Re Zoccoli, R. Ex parte The Official Trustee in Bankruptcy & Ors v Zoccoli, R.

[1993] FCA 748

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	)
BANKRUPTCY DISTRICT	)
OF THE STATE OF VICTORIA	1 No. VB 1411 of 1992

Re :  RACHAEL ZOCCOLI

the Bankrupt

EX parte:	THE OFFICIAL TRUSTEE IN BANKRUPTCY
(As trustee of the bankrupt estate of Rachael Zoccoli)

Applicant

- and -

RACHAEL ZOCCOLI

First Respondent

ANTHONY ZOCCOLI

Second Respondent

ROCCO ZOCCOLI

Third Respondent

Coram:	Olney J
Place:	Melbourne
Q&.=:	19 October 1993

MINUTE OF ORDERS

THE COURT ORDERS THAT:

a)	The respondents have liberty within 7 days to make, file and serve written submissions on the question of costs;
and
b)	The applicant have liberty within 7 days thereafter to

1.    The application be dismissed.

I 2. The question of costs be reserved.

AND DIRECTS THAT:

make, file and serve written submissions in reply.

NOTE:  Settlement and entry of orders is dealt with in rule
124 of the Bankruptcy Rules.

JUDGMENT No. ..,.,.,.,,,,.,,,,,I ,... , ....

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	1
BANKRUPTCY DISTRICT	1
OF THE STATE OF VICTORIA	) No. VB 1411 of 1992

Re : RACHAEL ZOCCOLI

the Bankrupt

Ex parte:	THE OFFICIAL TRUSTEE IN BANKRUPTCY
(As trustee of the bankrupt estate of Rachael Zoccoli)

Applicant

- and -

RACHAEL ZOCCOLI

First Respondent

ANTHONY ZOCCOLI

Second Respondent

ROCCO ZOCCOLI

Third Respondent

Coram:	Olney J
Place:	Melbourne
Date:	19 October 1993
THE APPLICATION

These proceedings were commenced on 15 April 1993 when the

applicant, as trustee of the bankrupt estate of Rachael	Zoccoli (Rachael) sought a declaration pursuant to s 82 of the
Bankruptcy A c t 1966 (the Act) that the sum of $67,000
represents a liability to which Rachael was subject in favour of the bankrupt estate of Anthony Adam Zoccoli as at 18 December 1990, and a declaration that the applicant can admit a proof of debt from the bankrupt estate of Anthony Adam Zoccoli for the sum of $67,000.
The application was amended by leave on 5 May 1993 when the previous claim for relief was abandoned and orders were sought by the applicant pursuant to s 134(4) of the Act for directions in respect of the following matters in connexion with the administration of Rachael's estate:

1. (a) Whether t h e e s t a t e of t h e bankrupt i s indebted t o t h e

bankrupt e s t a t e of Anthony Zoccoli i n any, and i f so,

what sum, Dy reason of t h e bankrupt h a v ~ n g received a sum

of approxmate ly $91,000 from t h e s a l d Anthony Zoccoli m o r about January o r February 1989, which sum was used by t h e bankrupt and her spouse t o purchase a busmess known a s 'Holmes Hot bread shop' s ~ t u a t e d a t 85 Holmes Road,

Brunswick,	i n	t h e	S t a t e	of	Vic to r i a	( " the	bus iness") ;
and

( b ) Whether any sum which, by reason of t h e t r ansac t ion

a l leged i n paragraph l ( a ) hereof, may be found t o be owed

by t h e e s t a t e of t h e bankrupt t o t h e s a i d bankrupt e s t a t e

of Anthony Zoccoli c o n s t i t u t e s a provable debt within t h e

terms of Sect ion 82 of t h e Bankruptcy A c t 1966.

2. Fur ther o r a l t e r n a t i v e l y t o paragraph 1 hereof, whether t h e

s a ~ d	bankrupt e s t a t e of Anthony Zoccolr has any and i f so, what
i n t e r e s t	i n t h e business.

3. Such f u r t h e r o r o the r d i r e c t i o n s o r o rde r s a s t h e Court may

consider appropriate.

