupt. That status is changed because of the provisions of the Act which inhibit conduct and affect rights and obligations of the bankrupt, including making the bankrupt susceptible to criminal punishment for what would otherwise be innocent conduct.
[30] Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8, at [40]
First matter on which Mr Hatzipapas relies
Counsel for Mr Hatzipapas relies on two matters for submitting that the hearing of the creditor’s petition should be adjourned. The first, and principal, matter is that the pendency of the Payment Out Dispute gives rise to uncertainty about whether the Fund will become available to enable $104,909 to be tendered to Mr Puddick in payment of the Judgment Debt; and that the hearing of the creditor’s petition should be adjourned until that uncertainty is removed by the determination by the Supreme Court of the Payment Out Dispute. This implies that Mr Hatzipapas intends to rely as a ground for opposing the making of a sequestration order his tendering to Mr Puddick some time after the Payment Out Dispute is determined an amount equal to the Judgment Debt, assuming the Payment Out Dispute is determined in favour of Gaks.
The Ground of Opposition does not rely on any future tender of an amount equal to the Judgment Debt as a reason for the Court not to make a sequestration order. The Ground of Opposition claims that the payment into Court of the $209,818 itself discharged the liability Dyamond and Mr Hatzipapas had in relation to the order for judgment Robb J made against them for $104,909. The fate of the Ground of Opposition, therefore, does not depend, and counsel for Mr Hatzipapas has not submitted that it does depend, on the determination of the Payment Out Dispute. For that reason the pendency of the Payment Out Dispute cannot afford a ground for adjourning the hearing of the creditor’s petition.
Let me assume, however, that Mr Hatzipapas intends, and is permitted, to rely on an intention to tender to Mr Puddick an amount equal to the Judgment Debt as a ground for opposing the making of a sequestration order, but that his ability to do so will turn on the determination of the Payment Out Dispute in favour of Gaks. Here Mr Hatzipapas faces the difficulty raised by the principle on which counsel for Mr Puddick relies, namely, that a petitioning creditor is entitled to refuse payment tendered by the debtor after the presentation of a petition, and instead to proceed with the petition.
The foundation authority for that principle is McIntosh v Shashoua.[31] One of the issues in the appeal in that case was whether the petitioning creditor’s having rejected a tender by the debtor of payment of a debt on which the creditor’s petition relied constituted a sufficient cause for not making a sequestration order. Gavan Duffy CJ and Dixon J said:[32]
The fact that after the presentation the debtor tendered payment of the assigned debt and the tender was refused cannot in this case affect the result. A petitioning creditor is entitled to refuse payment and proceed with the petition . . . . The refusal of the tender in this case is consistent with the conclusion, if it does not strengthen it, that the petitioner truly desired to obtain a sequestration order; and it in no way tends to show that the reason why such an order was desired was anything but legitimate.
[31] McIntosh v Shashoua (1931) 46 CLR 494
[32] McIntosh v Shashoua (1931) 46 CLR 494, at page 505
To similar effect is the following passage from the judgment of Starke J:[33]
It would be quite contrary to the spirit of the Bankruptcy Act to compel a creditor to receive payment of the debt after an available act of bankruptcy had been committed . . . .
[33] McIntosh v Shashoua (1931) 46 CLR 494, at page 505
Thus, even if the Payment Out Dispute were to be determined in a manner that would result in Mr Hatzipapas being in a position to tender payment of the Judgment Debt to Mr Puddick, that would not constitute some “other sufficient cause” under s.52(2)(b) of the Bankruptcy Act 1966 (Cth) (Act) for the Court not to make a sequestration order because Mr Puddick, as the petitioning creditor, would be entitled to refuse the tender by Mr Hatzipapas or any entity associated with Mr Hatzipapas of the Judgment Debt; and the material before me indicates Mr Puddick will not accept a tender from Mr Hatzipapas of the Judgment Debt. That is a matter I infer from the Ground of Opposition itself, which claims that Mr Puddick and his father have opposed the Fund being released to Mr Hatzipapas. For these reasons, the determination of the Payment Out Dispute will have no bearing on the hearing of the creditor’s petition if Mr Hatzipapas intends, and is permitted, to rely on an intention to tender to Mr Puddick an amount equal to the Judgment Debt as a ground for opposing the making of a sequestration order.
