Sibonna Nominees Pty Ltd v Vouzas
[2014] FCCA 224
•14 February 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SIBONNA NOMINEES PTY LTD & ANOR v VOUZAS | [2014] FCCA 224 |
| Catchwords: BANKRUPTCY – Whether the Applicants were secured creditors for the purpose of s.44(3) of the Bankruptcy Act 1966 (Cth) – whether there was an overstatement of the debt for the purposes of s.45(1) of the Bankruptcy Act 1966 (Cth) – whether the Applicants complied with Reg.16.01 of the Bankruptcy Regulations1996 – sequestration order issued. |
| Legislation: Acts Interpretation Act 1901, s.25C County Court Act 1958, s.73(4) Bankruptcy Act 1966, ss.5(1), 41(2), 41(5), 44(3), 306 Bankruptcy Regulations 1996, regs.4.02, 16.01 |
| Adams v Lambert (2006) 152 FCR 433 Sykes, E. and Walker, S., The Law of Securities: An Account Pertaining to Securities over Real and Personal Property under the Laws of Australian Jurisdictions, (5th ed., 1993) |
| First Applicant: | SIBONNA NOMINEES PTY LTD (ACN 005 069 394) |
| Second Applicant: | ALCOR NOMINEES PTY LTD (ACN 004 638 804) |
| Respondent: | STEVEN VOUZAS |
| File Number: | MLG 1350 of 2013 |
| Judgment of: | Judge Whelan |
| Hearing date: | 10 December 2013 |
| Date of Last Submission: | 10 December 2013 |
| Delivered at: | Melbourne |
| Delivered on: | 14 February 2014 |
REPRESENTATION
| Counsel for the First and Second Applicants: | Mr Upjohn |
| Solicitors for the First and Second Applicants: | Lewenberg & Lewenberg Solicitors |
| Counsel for the Respondent: | Mr McCormick |
| Solicitors for the Respondent: | Goldsmiths Lawyers |
ORDERS
A sequestration order issue against the estate of
STEVEN NICK VOUZAS.
AND THE COURT NOTES THAT:
The date of the act of bankruptcy is 8 August 2013.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1350 of 2013
| SIBONNA NOMINEES PTY LTD (ACN 005 069 394) |
First Applicant
| ALCOR NOMINEES PTY LTD (ACN 004 638 804) |
Second Applicant
And
| STEVEN VOUZAS |
Respondent
REASONS FOR JUDGMENT
Introduction
In this matter, the First and Second Applicants,
SIBONNA NOMINEES PTY LTD (“Sibonna Nominees”) and
ALCOR NOMINEES PTY LTD (“Alcor Nominees”) (collectively
“the Applicants”), seek that a sequestration order be made against the estate of the Respondent STEPHEN VOUZAS (“the Respondent”). The Respondent opposes the making of the sequestration order on, essentially, three grounds:
·
The Bankruptcy Notice[1] (“the Notice”) is invalid because the copy of the order of Judge Kennedy of 19 April 2013 was not a true copy of the order sealed by the County Court on
27 May 2013 and further, the Notice was not served in accordance with the Bankruptcy Regulations 1996
(“the Regulations”);
·The Applicants are secured creditors and have not complied with the provisions of s.44(3) of the Bankruptcy Act 1966 (“the Act”); and
·The Notice is invalid by virtue of s.41(5) of the Act because the amounts specified in the Notice exceed the amount due and notice was given to the Applicants by the Respondent within the prescribed time that the debt was overstated.
[1] Affidavit of Noam Greenberger filed 23 August 2013, at Annexure “A”.
Background
Proceedings between the parties have a long history. For the purpose of these proceedings, it is sufficient to state that the Applicants in this matter, and others, instituted proceedings against the Respondent and another in the County Court in matter number CI 11-01857
(“the County Court proceedings”). On 17 February 2012, the parties entered into a Deed of Settlement[2] (“the Deed”) whereby it was agreed that the County Court proceedings be struck out, but with a right to reinstatement, and that the Respondent pay the Applicants the sum of $100,000.00. The Deed provided for a schedule of payments[3] with the right of the Applicants to enter judgment against the Respondent should he fail to meet those payments.