Although no relief is sought which involves the third respondent it is obvious that he has an interest in the business referred to in the amended application and is properly a party to the proceedings.

BACKGROUND

Rachael and the third respondent (Rocco) are husband and wife.
The second respondent (Anthony) is Rocco's brother.

A sequestration order was made against Rachael's estate on 15 May 1992 upon the petition of the Deputy Commissioner of Taxation in respect of a judgment for $6,774.19. The act of

bankruptcy was committed on 22 July 1991. The applicant is

trustee of the estate. Rachael's statement of affairs filed on 5 June 1992 pursuant to S 54(1) of the Act discloses no unsecured liabilities other than that due to the Deputy Commissioner. The only other liability shown is the sum of $78,000 due to the State Bank of Victoria secured by mortgage on her home, the then value of which was estimated at $118,000 leaving a net surplus of $40,000. Apart from her equity in her house and some household furniture jointly owned with Rocco, the only assets disclosed were partnership stock, plant and equipment valued at $21,000. Since the date of bankruptcy, the trustee has received a claim for $18,633.93 in respect of a judgment obtained against Rachael and Rocco relating to rent owing under a lease. No decision has been made as to the amount for which the claimant will rank in the payment of any dividend.

A sequestration order was made against Anthony's estate on 18

December 1990. The applicant is also trustee of Anthony's

estate. In his statement of affairs, which was verified by affidavit sworn on 23 May 1991, Anthony disclosed unsecured creditors of the order of $2m. In addition, the trustee says there are other creditors in excess of $lm. making a total in excess of $3m. Anthony is at present serving a prison sentence in circumstances which have not been disclosed.

However, there is evidence that all his business records were seized by the police and it can be inferred that his imprisonment has something to do with his business activities. Anthony formerly practiced as an accountant and carried on other business activities and from time to time, acted on behalf of Rachael and Rocco in their business dealings.

By a contract dated 20 December 1988 Rachael and Rocco agreed to purchase for $100,000 a business known as Holmes Hot Bread Shop (the Hot Bread Shop). The contract was settled in February 1989 and Rachael and Rocco have since conducted the buslness in partnership. Anthony had a part in the dealings relating to the purchase of the Hot Bread Shop which will be referred to in more detail later.

Anthony contested the creditors' petition upon which he was made bankrupt, claiming that he was solvent. In the course of the proceedings he gave evidence and was cross-examined.

That was on 11 December 1990. Subsequently, on 9 July 1991,

he attended before a Registrar and was examined as to his affairs. On both of these occasions he gave evidence

claiming that he either owned, or had an interest in, the Hot

Bread Shop.

These proceedings have to do with the question of whether Anthohy contributed money towards the purchase of the Hot Bread Shop and if so whether he thereby acquired an interest in it or alternatively, whether money is owing to him (and thus his estate) by Rachael and Rocco in respect of his contribution to the purchase price.

THE APPLICANT'S CASE

The applicant relies upon the affidavit evidence of MS Denise Frawley (MS Frawley) to which some 14 documents are exhibited. MS Frawley is an officer employed by the Insolvency and Trustee Service Australia and subject to her supervisor's guidance has had the care and control of the administration of Rachael's estate. She has not been involved in the administration of Anthony's estate.

On the basis of the information available to her, MS Frawley says that she believes that Rachael's estate is indebted to Anthony's estate in a net sum of $67,000 by reason of Rachael and Rocco having received the sum of $91,000 from Anthony in or about the period 27 January 1989 to 8 February 1989, for the purchase on 27 January 1989 of the Hot Bread Shop.

As a result of her investigations into the source and application of the funds used for the purchase of the Hot

Bread Shop, it has been ascertained that on 20 December 1988

the sum of $80,000 was advanced to Rachael and Rocco by the State Bank of Victoria (SBV), and deposited in their joint bank account at the SBV Coburg Branch (the Coburg account).

On the same day $32,364.98 was withdrawn from the Coburg account and paid to the AN2 Bank at Noble Park to satisfy an outstanding loan.

