Re Ferrarese; Ex parte Aloisio
[1995] FCA 1065
•1 DECEMBER 1995
CATCHWORDS
Bankruptcy - whether costs orders made by Registrar should be set aside - whether matters which would have entitled the debtor to have the creditor's petition dismissed - actions of the petitioning creditor brought about a situation in which it was impossible for the debtor to raise the money needed to make payments ordered by the Master - petitioning creditor should not be held disentitled to exercise rights otherwise available simply because the consequence of so doing was that the debtor might have had greater difficulty in raising funds thus he or she might have had otherwise.
Bankruptcy - validity of bankruptcy notice - whether judgment on which the notice was founded was both interlocutory and conditional or final - where a final judgment is given and later an order is obtained for the purpose of working out rights given by the final judgment that order has always been taken to be interlocutory - Court's orders final - whether orders of the Master final for the purposes of s 40(1)(g) of the Bankruptcy Act - whether orders under which a person is entitled subject to the fulfilment of a condition within O 44 r 2(1)(d) of the Supreme Court Rules 1970 (NSW) - orders conditional.
Bankruptcy - service of process - of fundamental importance - bankruptcy carries potentially penal consequences - service is to be performed meticulously - evidence of service must be meticulously accurate - any departure from that standard will be regarded very seriously.
Bankruptcy Act 1966 s 14(5), s 40(1)(g), s 40(3)(b), s 52(2)(b).
Supreme Court Rules 1970 (NSW) O 44 r 2(1)(d).
Re: Anthony Edward Millar; Ex parte: Commonwealth Development Bank of Australia, 27 April 1993, Burchett J, unreported, approved.
Re: Murray V Vilkelis‑Curas; Ex parte: Deputy Commissioner of Taxation of the Commonwealth of Australia, 4 November 1995, unreported, considered.
Derrawee Pastoral Company Pty Limited v McConochie, CA (NSW), 24 February 1995, unreported, Handley JA, applied.
Blakey v Latham (1889) 43 ChD 23 at 25-26.
Palmer v Lark [1945] 1 Ch 182, considered.
RE: ARRIGO FERRARESE & ORS; EX PARTE: CARLO ALOISIO
No. NP 683 of 1995
CORAM:Lehane J
PLACE:Sydney
DATE:1 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES ) No. NP 683 of 1995
RE:ARRIGO FERRARESE
ELIO CESARE VENERAN
ORESTE BIZZANELLI
LUIGI MACCARONE
EX PARTE:CARLO ALOISIO
CORAM:Lehane J
PLACE:Sydney
DATE:1 December 1995
MINUTE OF ORDERS
THE COURT ORDERS:
THAT the orders of the Registrar be affirmed.
THAT the petitioning creditor pay the debtor's costs of this application as taxed or as agreed.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES ) No. NP 683 of 1995
RE:ARRIGO FERRARESE
ELIO CESARE VENERAN
ORESTE BIZZANELLI
LUIGI MACCARONE
EX PARTE:CARLO ALOISIO
CORAM:Lehane J
PLACE:Sydney
DATE:1 December 1995
REASONS FOR JUDGMENT
LEHANE J: This is an application under s 14(5) of the Bankruptcy Act 1966 to review certain orders made by a Registrar on 12 October 1995.
I shall have to deal with some of the circumstances in rather more detail later in these reasons. For the present, however, a brief summary will suffice. A petition was presented on 13 March 1995 seeking sequestration orders against the estates of four named debtors. In each case the act of bankruptcy relied on was a failure to comply with a bankruptcy notice. Each bankruptcy notice was, in turn, based on what was said to be a final judgment of the Supreme Court of New South Wales which ordered, among other things, that the debtors pay to the petitioning creditor the sum of $639,826.
On 4 August 1995 the petition was dismissed. There remained a dispute, however, as to costs: the petitioning creditor asserted that costs ought to be paid by the debtors; the debtors claimed that in the circumstances the petitioning creditor should pay the debtors' costs. The question of costs was argued before a Registrar, who on 12 October 1995, ordered that the petitioning creditor pay the debtors' costs of the petition (including reserved costs) as agreed or taxed. That is the order of which the petitioning creditor seeks a review; and the petitioning creditor applies for an order, consequent on the review, that the debtor pay the costs of the petition including the costs of this application.