[2] Affidavit of Steven Nick Vouzas filed 9 December 2013, at Annexure “SNV-4”.
[3] Ibid.
The Deed also provided for the debt to become payable within a specified time should the Respondents recover a certain amount,
by way of Court order or terms of settlement, in proceedings in the Supreme Court SCI 2010 5307 (“the Supreme Court proceedings”),
in which the Respondent, in this matter, was a plaintiff.
It is apparent that the Respondent did not meet the schedule of payments set out in cl.2 of the Deed as, in accordance with cl.4 of the Deed, on 19 April 2013, the County Court proceedings were reinstated and the Respondent was ordered to pay the Applicants $87,000.00 plus interest fixed at $1,984.64, and costs fixed at $3,000.00.[4]
[4] Affidavit of Noam Greenberger filed 31 October 2013, at Annexure “A”.
On 8 October 2013, in the Supreme Court proceedings, Macaulay J dismissed the claims by the Respondent and entered judgment in favour of the First Defendant against the Respondent in the sum of $500,000.00 plus $147,719.15 interest.[5] On 28 October 2013, the Respondent lodged an appeal against the judgment of Macaulay J.
[5] Affidavit of Steven Nick Vouzas filed 9 December 2013, at Annexure “SNV-5”.
The First Applicant, Sibonna Nominees, issued a bankruptcy notice[6] for the first time on 29 May 2013. The Respondent issued a notice of objection[7] raising several issues, including an overstatement of the amount due, and that bankruptcy notice was subsequently withdrawn. A second bankruptcy notice,[8] issued on 20 June 2013, was also withdrawn after a second notice of objection[9] raising similar issues, including the calculation of the debt, was served on the Applicants by the Respondent.
[6] Ibid, at Annexure “SNV-3”.
[7] Ibid.
[8] Ibid.
[9] Ibid.
The third Bankruptcy Notice, which is the subject of these proceedings, was dated 18 July 2013. Again, the Respondent issued a notice of objection[10] claiming that the Notice was invalid on the ground that the debt described therein was overstated:
You have not taken into account the payments set out in the annexed schedule (these are some, not all of the payments) made against the principle debt. The Bankruptcy Notice claims that $440.30 has been paid when at least $507.54 has been paid of the Judgment Debt.[11]
[10] Ibid, at Annexure “SNV-2”.
[11] Ibid.
The attached Schedule of Payments[12] shows varying small amounts being paid between 13 June 2013 and 19 July 2013 of between $2.91 and $45.87, amounting to a total of $507.54.
[12] Ibid.
It is apparent, from the affidavit of Mr NOAM GREENBERGER
(“Mr Greenberger”) filed 31 October 2013, that such small and irregular payments continued to be made until 11 October 2013, despite the request of Ms HELEN WOLFERS (“Ms Wolfers”),
a director of Sibonna Nominees, to Westpac to reject further deposits into the account.[13] Ms Wolfers also states that, although
Sibonna Nominees does not have notice of the deposit until the day after it is made, the deposit is recorded as having been made on the previous day. The effect of this is that Sibonna Nominees cannot have an up-to-date figure of what has been paid at the time of issuing a bankruptcy notice.
[13] Affidavit of Noam Greenberger filed 31 October 2013, p.2 at para.13.
The issues
The Respondent asserts that the Applicants are secured creditors and are therefore subject to s.44(3) of the Act. That section provides:
A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
The Respondent submits that cl.10 of the Deed amounted to an equitable charge in that it gives the plaintiffs (the Applicants in these proceedings) the ability to recover from whatever the Respondent recovers in the Supreme Court proceedings, a sum of money which equates to whatever is due and owing under the Deed as at that date. The definition of ‘secured creditor’ in s.5(1) of the Act in relation to a debtor:
(b)in the case of any other debt--a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him or her from the debtor.
In terms of the Supreme Court proceedings, they are still live given the appeal by the Respondent currently pending.