On 28 December 1988 a cheque for $10,000 was drawn on the Coburg account and paid to the solicitors for the vendors of the Hot Bread Shop by way of deposit. Another cheque for $10,000, payable to cash, was drawn and debited to the account on the same day. There is no evidence as to the application of the latter sum apart from Rachael's and Anthony's

assertions that the cheque was given to Anthony who cashed it.

On 19 January 1989 a cheque for $24,000 was drawn on the Coburg account and paid to the credit of an account operated by Anthony at the same bank and branch under the name of Anthony Zoccoli & Associates (the AZA account).

Anthony drew a cheque for $91,000 on the AZA account on 27 January 1989 payable to Mr & Mrs Macodonia, the vendors of the Hot Bread Shop. In her affidavit MS Frawley says that "the cheque was ultimately honoured following a deposit into the account of $91,000 on 8 February 1989". To support this assertion she has exhibited copies of the cheque (numbered 782104) and copies of pages 58, 61 and 62 of the ledger

support the assertion. First, cheque 782104 bears a bank

statement for the AZA account. The exhibits do not appear to

stamp which suggests that it was in fact deposited to the

credit of the AZA account on the day it was drawn. Page 58

of the statement is consistent with this being so. It

records a cheque for $91,000 being credited on 27 January 1989 and a debit in respect of cheque 782104 for the same amount on the same day. No explanation has been offered as to why pages 59 to 60 have not been produced but presumably it is

thought that they contain nothing of relevance. Page 61

records a deposit of a cheque for $91,000 on 3 February 1989 and a debit of the same amount on the same day of a dishonoured cheque. On 6 February 1989 there was a further debit of $91,000 for a dishonoured cheque. Page 62 reveals that on 8 February 1989 there was a credit of $91,000 which was identified simply as 'credit' and on 9 February 1989

$91,000 was debited for a dishonoured cheque.

The net effect of the foregoing transactions is that in the period 27 January 1989 to 9 February 1989 the AZA account was credited with $91,000 on three occasions and debited with that amount on four occasions. On three of those four occasions the debit is shown alongside the notation 'dishonoured cheque', which can only refer to the dishonouring of a cheque which had been deposited to the credit of the account. There is no marking on cheque 782104 which suggests that it was ever dishonoured by the drawer's bank. During the period from the crediting of the cheque for $24,000 on 19 January 1989 to the

AZA account increased from $361,747.62 to $396,408.81 and in close of business on 9 February 1989, the debit balance of the

that period varied from a minimum of $302,963.04 to a maximum
of $510,426.56.

An explanation of these transactions on the AZA account could only be had by a detailed examination of all the relevant bank records. Whether such an examination has been undertaken in the administration of Anthony's estate is not a matter upon which there is any evidence before the Court. Given that the applicant is the trustee of both estates the inference is open that no such examination has been undertaken and in the circumstances the truth of the matter remains a mystery.

Nor is there any explanation as to why Anthony would have paid the vendors $91,000 when only $90,000 was payable to settle the contract. Again, an examination of the relevant records relating to the sale may provide an answer, but the applicant has not put any evidence before the Court concerning that matter.

It is MS Frawley's view that Rachael and Rocco paid only $34,000 (being the total of the deposit of $10,000 paid on 28 December 1988 and the $24,000 paid to the AZA account on 19 January 1989) towards the purchase of the Hot Bread Shop and that Anthony paid $67,000. On the basis of this view, the applicant says that at all relevant times Rachael and Rocco have been indebted to Anthony in the sum of $67,000 or

alternatively Anthony has at all material times had an interest of a substantial proportion in the Hot Bread Shop.

In the course of the administration of Rachael's estate there have been a number of exchanges between the applicant and Rachael (and those representing her) in relation to the basis upon which the purchase of the Hot Bread Shop was financed.

In her affidavit MS Frawley has referred to seven different claims made by or on behalf of Rachael, namely:

1.	The proceeds of the cheque for $10,000 which was cashed on 28 December 1988 were retained by Anthony on account of the purchase price.
2.	$2,000 was advanced to Anthony by Rachael from an ANZ

family allowance account.

3.    $1,000 was paid on Anthony's behalf to a firm of

solicitors (Abbottos).