Although not so submitted by counsel for Mr Hatzipapas, it might be the case that Mr Hatzipapas himself does not intend to tender payment of the Judgment Debt to Mr Puddick, but that Gaks intends to do so, once the Fund is paid out to it; and that that circumstance removes one of the reasons for which it has been held that a petitioning creditor is entitled to refuse tender of payment of the debt on which the creditor’s petition is based, namely, that the creditor, if compelled to accept the tender, might have to repay if the debtor suffers a sequestration order on the application of some other creditor. There are two things that might be said about this possibility. First, there is no evidence, or at least there is insufficient evidence on the basis of which I could reasonably find, that if the Payment Out Dispute is determined in favour of the Fund being paid out to Gaks, Gaks will tender payment to Mr Puddick of the Judgment Debt. Second, even if there were such evidence, Mr Puddick would still be entitled not to accept a tender of the Judgment Debt by a person who is not liable to pay it; and there may be good reasons why he would not accept such tender. Payment “is a consensual act and thus requires the accord of both creditor and debtor”;[34] and Mr Puddick may be justified in not accepting a tender from a third party, Gaks, a company controlled by Mr Hatzipapas, in the absence of proof that any payment the directors of Gaks intend to commit Gaks to make would be consistent with the exercise by those directors of the fiduciary duties they owe Gaks.
[34] Canmer Investment Inc v UK Mutual Steamship Assurance Association Ltd [2005] EWHC 1694 (Comm), at [53], being a quotation from R.M. Goode, Payment Obligations in Commercial and Financial Transactions (1983), at pages 14-16
Circumstances of Mr Hatzipapas
Mr Hatzipapas also relies on matters set out in his affidavit made on 28 April 2020. Mr Hatzipapas there refers to the procedural orders made by Black J in the Winding Up Proceeding in relation to the hearing of the Payment Out Dispute. He also deposes that the “Covid-19 pandemic has caused a relapse in the state of [my] mental health and I have simply not been in a position to deal with the current application and in particular two court proceedings”. In support of those assertions Mr Hatzipapas annexes a medical certificate from a medical practice dated 14 April 2020. It states that over the last eight years Mr Hatzipapas has suffered with anxiety and depression of variable intensity. The certificate states that the condition from which Mr Hatzipapas suffers has led to a “reduced function and inability to complete simple tasks such as preparing evidence for his solicitor in a timely manner”. The certificate also states that in the last twelve months “this cognitive dysfunction due to his anxiety and depression has escalated”.
Mr Hatzipapas also deposes as follows:
I respectfully request an adjournment of 4 weeks so that:
(a)The Supreme Court proceedings before Black J, can be determined;
(b)I can travel to Sydney to finalise and prepare additional evidence with respect to my solvency (I may need to be in quarantine for 2 weeks);
(c)I can adduce further evidence in support of my opposition to the creditor’s petition including how I intend to satisfy the debt either by monies paid from the Court or other sources of funds and file any amended grounds of Notice of Grounds of Opposition subject to orders made by Justice Black and/or Justice Robb; and
(d)I will also be in a position to meet with my accountant to adduce evidence as to my solvency which I have not been able to do in support of Notice of Grounds of Opposition.
This has been very difficult for me to deal with this matter as a result of my current medical condition and difficulties with travel. However I have been trying to address the matters on a day to day basis and I am now in a position to deal with this matter expeditiously and require additional time to address the matters that are required to oppose the creditor’s petition including payment of the judgment debt that it is founded upon.