The Respondent contends that the test for whether an equitable charge is created is whether one can say that a particular amount, or property, is expressly or constructively made liable. The Respondent contends that, properly constructed when one looks at paragraphs 10 and 11 in the context of the Deed, as a whole, it constructively makes liable the property which is the proceeds of the Supreme Court proceedings to payment of whatever was the balance of the debt at that point of time. If judgment had been obtained in the plaintiff’s favour, the Applicants would have been back in the County Court to enforce the clause.
The Applicants contend that cl.10 of the Deed does not provide any security to the Applicants. There is no express reference to security,
nor is there any security implied by any of the terms of the Deed; cl.10 of the Deed simply provides for an acceleration of the balance payable upon recovery in the nominated Supreme Court proceedings by the Respondent, or his company, against the defendants in those proceedings. There is no charge thereby created because there is no appropriation of property to payment of the debt. There is no promise to pay the Applicants out of such monies.[14]
[14] See Palette Shoes Pty Ltd v Krohn & Anor (1937) 58 CLR 1 at para.26 per Dixon J; Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 594-599.
Further, the Applicants submit the judgment of the County Court was entered on 19 April 2013, pursuant to the default clauses in the Deed[15] which provided for consent to judgment for the whole of the amount outstanding. There was, therefore, no work left for cl.10 of the Deed to do, which also provided for accelerated payments to be made in the event of recovery in the Supreme Court proceedings.
[15] Affidavit of Steven Nick Vouzas filed 9 December 2013, at Annexure “SNV-4”, cls.3-4.
I agree that it is necessary to consider the terms of cl.10 in the context of the Deed as a whole. Clause 10 of the Deed provides:
In the event that the Defendant and/or Speck Projects, and/or Baia Properties Pty Ltd, and or any entity related to either party recovers in proceedings SCI 2010 5307 (the “Supreme Court proceedings”) an amount which after payment of all of their legal costs and disbursements of the Supreme Court proceedings exceeds the amount outstanding of the settlement sum the balance outstanding of the settlement sum shall become immediately due and payable to the Plaintiffs and Vouzas shall within 14 days of recovery or on the next instalment date (whichever is the later) pay to the Plaintiffs the settlement sum remaining under these Terms of Settlement.
The issue is whether cl.10 of the Deed provides any rights to the Applicants over the property, in this case the prospective proceeds of a Supreme Court action by the Respondent, which would amount to a charge over that property. The requirements for the creation of an equitable charge would appear to be:
·First, an intention to create a charge; and
·Second, the existence of a definite ascertainable property, even though future, over which it is contemplated that the charge should exist.[16]
[16] Sykes, E. and Walker, S., The Law of Securities: An Account Pertaining to Securities over Real and Personal Property under the Laws of Australian Jurisdictions, (5th ed., 1993), at p.196.
There is nothing in the language of cl.10 of the Deed which would indicate an express intention to create a charge over the future proceedings of the Respondent’s Supreme Court action. The Deed provides for two circumstances under which the balance of the settlement sum should become due and payable:
·Where the defendant fails to make the instalment payments by the due date; and
·
Where the defendant recovers a certain amount from the
Supreme Court action after costs and disbursements.[17]
I am unable to see how an agreement which makes provisions for these contingencies of itself gives rise to an equitable charge over possible future sums which may come into the Respondent’s hands. It is purely a contractual arrangement, whereby the debt became due and payable on the occurrence of certain events, and shows no intention to assign anything to the Applicants.[18]
[17] Affidavit of Steven Nick Vouzas filed 9 December 2013, at Annexure “SNV-4”.
[18] Taylor v Freeway Mutual Pty Ltd [1978] 22 ALR 281.
Further, the Deed was predicated on the proceedings being struck out, albeit with a right to reinstatement. That right was exercised when the Applicants enforced the provisions of cls.3 and 4 of the Deed to obtain judgment against the Respondent. Having done so, I am satisfied, that the Deed, with respect cl.10, was no longer relevant as the settlement sum had become immediately payable by virtue of the orders of
Judge Kennedy.
For those reasons, I am not satisfied that the Applicants were secured creditors for the purpose of s.44(3) of the Act.
