Puddick v Hatzipapas

Case [2020] FCCA 1070

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
Bankruptcy Regulations 1996 (Cth), reg.16.01
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr.4.02(2), 4.04(1), 4.05, 4.06

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:

  1. The application by the respondent, George Hatzipapas, for the adjournment of the hearing of the creditor’s petition is dismissed.

  2. The estate of the respondent, George Hatzipapas, is sequestrated under the Bankruptcy Act 1966 (Cth).

  3. 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:

  1. The date of the act of bankruptcy is 27 August 2019.

  2. The consent to act as trustee signed by Barry Anthony Taylor has been filed under s.156A of the Bankruptcy Act 1966 (Cth).

  3. 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

  1. On 29 April 2020 there came before me for hearing a creditor’s petition. At the commencement of the hearing the respondent, Mr Hatzipapas,…

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AGLC
Puddick v Hatzipapas [2020] FCCA 1070
Case
[2020] FCCA 1070
Decision Date

CaseChat Overview and Summary

This matter concerned an application by Mr Puddick for an adjournment of a creditor's petition, which sought his sequestration order. The basis for the adjournment was a pending application in another court and other unspecified reasons. The creditor's petition arose from a judgment debt of $104,909, awarded to Mr Puddick in Supreme Court of New South Wales proceedings against Mr Hatzipapas and Dyamond Developments Pty Limited. The Supreme Court proceedings involved claims by Mr Puddick and his father for the return of $100,000 each, transferred to Dyamond under an agreement with Mr Hatzipapas for a specific purpose.

The court was required to determine whether the pending application in another court had any bearing on the determination of the creditor's petition, and whether the circumstances of Mr Puddick warranted the granting of an adjournment. The court also considered whether money paid into court in a proceeding where a co-obligor of the debtor had been wound up constituted sufficient cause for a sequestration order not to be made.

Judge Manousaridis refused the application for adjournment, finding that the pending application did not have a bearing on the issues in the creditor's petition. The court reasoned that the Supreme Court judgment, which established Mr Hatzipapas's personal liability to Mr Puddick for the misapplication of trust funds, was a valid basis for the creditor's petition. The court applied the principles established in *Barclays Bank Ltd v Quistclose Investments Ltd*, finding that Dyamond held the funds on trust and, having misapplied them, was liable to replenish the trust funds. Mr Hatzipapas was also found personally liable as a defaulting trustee and for his knowing involvement in the breach of trust. The court ultimately made the sequestration order, finding no sufficient cause to prevent its making.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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]

Ratio Decidendi

Legal Principle Established

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