Mr Hatzipapas was not cross-examined on his affidavit. Even so, the matters to which he deposed are incapable of supporting an application for an adjournment for the purposes stated in his affidavit.
a)First, I have already found that the determination of the Payment Out Dispute has no bearing on the determination of the Ground of Opposition, and it would have no bearing on the outcome of the determination of the creditor’s petition on the assumption Mr Hatzipapas intended and would be able to tender at some future time the Judgment Debt if the Fund is released to Gaks.
b)Second, Mr Hatzipapas reveals no evidence on the basis of which he might be able to apply for leave to amend his Ground of Opposition to include a claim that he is solvent. There is no evidence before me about the financial position of Mr Hatzipapas other than his inability to pay the judgments entered against him in the Principal Proceeding, which suggests Mr Hatzipapas is not in a position to pay his debts as they fall due.
c)Third, the history of the Principal Proceeding and the Winding Up Proceeding, as I have described them earlier in these reasons, is not consistent with the claims Mr Hatzipapas makes in his affidavit, and which is stated in the medical opinion, that he has a reduced capacity to complete simple tasks “such as preparing evidence for his solicitor in a timely manner”. Mr Hatzipapas has made affidavits and has given instructions to Mr Tomaras.
d)Fourth, the creditor’s petition has been on foot since 27 September 2019, and Mr Hatzipapas was served with the creditor’s petition on 5 November 2019. Even if, as Mr Hatzipapas claims, he suffers from the conditions he claims he suffers, he has had more than a reasonable time to put together material relevant to solvency and in relation to any other ground he might reasonably have for opposing the making of a sequestration order.
Conclusion on adjournment
For these reasons I am not satisfied there would be any utility in adjourning the hearing of the creditor’s petition. I will make an order dismissing the application for an adjournment.
Proof of matters specified in s.52(1) of Act
As I have already noted, the act of bankruptcy on which Mr Puddick relies is the failure by Mr Hatzipapas to comply with the requirements of a bankruptcy notice that was issued on 4 June 2019. Counsel for Mr Hatzipapas accepts that the material on which Mr Puddick intends to rely satisfies the preconditions for the making on a sequestration order prescribed by s.52(1) of the Act and by the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules). I will nevertheless set out my findings in relation to those matters.
The bankruptcy notice was served on Mr Hatzipapas by prepaid post on 5 June 2019.[35] It required Mr Hatzipapas to comply with its requirements within 21 days after service on him. The time for Mr Hatzipapas’s complying with the requirements of the bankruptcy notice was extended by orders made in this Court up to 27 August 2019.[36] Mr Hatzipapas did not comply with the requirements of the bankruptcy notice by that time, which means that Mr Hatzipapas committed an act of bankruptcy on 27 August 2019.[37]
[35] Affidavit of S Malhotra filed on 27 September 2019. Under reg.16.01 of the Bankruptcy Regulations 1996 (Cth) a document that is required or permitted by the Act to be given or sent to, or served on, a person may be sent by post to the person’s last-known address. There is no dispute that the address to which the bankruptcy notice was posted was the last-known address of Mr Hatzipapas.
[36] Affidavit of J E O’Loughlin 18.09.2020
[37] Affidavit verifying creditor’s petition made by J F Puddick on 18.09.2019
Mr Puddick filed a creditor’s petition on 27 September 2019. The application has been filed in accordance with the prescribed form,[38] and, as required by s.47(1) of the Act and r.4.02(2) of the Bankruptcy Rules, an affidavit verifying paragraphs 1, 2, 3, and 4 of the creditor’s petition has been made.[39] Mr Puddick also filed at the time he filed the creditor’s petition an affidavit as required by r.4.04(1)(a)(ii) of the Bankruptcy Rules,[40] and, as required by r.4.04(1)(b), an affidavit of service of the bankruptcy notice.[41] In addition Mr Puddick filed a “Trustee Consent to Act Declaration” given by Mr Barry Anthony Taylor.
[38] Bankruptcy Rules, r.4.02(1); Form B6
[39] Affidavit verifying creditor’s petition sworn by J F Puddick on 18.09.2019
[40] Affidavit of J E O’Loughlin 18.09.2020
[41] Affidavit of S Malhorta filed on 27 September 2019
As required by r.4.05 of the Bankruptcy Rules, the creditor’s petition, the affidavit required by r.4.04(1)(b) of the Bankruptcy Rules, and the affidavit of service of the bankruptcy notice, were served on Mr Hatzipapas on 5 November 2019 pursuant to an order for substituted service made on 31 October 2019; and, as required by r.4.06(2), an affidavit of service of these documents was filed.[42] Finally, an affidavit of debt,[43] as required by r.4.06(4) of the Bankruptcy Rules, and an affidavit of search, as required by r.4.06(3), have also been read.[44]
[42] Affidavit of A Williams filed on 18 November 2019
[43] Affidavit of J F Puddick 28.04.2020
[44] Affidavit J O’Loughlin 28.04.2020
I am satisfied Mr Puddick has proved the matters he is required to prove under s.43 and s.52(1) of the Act, and under the Bankruptcy Rules.