4.   An income tax refund of $5,000 due to Rocco was retained by Anthony.

5.    $10,000 paid to Rocco as the proceeds of a personal

injuries settlement was retained by Anthony. This was

in December 1983.

6.    $10,000 was advanced by Rocco from an ANZ account to

Abbottos on Anthony's behalf.

7.   A further $20,000 was advanced to Abbottos in similar circumstances.

MS Frawley says that she has not been able to find any evidence to substantiate any of the payments referred to.

There are several other items of evidence upon which the applicant relies to support the view expressed by MS Frawley.

- l0 -

On 9 October 1990 Anthony swore an affidavit in proceeding VP 467/1990, belng proceedings relating to a creditor's petition presented against him, in which he deposed to having assets totalling $1.2 m including the following:

"Holmes Hot Bread
85 Holmes Road Brunswick - Goodwill $60,000
Holmes Hot Bread - plant and equipment - $40,000."

In the same affidavit he deposed to having creditors totalling $955,000 but those creditors did not contain any liability as between himself and Rachael and/or Rocco. On the basis of his claimed excess of assets over liabilities Anthony asserted that he was not insolvent.

Anthony swore a further affidavit in proceedings VP 467/1990 on 16 November 1990. He again claimed Holmes Hot Bread shop as an asset and paragraphs 7 - 9 (inclusive) of the affidavit said of this claimed asset as follows:

7.     I also operate from premises situate at and known as 85 Holmes

Street, Brunswick a business known as Holmes Hot Bread Shop.
The gross receipts from sales is approximately $3,800.00 per
week making a total of $197,600.00.

8.     The expenses in running the same are as follows:

(a) Wages	$70,000
(b) Rent	$12,000
(C) Depreciation	$ 4,200
(d) Motor Vehicle expenses	$15,000
(e) Paper	$ 2,500

(f) Light & Power $ 6,500

The profit from running this busmess is $80,000.00 per annum before tax.

9.     The assets of Holmes Hot Bread Shop are as follows:

Plant and Equrpment comprLslng of ovens, counters, mrxers, cash regrsters, refrrgerators and scales whrch I value at $40,000.

Upon the hearing of the petition in proceeding VP 467/1990 Anthony was cross-examined, inter alia, on the foregoing paragraphs of his affidavit of 16 November 1990. The following is an extract from pages 144-146 of the transcript of evidence given by Anthony on 11 December 1990:

In your second affidavit, in paragraph 8, when you swear as to the expenses involved in running Holmes Hot Bread Shop; have you got any documentation with you that backs up those figures?---No , I have not.

Is it true then that you are now, with your brother and srster-rn- law, or srster and brother-in-law, that run that business, that you are not claiming that any longer as an asset of yours?---I am strll claiming it as an asset of mme, certainly, I am.

But not in those terms as set out in the affidavit?---Well, until my full loan is repaid, yes, I am. I will be clarming it on the same terms.

HIS HONOUR: Why is that, Mr Zoccolr?---Well, your Honour, I have pard over the money for the settlement of the purchase of this business, the loan has not been repaid.

Yes?---And I feel that, you know, whether it be verbal or written agreements between me and my brother, I am entitled to the plant and equipment and goodwill of that busrness until my loan is repard.

Well, you mean that you would have some kind of a charge or mortgage over the busrness to secure the repayment to you of the money you lent?---I have a loan agreement between me and my brother and my sister-in-law for those funds, yes, your Honour.