The Registrar's decision that three of the debtors - Messrs Veneran, Bizzanelli and Maccarone - were entitled to their costs was based on the simple ground that neither a bankruptcy notice nor the petition was properly served on any of them. That failure was in the end conceded before the Registrar. Although the application for review was in terms an application for review of "the orders" made by the Registrar (i.e., apparently, all of them) and sought an order that "the debtor" pay the costs of the petition, counsel for the petitioning creditor did not seek, before me, to disturb the decision of the Registrar as to those three debtors and I think that decision should be affirmed on the ground on which the Registrar put it. Those three debtors then sought their costs of the application for review and I think they are entitled to them: that consequence could, of course, have been easily averted by confining the application for review so that it clearly sought what, in the end, the petitioning
creditor contended for, that is a review only of the order for costs made in favour of the remaining debtor (on whom the documents were properly served).
I do not think, however, that I can properly leave this aspect of the case without further comment. Given the concession that the documents were not properly served, it was unnecessary to read before me the affidavits relating to service and, of course, they were not read. It does not follow that I should simply overlook the fact that there are in the file affidavits by which a licensed commercial sub‑agent deposes, in familiar terms, to service on each debtor of the bankruptcy notice and of the petition. In each case it is stated that service was effected at a stated place and at a stated time and a brief conversation is recounted in which each of the debtors is said to have identified himself. There is, on the other hand, on the file an affidavit sworn by each of the three debtors concerned to the effect that he was not served and there is an affidavit by the fourth debtor (who was served) who deposes that the other three were not at the place where service was said to have been effected at the time when that was said to have happened. As I have said, it was ultimately conceded that there had been no proper service.
No doubt because of the concession, there was no evidence or investigation of the circumstances as to service either before the Registrar or before me. For that reason I am in no position to come to any definite conclusion about these events. I should, however, repeat what has been said more than once before (see, e.g., Re Anthony Edward Millar; Ex parte: Commonwealth Development Bank of Australia, 27 April 1993, Burchett J unreported). Proper service of process is of fundamental importance, and it is perhaps particularly so in the context of bankruptcy proceedings given their potentially penal consequences. It is of great importance that those whose task it is to effect service perform the task meticulously. It is equally important that the evidence given of service be meticulously accurate. Because it is essential that the Court be able to rely on evidence of service, it must be expected that the Court will regard very seriously any departure from that standard.
A review of the Registrar's order for costs in favour of the other debtor, Mr Ferrarese, raises more difficult questions. In order to deal with them it is necessary to describe the circumstances in rather more detail.
The four debtors and the petitioning creditor were shareholders in a company called Ferrcom Pty Limited (Ferrcom). Each of them also had a interest, as tenant in common, in some of the land on which Ferrcom carried on business. Disputes arose between the petitioning creditor, on the one hand, and the debtors on the other. The petitioning creditor commenced, on 23 December 1988, two proceedings in the Supreme Court of New South Wales; one was commenced by way of summons seeking an appointment of trustees for the sale of the land under s 66G of the Conveyancing Act 1919; in the other, the petitioning creditor sought orders that either Ferrcom or the debtors purchase the petitioning creditor's shares in Ferrcom for such amount as the Court should determine.
On 16 June 1989 orders were made by consent, as follows:
1.Order that the shares of [the petitioning creditor] in the capital of [Ferrcom] be purchased by [the debtors and Ferrcom] or any combination of them for an amount and at a time to be determined upon inquiry before the Master.
2.Direct that there be an inquiry before the Master as to the amount which should be paid by the [debtors and Ferrcom] for the [petitioning creditor's] shares in [Ferrcom] and the time that that purchase should be completed.
It may be noted that the order deals only with the shares in Ferrcom, not with the land. However, the Master ordered that both proceedings be heard together and proceeded with the inquiry directed by the consent orders on the footing that he was determining the amount which ought to be paid by the debtors (or, in the case of the shares, Ferrcom) for both the petitioning creditor's shares in Ferrcom and his interest in the land.