Ground of Opposition
The Ground of Opposition consists of the following elements:
a)The payment into court of the $209,818 constituted an unconditional payment of money in satisfaction of the coordinate liability of Dyamond and Mr Hatzipapas.
b)The consequence of the payment referred to in (a) is that Mr Puddick is no longer a creditor for the purposes of s.44(1) of the Act.
c)Mr Puddick has “refused” to accept the payment.
d)Given (a), (b), and (c), Mr Puddick’s maintaining his application for a sequestration order constitutes an abuse of the process of the Court.
Was the payment into court unconditional?
The first question is whether the payment of the $209,818 into court constituted an “unconditional payment”. Mr Hatzipapas has asserted as much in his affidavit of 21 November 2019 where he deposed he had “made arrangements for monies to be made available in order for the express purpose [sic] of satisfying the respective indebtedness of myself and the defendant [that is, Dyamond]”.[45] This evidence, however, must be viewed in the light of all of the evidence before me.
a)First, in his affidavit of 17 September 2019 Mr Hatzipapas deposed that he had deferred procuring Dyamond to pay the amounts owing to the Puddicks on the judgments entered in the Principal Proceeding until outstanding issues in that proceeding had been resolved. That suggests that, to the extent Mr Hatzipapas and, therefore, Dyamond, had any intention to pay the Judgment Debt when the $209,818 was paid into court, that intention was conditional on the resolution of the outstanding matters Mr Hatzipapas identified in his affidavit.
b)Second, as I have also already noted, in his affidavit of 26 September 2019, Mr Tomaras deposed that the $209,818 “was obtained as a loan from the Third Defendant [Gaks] for the express purpose of the First Defendant [Dyamond] obtaining an extension of time to file evidence as to its solvency and evidence of its ability to access funds to satisfy its indebtedness to the Plaintiffs [the Puddicks]”.[46] Assuming Mr Tomaras made his affidavit on instructions from Mr Hatzipapas, the $209,818 was paid into court, not on account of the Judgment Debt or the judgment debt in favour of Mr Puddick’s father, but to prove Dyamond had access to funds with which it could pay these amounts and that Dyamond, therefore, was not insolvent.
c)Third, it is difficult to accept that the $209,818 was paid into court to satisfy liabilities on the judgments entered in the Principal Proceedings. The money was paid in the Winding Up Proceeding, not in the Principal Proceeding.[47] If Mr Hatzipapas intended to discharge his and Dyamond’s liabilities under the judgments entered in the Principal Proceeding, it is reasonable to expect that the money would have been paid into court in the Principal Proceeding.
[45] Affidavit of G Hatzipapas 21.11.2019 filed in the Winding Up Proceeding – see affidavit of J E O’Loughlin, 29.04.2020, page 29 of the annexures
[46] Affidavit of J Tomaras 06.04.2020 filed in the Principal Proceeding - see affidavit of J E O’Loughlin, 29.04.2020, page 22 of annexures
[47] That the $209,818 was paid into court in relation to the Winding Up Proceeding is evidence from the email sent by the Supreme Court Revenue and Trust Account Coordinator to Mr Puddick’s lawyer on 23 April 2020 which set out details relating to the amount the Court held in a table that was headed “In the matter of Dyamond Developments Pty Ltd (2019/260656)”.
I am therefore not satisfied that the payment of $209,818 into court in the Winding Up Proceeding constituted an unconditional payment of money in satisfaction of the coordinate liability of Dyamond and Mr Hatzipapas, as claimed in the Ground of Opposition.