And does the loan agreement say anything about your having a-charge	or a mortgage over the goodwill or the plant and equ~pment?---The
loan agreement specifically states that the goodwill and the plant and equipment are mine until such time as - until the full amount of the loan is fully repard. In fact, their interest in the purchase of that business was only approximately $9000 and I have paid over $91,000 at that time, then I have refurbished with refrigeration and what have you and exceeded just on $100,000 your Honour.
Yes. You do not have a copy of that agreement immediately to hand here?---No , not to hand.
Well, I understand what you say, but it - and for that reason you - that is the reason you say why you rnclude as one of your assets the 60,000 goodwill and the 40,000 plant and equipment?---Right.
I understand that, but that does not really explain why paragraphs 7 and 8 are in the affidavit, does rt?---No, your Honour. I think
that 7 and 8 only explarn as to what funds are actually available to me after these deductrons are made from the lncome, from the gross income. Without these deductrons, one could say instead of, you know, $900 per week net income, I could be recerving $2000 a week net income, your Honour.
Yes. Yes, I follow that. What is really wrong 1s the statement,
"I operate a busrness", in the first sentence?---Rlght. You do not?---No, I do not - - -
And you did not when you swore that affidavit?---No, your Honour, I physically did not operate it myself.
Yes?---But to - to operate a business, I do not - I did not thrnk that it was important for you to physically operate at as long as you have got control over it.
Yes. Yes, MS Williamson.
MS WILLIAMSON: In relatlon to the plant and equipment in the hot
bread shop that you say you value at $40,000 do you have any sort of rndependent valuation or receipts for those?---That was at the cost price upon, you know, the purchase of the busrness; yes, it rs on the contract of sale.
Did you bring that contract - - -
HIS HONOUR: Which contract? The contract under which you bought from somebody or the contract under which your brother and sister-in- law bought from you?---The contract that my brother and my srster-rn- law purchased orrgrnally is the same amount as I have clauned under my loan agreement of what I am entitled to for paying out the settlement funds of that business.

Subsequent to a sequestration order being made against
Anthonyls estate he was examined pursuant to s 60 of the Act.
The following extracts from pp 25 - 28 of the transcript of

evidence given on 9 July 1991 are relevant in the present

proceedings: 

Now the Holmes Hot Bread Kitchen?---Yes.

When was that originally purchased by your brother and his spouse?---

About 28 February 1989.

And that was a purchase by using finance from yourself?---Some finance.

How much frnance did you provide for that?---I do not remember at this stage. It was taken out of my overdraft. I cannot recall how much money I put in.

Your overdraft wlth whrch bank, Mr Zoccoli?---State Bank, Coburg.
Coburg?---Yes.

Perhaps lf I can have an ldea - lt was something lrke $90,000; would that be right?---That was pald for the Hot Bread Shop, I thlnk lt was.

On page 144 of that document - - -?---Yes, maybe.
- - - is a loan agreement. Is that loan agreement stlll in
existence, Mr Zoccol~?---If lt 1s in existence, the pollce would have

it on files.

So the loan agreement that you were lndlcating on 11 December

1990 - - -?---Rlght.

- - - has that money been paid over to you yet?---Some money has been

pard over to me in drlbs and drabs, because of my legal

representations that I needed.

And when was that paid over? Was it paid direct to your sollcltors or was it paid direct to you?---No , lt would have been pald dlrectly to my solicitors; not directly to me. And they also took over

another debt for $30,000 through Mr Fasciale. So - - -

They took over a debt, I am sorry - $30,000?---They took over one of my debts as well. Mr Fasciale lent me some money and they took over

that debt for me.	It was some time back.	Maybe about three or
four months ago.

Just take lt one step at a time, Mr Zoccoli. What great asset or expectation could you hold out to Mr Fasclale that he would wish to part wlth $30,000 to you?---He is a personal friend of the family as

well. He has stayed in the family since we came out to Australra.

And he said, I wlll give you $30,000 because I am a personal friend?- --No, on the understanding that my brother and my slster-in-law would guarantee to repay that money to him.

So they have gone guarantor for $30,000 advanced to you?---They have

taken over the debt now. That is right.

Was there any documentation signed in relation to that debt?---=

Fasciale has got those documents, yes, and they could even be in the

files with the pollce.

And you signed those documents?---I did not, no. He did. MY

brother and Mr Fasciale did.	I did not sign anything.
So, just so that I can get rt accurately.	You are saying that Mr

Fasciale did not advance you anything; he advanced your brother and sister-in-law $30,000 for your benefit?---Well, if - that may be the better way of putting it, yes, because the signed documents and took over the debt themselves.

And did they give Mr Fasciale securrty for that money?---I am not sure.

Mr Zoccoli, you have indicated before Mr Justice Jenkinson, that m December 1990 you said the following, in relation to the purchase of the Holmes Hot Bread shop?---Rlght.