The Master gave judgment on 9 September 1994 in which, in effect, he determined the price which ought to be paid and he ordered the parties to bring in short minutes of orders to give effect to his judgment. Orders were entered on 27 September 1994. The first two orders were as follows:
1.The defendants [i.e. the debtors and Ferrcom] purchase the shares of the plaintiff [i.e. the petitioning creditor] in the capital of the first defendant [i.e. Ferrcom] and his interest in the land ... in the amount of $639,826.00.
2.The amount referred to in paragraph 1 herein be paid to the plaintiff within 21 days.
There was a third order that "upon payment of the aforesaid monies to the plaintiff" the plaintiff do what was necessary to transfer to the defendants his shares and his interest in the land.
On 30 September 1994, that is the day after the order was entered, the petitioning creditor filed a notice of appeal from the judgment of Master Macready. The grounds of the appeal comprised a number of bases on which it was said that the Master had erred in ascertaining the value of the property to be purchased. An order was sought, the effect of which would have been to increase the price payable to the petitioning creditor to $1,039,940.00. That appeal was heard by Brownie J who gave judgment on 1 May 1995 allowing the appeal. Orders giving effect to His Honour's judgment were made on 12 May. Their substantial effect was to substitute for the purchase price determined by Master Macready a sum of $1,083,746.17 (corrected by a later order to $1,085,665.64). There was, however, an additional order to the effect that of the purchase price, $400,155.00 was to be set aside and invested on trust for the parties pending the outcome of an appeal by the debtors, from the judgment of Brownie J, to the Court of Appeal. I understand that that appeal was later discontinued.
In the meantime, on 10 January 1995 four bankruptcy notices were issued claiming against each debtor the sum required to be paid by the orders following the judgment of the Master, together with interest. On 10 March 1995 a petition was issued in reliance on an act of bankruptcy by each debtor said to have been constituted by failure to comply with the bankruptcy notice. Of the amount required to be paid in accordance with the orders of Brownie J, $150,000.00 was paid on 19 May 1995, $35,000.00 on 30 May 1995, $215,130.50 on 1 June 1995 and the balance, I am told, on 12 July 1995. There is evidence that the debtors encountered difficulty in raising the funds necessary to pay the price ordered to be paid for the shares and the land because the institution which agreed to provide finance required confirmation from the petitioning creditor or his solicitor "that upon settlement ... this will conclude all legal action between the parties". That, of course, could not be provided, at least while appeals remained on foot.
In those circumstances, counsel for Mr Ferrarese put his claim for an order for costs, both before the Registrar and before me, on several alternative bases.
A number of those bases were grouped together as matters which, it was submitted, would have entitled the debtor to have the petition dismissed under s 52(2)(b) of the Bankruptcy Act 1966 for "other sufficient cause". One of these was the matter on which the Registrar based her decision, that by appealing against the judgment of the Master the petitioning creditor had brought about, by his own action, a situation in which it was impossible for the debtor to raise the money needed to made the payment ordered by the Master: the evidence was that funds could be raised for the purpose, but only upon the financier being assured that disputations between the parties were at an end. While seeking to support the Registrar's judgment on that basis, counsel for the debtor also put the matter to me in a somewhat different way, by saying that the petitioning creditor's conduct amounted to reprobating (in the sense of appealing against the Master's judgment) and at the same time approbating (in the sense of basing a bankruptcy notice on the very judgment the correctness of which he was himself disputing). There was an allied submission that the presentation of a petition in this case, while not an abuse of process, was an attempt to use the process of the bankruptcy court as a means of debt collecting and as a tactical step in the course of an appeal.