Position if payment into court was unconditional
I next consider the position on the assumption that, contrary to what I have concluded, Mr Hatzipapas caused the $209,818 to be paid into court unconditionally for the purpose of satisfying the judgments entered in favour of the Puddicks in the Principal Proceeding. Even on that assumption the payment into court is incapable of discharging the liability Mr Hatzipapas and Dyamond have under those judgments. The liability they have under the judgment debts is to pay liquidated amounts to each of the Puddicks. As I have already noted, payment “is a consensual act and thus requires the accord of both creditor and debtor”.[48] It is not suggested the Puddicks have expressly or impliedly accepted the payment. On the contrary, Mr Hatzipapas has deposed that the Puddicks have refused to accept payment.
[48] Canmer Investment Inc v UK Mutual Steamship Assurance Association Ltd [2005] EWHC 1694 (Comm), at [53], being a quotation from R.M. Goode, Payment Obligations in Commercial and Financial Transactions (1983), at pages 14 –16
Perhaps Mr Hatzipapas intends to submit that payment of money into court on account of a claimed debt is an exception to the principle that payment requires the accord of both creditor and debtor. Such submission, however, would be contrary to In re Gentry.[49] In that case a proceeding on a creditor’s petition was stayed pending the trial in another court of the question of the validity of the debt on which the creditor’s petition relied. The creditor commenced proceedings in another court to claim judgment for the debt, but the debtor admitted the debt in that proceeding and paid into court the amount of the debt. The creditor declined to take payment of the debt. The Court of Appeal reversed the decision of the Divisional Court that held that the payment into court discharged the debtor’s obligation to pay the debt. Buckley LJ said:[50]
Here what happened was that the debtor paid into Court in the proceedings the amount of the debt. The Divisional Court held in substance that that was equivalent to payment to and acceptance by the creditor. I cannot assent to that view. It appears to me that that was such a payment as the creditor either might or might not accept. If the debtor had come to him and tendered him his debt after the petition had been presented, he was entitled to refuse to receive it and to go on with the petition. In the same way, when the amount was paid into Court in the proceedings he was entitled to refuse to take it out of Court.
[49] In re Gentry [1910] 1 K.B. 825. The passages from the judgments in McIntosh v Shashoua I have reproduced above rely on In re Gentry.
[50] In re Gentry [1910] 1 K.B. 825, at pages 838-839
Thus, the payment into court of the $209,818, even assuming it was paid unconditionally for the purpose of its being applied to pay the Judgment Debt, and the judgment debt in favour of Mr Puddick’s father, did not operate to discharge the Judgment Debt. Further, if, as Mr Hatzipapas claims, Mr Puddick refused to accept payment out of the Fund, that by itself could not support a finding that Mr Puddick’s proceeding with the hearing of the sequestration order amounts to an abuse of process.
There is evidence, however, that the Puddicks have agreed with the Liquidator that they will consent to the Supreme Court making an order that the Fund be paid to them, after deducting from the Fund an amount for the Liquidator’s remuneration and expenses. Mr Hatzipapas does not submit, however, that the Puddicks’ agreement to consent to the Fund being dealt with in this way constitutes some “other sufficient cause” for the Court not to make a sequestration order. It is difficult to see how it could constitute such a cause. The evidence shows that the Liquidator claims that his remuneration and costs total $52,966.70.[51] If the Supreme Court in the Winding Up Proceeding makes an order in terms of the orders to which the Puddicks have agreed to consent, the amount that would remain owing on the Judgment Debt would still exceed the minimum amount prescribed under s.44 of the Act.
[51] Affidavit of J E O’Loughlin, 29.04.2020, page 59 of the annexures
Conclusion
The Ground of Opposition does not constitute some “other sufficient cause” for the Court not to make a sequestration order.
Disposition
In addition to ordering that the application for an adjournment be dismissed, I propose to make an order sequestrating the estate of Mr Hatzipapas, and note that a consent to act as trustee signed by Mr Barry Anthony Taylor has been filed under s.156A of the Act. I also propose to order that the costs of Mr Puddick (including any reserved costs) be taxed and paid from the estate of Mr Hatzipapas in accordance with the Act.
I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Date: 8 May 2020
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