Thrs:

In fact thelr rnterest in the purchase of that business was only approxmately $9000 and I have pard ........ .. and

exceeded j u s t on $100,000, your Honour.

?---That could have been co r rec t .

And t h a t was t h e basas f o r clarmrng an a s s e t an your proceedings a t t h a t trme of t h a t sum of money and t h a t money has not y e t been repa id

t o you?---I	have	j u s t mentioned:	they have taken over a deb t
from - - -

Save and except f o r Mr Fasc ra le ' s advance - - -?---Yes.

- - - t o them, I am i n t e r e s t e d i n t h e money t h a t they owe you c u r r e n t

- $100,000?---They don' t c u r r e n t l y owe me 100,000.

On 11 December you s a i d they did?---At t h a t t ime, yes, but t h i n g s

have changed, you know, s i x months down t h e t rack.

Right?---And f o r m e t o g e t t h e proper records, I need my f i l e s and I

w i l l gave you t h e proper accounting.

THE RESPONDENT'S CASE

Rachael and Rocco entered appearances and were represented by counsel. Anthony did not enter an appearance but did swear on affidavit in support of the case of the other respondents.

The affidavit evidence in answer to the applicant's case consists of affidavits sworn by each of the three respondents and an affidavit of Graeme D. Efron (Rachael and Rocco's solicitor) sworn 2 September 1993. Rachael, Rocco and Efron were cross-examined. No request was made for Anthony to

attend for cross-examination.

The following is a summary of Rachaells affidavit excluding matters which are not presently relevant and matters which are common cause and to which reference has already been made.

Rachael denies that at any material time did she owe Anthony any money. In fact, she says that if any money was owing, it

was Anthony who owed it to her and Rocco. She says that

until 1984 there were no borrowings or lendings as between Anthony and herself, but between early 1984 and late January 1989 Anthony made repeated requests to herself and Rocco to lend him money and to guarantee loans to Anthony from third parties. She says that because of the close relationship of trust that she and Rocco shared with Anthony, they generally agreed to such requests and did not seek any security for, or formal documentation relating to, loans made to Anthony.

Specific reference is made to a loan for $60,000 made by another party to Anthony and two others in August 1984 which Rachael guaranteed and by way of security charged her estate and interest in her house property. This loan was later called up and Rachael, together with the three principle debtors, were sued for the amount in the Supreme Court of Victoria in action 1986 No 78.

In paragraph 14 of her affidavit Rachael particularises four loans said to have been made to Anthony by herself and Rocco during the period 1983 to 1989, namely:

1.   $10,000 lent in late 1983 being the proceeds of a personal injuries settlement in favour of Rocco.

2. $20,000 borrowed from the ANZ bank Noble Park. The

entire proceeds of the loan were lent to Anthony but the
bankrupt repaid the loan to the bank.

3.    $10,000 paid to Mario Abbotto, a solicitor, in or about January 1989 at Anthony's request and on his behalf.

4.    Sundry further loans approximating $20,000.

Rachael further says that in or about November 1989, Anthony borrowed $4,374 from Rocco, being the amount of an income tax refund which had been received on Rocco's behalf.

A further transaction between Anthony, Rocco and Rachael is said to have taken place in about September 1991 when Anthony asked Rachael and Rocco to enter into a lease agreement for an office at Coburg for a term of three years at a rental of $1,300 per month. It is said that Anthony had applied for

the lease personally but had been rejected. Rocco and Rachael duly entered into the lease upon Anthony's undertaking to pay all money due under the lease but he did not do so and subsequently the lessor obtained a judgment against Rachael and Rocco for $19,087.59. (This is presumably the same amount as is referred to above as a claim against the