Counsel for the petitioning creditor responded that the petitioning creditor believed that the purchase price determined by the Master should be increased; that the only way in which it could give effect to this view was by appealing within a limited time; and that, in the absence of a stay, there was no reason why, on the assumption that the judgment of the Master was a proper foundation for a bankruptcy notice, the petitioning creditor should not cause such a notice to be issued: the petitioning creditor should not be held disentitled to exercise rights otherwise available to him simply because the consequence of the exercise of the rights was that the debtor might have greater difficulty in raising funds than he might have had otherwise. I think there is force in the arguments for the petitioning creditor on this point and if there were no other grounds supporting the Registrar's decision, I would have been inclined to set it aside.
Again, as to the discretion arising from s 52(2)(b), the debtor argued that he was in fact solvent and either was known by the petitioning creditor to be solvent or, at least, that this was a case where the debtor's solvency was either obvious or susceptible of reliable verification at a cost substantially less than that of bankruptcy proceedings. Counsel referred me to an unreported decision of this Court, Re Murray V Vilkelis‑Curas; Ex parte: Deputy Commissioner of Taxation of the Commonwealth of Australia, 4 November 1985. He pointed out that the debtor owned shares in the same company, and an interest in the same land, as those which he was, with the other debtors, obliged to purchase from the petitioning creditor; counsel also argued that it should be inferred from the business association between the parties that the petitioning creditor must have been aware of the solvency of the debtor. As counsel for the petitioning creditor pointed out, however, and as the Registrar said in her judgment, there was in fact no evidence, at least before an affidavit of solvency was filed, that the petitioning creditor in fact knew anything about the financial position of the debtor other than his ownership of the shares and the interest in the land. I do not think that counsel for the debtor identified here a matter which clearly would have justified the conclusion that the petition would in any event have been dismissed in the exercise of the Court's discretion.
The other principal basis on which the debtor sought to uphold the Registrar's decision was one going to the validity of the bankruptcy notice. It was that the judgment on which the notice was founded was both interlocutory and conditional, so that it was not a final judgment or final order within the ordinary meaning of those words as used in s 40(1)(g) of the Bankruptcy Act or, because of O 44 r 2(1)(d) of the Supreme Court Rules 1970 (NSW), within the extended meaning given to the term "final order" by s 40(3)(b) of the Bankruptcy Act.
The first step in that argument is that the order was interlocutory, not final. Counsel referred me to Derrawee Pastoral Company Pty Limited v McConochie CA (NSW) 24/2/95 unreported, Handley JA. That was a case in many respects similar to this, though the actual order which his Honour had to characterise was of a somewhat different kind than the order under consideration here. The Court had made orders in proceedings under s 320 of the Companies Code for the purchase, by a member of a company, of another member's shares. The order directed that the price to be paid for the shares should be their value as determined by an accountant and required the purchasing member to complete the purchase within 21 days of the accountant's report. The accountant reported; the member required to purchase the shares failed to complete; the other member purported to enter judgment for the amount of the price determined by the accountants and issued execution; a judge of the Court dismissed a motion for orders setting aside the judgment and writ of execution. It was that order of the judge that had to be characterised either as final or as interlocutory.
Handley JA relied on observations of Cotton and Fry LJJ in Blakey v Latham (1889) 43 ChD 23 at 25 and 26, to the effect that, where a final judgment is given and later an order is obtained for the purpose of working out rights given by the final judgment, that order has always been taken to be interlocutory. His Honour referred (at page
5) to later English authority to the same effect. As to the case before him, his Honour said this:
In my opinion the final order in these proceedings was the order for the purchase of the plaintiffs' shares made by consent on 22 October 1993. That was the order which finally determined the rights of the parties in a principal cause pending between them. See Hall v Nominal Defendant (1966) 117 CLR 423 at 443 per Windeyer J. Subsequent orders have merely worked out the rights of the parties under that final order.
So in this case, the debtor argued that the final order was that of the Court entered on 16 June 1989 and that the judgment of the Master, and consequent orders, merely worked out the rights of the parties arising under that final order.
The petitioning creditor argued that the Master's order was final: its form was that of a final order and, additionally, it dealt with a matter which the orders of 16 June did not touch, that is to say the purchase of the interest in land (the order of 16 June 1989 having been concerned solely with the purchase of the shares).