bankrupt's estate). her and Rocco for the amount of the judgment. Rachael says that Anthony is liable to	In her affidavit Rachael describes her dealings with Anthony
in relation to the Hot Bread Shop in these terms. In the latter part of 1988 she and Rocco decided to purchase a business in which they could both work. They saw that the Hot Bread Shop was for sale and asked Anthony for his advice which he agreed to give. They told Anthony that they wanted him to repay money he owed them to assist to finance the purchase, which he agreed to. At the time Rachael believed that about $60,000 was due. It was agreed that Rachael and Rocco would pay Anthony approximately $40,000 and that Anthony would pay the $100,000 purchase price to the vendors.
Pursuant to this understanding, in late 1988 they gave Anthony two cheques for $10,000; one was payable to the solicitors acting for the vendors and the other was payable to cash. On or about 19 January 1989 they gave Anthony a further cheque for $24,000. Subsequently, Anthony paid the money required to settle the contract. Rachael denies that she has ever agreed to Anthony having any interest in the Hot Bread Shop, which she says she and Rocco always intended to run themselves and further, at no time has Anthony had any interest in the business nor has he ever received any profits therefrom or worked therein. Any statements made by Anthony to the contrary are, she says, untrue.
Rocco's affidavit corroborates Rachaells evidence and does not
Anthony's affidavit very largely confirms all that Rachael has add any further facts. said concerning their dealings before the purchase of the Hot
Bread Shop and also the arrangements made concerning the funding of that purchase. He denies that he acquired or intended to acquire any personal interest in the business.
He agrees that he made certain statements in court to the contrary and that he had lent Rocco and Rachael money and explains this by saying that he was at that time under enormous pressure, and suffering from stress, tension and anxiety, and he thought that if he could demonstrate that he had an lnterest in the Hot Bread Shop he could show that he was solvent and thus avoid bankruptcy. He did this without the consent or knowledge of Rachael or Rocco.
THE ISSUE OF CREDIBILITY
As Anthony's evidence was on affidavit and he was not cross- examined, I am unable to make any subjective finding as to his credibility. Viewed objectively, and in the context of all of the facts of the case, I think that it is fair to say that no weight can be given to anything he has said either in the context of his own bankruptcy proceedings or in these proceedings.
Rachael and Rocco were both cross-examined, Rachael at some length. A number of inconsistencies were apparent between
what they now say and what had been said by them or on their behalf in the period prior to the proceedings being commenced. Whilst it is unnecessary for specific findings to be made in
respect of every fact asserted, I think it is fair to say that to some extent, Rachael's evidence must be regarded as suspect. Some of it could reasonably be regarded as recent invention. However, what has been demonstrated to my satisfaction is that the business and financial relationships between Rachael and Rocco on the one hand and Anthony on the other, were not conducted in an orderly, prudent manner as between strangers, but rather followed the very casual course described by Rachael and were based upon family trust and loyalty rather than sound business practices. The undisputed arrangement whereby Rachael and Rocco entered into a lease after Anthony had been rejected as a potential lessee and also the charging of Rachaells house as security for a guarantee given to support a loan to Anthony lends considerable credibility to what Rachael and Rocco have said.
FINDINGS
I find that Anthony at no time had any interest in the Hot Bread Shop. Apart from Anthony's statements in court in relation to his own bankruptcy, to which no weight can be accorded, there is no evidence to support the suggestion made by the applicant that Anthony has an interest in the Hot Bread Shop. This view is supported by the income tax returns relating to the Hot Bread Shop which were prepared by an
Anthony either as a proprietor or as a creditor. independent accountant and which contain no reference to
It is not possible on the available evidence to make any finding as to the precise details of financial dealings between Rachael and Rocco on the one part and Anthony on the other in the period prior to the purchase of the Hot Bread Shop. I am however satisfied that there were some dealings between the parties and that the only evidence is that they lnvolved Rachael and Rocco provldlng financial support to Anthony. I am satisfied that the cheque for $10,000 paid to the solicitors acting for the vendors of the Hot Bread Shop represented the deposit and part payment of the purchase price of the business. The payment of $24,000 made to the AZA account on 19 January 1989 was also a contribution to the purchase price of the business. There is no reason to reject Rachael's evidence that the second $10,000 cheque drawn on 28 December 1988 was cashed by Anthony and that the amount in question was intended as a contribution to the purchase price. It follows therefore that Rachael and Rocco paid $44,000 towards the purchase of the business in the period December 1988/January 1989.
Whatever can be made of the transactions revealed by the AZA account statements, the fact remains that the contract was finally settled without any further contribution from Rachael and Rocco or from any other source other than from the AZA overdraft account. Given what little is known about Anthonyfs affairs, it seems highly unlikely that he would have
and Rocco's obligations under the contract to purchase the Hot increased his indebtedness to his bank in satisfying Rachael
Bread Shop unless he was under some countervailing obligation to them to a like extent. The contemporary conduct of the parties at the time the business was acquired was entirely consistent with the explanation given by Rachael. And it seems more probable than not that had there been any outstanding liability in Anthony's favour in the period leading up to hls own bankruptcy he would have made some effort to call up what was due to him. There is no suggestion at all in the evidence that despite hls financial woes, he made any demand on Rachael or Rocco.
In my opinion, no facts have been established which would justify the trustee admitting a proof of $67,000 or any other amount in the name of Anthony's estate or of admitting a claim by Anthony's estate to a share in the Hot Bread Shop.
CONCLUSIONS
The application was brought by the applicant as trustee of Rachael's estate. In substance, the applicant seeks the court's imprimatur in advance of a proof of debt being submitted, to admit liability to Anthony's estate. The applicant, as trustee of Anthonyss estate, has not sought any guidance as to whether or not such a proof should be lodged.
The only potential beneficiary of any relief sought in these
proceedings would be Anthony's estate. It is clear that the applicant is in a hopeless position of conflict. Had the two bankrupt estates been administered by
trustees independent of one another, it is inconceivable that Rachael's trustee would have brought this or any similar application. Certainly not at the present state of the estate's administration. Indeed, the appropriate procedure would have been for Anthony's trustee to exercise his proper functions as trustee, make up his mlnd as to what claim should be made and then to lodge a proof of debt. If the proof were admitted by Rachael's trustee there would be no occasion for any proceedings at all. On the other hand, if the proof were to be rejected, it would have been for Anthony's trustee to seek any relief thought appropriate and if unsuccessful Anthony's estate would have to carry any costs burden associated therewith. On the findings I have made in this application, assuming the evidence to be the same, the rejection of the proof would have been sustained and in the ordinary course of events costs would have been ordered against Anthony's trustee.
Section 134(1) of the Act authorises a trustee, inter alia, to prove in respect of any debt due to the bankrupt and pursuant to S 134(4) a trustee may at anytime apply to the court for directions in respect of a matter arising in connection with the administration of the estate. Whether or not the Court should give directions is a matter of discretion (Re Driller
11972) 21 FLR 159). appropriate for the applicant as trustee of Anthony's estate In my opinion it would have been more if in doubt as to whether a proof should be lodged for the
claimed debt in Rachael's estate, to have sought directions as to that matter. It is, in my opinion, entirely inappropriate that this application should have been made "in respect of a matter arising in connexion with the administration of Rachael's estate". Indeed, I do not think that the matter which has been litigated has arisen in connexion with Rachael's estate. It has arisen in the administration of Anthony's estate but at this stage, not in Rachael's.
In my opinion, the facts as proved do not justify the exercise of the Court's discretion in favour of making either of the
declarations sought. The application will be dismissed.
My present view, without having heard argument, is that the costs of the first and third respondents should be paid by a the applicant personally without recourse to Rachael's estate. I am further of the view that the applicant's costs have not been properly incurred in the administration of Rachael's estate and should not be charged against the assets of same.
However, to give the parties an opportunity to be heard, I propose to reserve the question of costs. The respondents will have liberty, within 7 days, to make written submissions on any costs order sought. The applicant has liberty to make written submissions in reply within a further 7 days.

I certify that this and the

preceding 22 pages are a true copy of the Reasons for Judgment of the Honourable Mr Justice

Olney D

Associate:

Dated:

Heard:	31 August 1993, 2 September 1993
Place :	Melbourne
Judgment :	19 October 1993

Mr R. Frazzetto (instructed by Australian Government
Solicitor) appeared for the applicant.

Mr B. Sweeney (instructed by Mr G.D. Efron) appeared for the first and third respondents.

The second respondent did not enter an appearance.