On this aspect of the case I accept the argument of the debtor. I do not think the order consequent upon the Master's judgment can be construed without regard to the terms of the Master's reasons. It is clear from those reasons, at pages 1 and 2, that the Master, while ordering that the two proceedings should be heard together, regarded himself as undertaking the inquiry ordered by the Court on 16 June with a view to working out the rights of the parties - in particular by settling the purchase price - under that order. In any event, to the extent that the judgment fixed a price payable in respect of the shares, I think it must, in accordance with the principles to which Handley JA referred, be regarded as interlocutory.
That, of course, does not conclude the matter in favour of the debtor, because the orders consequent on the Master's judgment might still be regarded as final orders for the purposes of s 40(1)(g) of the Bankruptcy Act if they were enforceable as, or in the same manner as, a final judgment obtained in an action: s 40(3)(b). Whether they were so enforceable depends on whether they are properly to be regarded, within O 44 r 2(1)(d) of the Supreme Court Rules, as orders under which a person is entitled subject to fulfilment of a condition.
The petitioning creditor argued that the orders were unconditional and the Registrar accepted that argument. It has a clear basis in the literal terms of the orders: the first order of the Master directs a purchase for a stated price; the second directs payment of that price within 21 days; the third directs that "upon payment" of the price the vendor do what is necessary to transfer the property. In other words, the orders appear to state a temporal sequence rather than impose conditions. Some, perhaps equivocal, support for that view of them might be derived from cases such as Palmer v Lark [1945] 1 Ch 182: that case had to do with the precise orders appropriate to be made where specific performance is granted, and might be taken to recognise the existence of two different types of order; one imposes an unconditional obligation on a purchaser to pay, and once payment has been made, an unconditional obligation on the vendor to transfer; the other makes the obligation of each party conditional on
the other party's compliance with the order for completion. Vaasey J held that the conditional order was the appropriate form and that unconditional orders should not be made.
Though in some ways it resembles specific performance, what was ordered in this case was, of course, not specific performance and while principles applicable to that remedy may provide a useful analogy, they are not decisive. What is necessary, I believe, is to consider, as a whole, the initial consent orders of 16 June 1989 and the orders which were entered on 27 September 1994. Considered in that way, it is clear that the June orders contemplated a purchase and an inquiry before the Master as to the price to be paid and for the purpose of fixing a time for completion: i.e., if that word is used in its usual sense, an occasion on which the purchase price is exchanged for the documents necessary to transfer title. Then, the first of the orders of September 1994 also ordered that a purchase occur, both of the shares and of the interest in land and fixed a total price; the second order directed payment of the price on a particular day; and the third directed that upon payment of the price there be done what was necessary to transfer title. During argument I put to counsel for the petitioning creditor the following question: if the debtor tendered the purchase price but the petitioning creditor could not hand over in exchange documents which would deliver a clear title to the property (because, e.g., of an encumbrance which could not be removed) could the tender be withdrawn, or was the debtor obliged to pay the price in any event? As I understood it, counsel accepted, at least provisionally, that the tender could be withdrawn; but he nevertheless relied on a literal reading of the order. If, however, the substance of the order is indeed that the tender could be withdrawn if the petitioning creditor was not in a position to comply with his obligations, as I think must be the case, I think it follows that the order to pay the price is indeed conditional. The June (and, as I have held, final) orders required a sale for a price (to be ascertained) and completion of that sale. The orders of the Master should, I believe, be read as working out the detailed rights of the parties within the confines of those earlier orders; and I think this is so despite the fact that the earlier orders, by their terms, dealt only with the shares, not with the land. It is plain that the Master regarded himself as performing the same function in relation to each item of property.
For those reasons, the orders of the Registrar should in my view be affirmed. The petitioning creditor should pay the debtors' costs of this application, as taxed or as agreed.
I certify that this and the preceding 13 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 1 December 1995
Heard: 14 November 1995
Place: Sydney
Decision: 1 December 1995
Appearances: Mr S T White of counsel instructed by Colin W Love & Co. appeared for the petitioning creditor.
Mr R W Tregenza of counsel instructed by Lamrocks appeared for the debtor.
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