The s.41(5) issue
The Notice issued on 18 July 2013 claims an amount payable,
in accordance with the judgment, of $91,984.64. It makes no claim with respect to legal costs or interest accrued since the date of judgment and refers to payments made of $440.30, leaving a total debt amount of $91,544.34. Notice that the Respondent disputed the validity of the notice on the grounds of misstatement was given on
5 August 2013. The effect of s.41(5) of the Act is that, where a notice of objection is given, the bankruptcy notice becomes invalid and there is no power to amend it.[19]
[19] Skouloudis v St George Bank Ltd (2008) 173 FCR 236.
The Respondent submits that the Notice is invalid because of the overstatement. There is no claim for the interest accrued since the date of judgment, and there is no schedule of post-judgment interest calculation. It is conceded by the Applicants that there is an overstatement.
The Applicants submit that the Respondent failed to make payments of interest on the judgment debt which were due pursuant to s.73(4) of the County Court Act1958 (“the County Court Act”) and which accrued at the rate of 10.5% per annum from the date of judgment until
6 October 2013, and at the rate of 10% per annum as and from
7 October 2013. Calculating the amount at the lowest sum of the amount owed by the Respondent from the day of judgment until
9 December 2013, and applying the lowest interest rate of 10% per annum the amount on the Applicants’ submission, amounted to $24.93 per day, or $5,808.69. Payments to the Applicants by the Respondent, averaged over the period, amount to less than $24.93 per day.
Relying on the judgment of the High Court in Falk v Haugh (1935)
53 CLR 163 (“Falk”), the Applicants submit that, when payments are received generally on account of a debt, they are treated as applicable to interest in priority to principle. In this case, the debt carried interest and the Applicants were entitled to appropriate such sums as it received to interest. As the payments actually received never extinguished the interest that was accruing under s.73(4) of the County Court Act,
there was no overstatement in the Notice of the amount due and payable.
Further, the Applicants submit that the Respondent, in his notice of objection, must assert with some specificity how the misstatement of the amount specified is wrong, not just allege that there is a misstatement.[20] The notice of objection merely states that the sum of “at least $507.54” had been paid and the attached schedule purported to list “some, not all of the payments”.[21] Further, the amount of $32.25 stated in the schedule to have been paid on 13 June 2013 was, in fact, $32.14.
[20] Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120 at 551.
[21] Affidavit of Steven Nick Vouzas filed 9 December 2013, at Annexure “SNV-2”.
The Respondent contends that the requirements of s.41(5) of the Act are that the debtor provide sufficient information on the notice to enable the creditor to identify what is said to be the alleged misstatement. This does not mean that the debtor must identify the misstatement with complete precision, or specify the exact amount of the alleged excess of the claim. On a fair reading of the Respondent’s notice of objection, it is sufficient to alert the creditor to the nature of the misstatement.
Regulation 4.02 of the Regulations provides that, for the purposes of s.41(2) of the Act, the form of the bankruptcy notice set out in Form 1 is prescribed. Form 1, contained in the Regulations and used by the Applicants, provides for a total debt amount to be calculated by specifying the amount:
·As per the final judgment/orders;
·For legal costs (if claimed); and
·
For interest accrued since the date of judgment/orders
(if claimed),
less any payments made and/or credit allowed since judgment/orders. The notes contained in Form 1, with respect to legal costs and interest accrued since judgment, specified certain requirements ‘where’ such amounts are claimed. There is no obligation on the creditor to include legal costs, or interest accrued since judgment, in the bankruptcy notice.
The Respondent, over a period of time, made varying small deposits into the bank account of Sibonna Nominees. While the Respondent may have considered those payments to be payments made with respect to the judgment debt, Sibonna Nominees was entitled, by virtue of s.73(4) of the County Court Act, to interest on the balance owing at the statutory rate. The case of Falk supports the Applicants’ submission that Sibonna Nominees was entitled to treat these amounts, paid by the Respondent, as applicable to the interest owed in priority to the principal debt. There was no agreement between the parties to the contrary.
It is not clear why the Respondent chose to make almost daily small payments to Sibonna Nominees. Sibonna Nominees asserts that it was to frustrate them into issuing a bankruptcy notice which specified the precise amount owing. If that was the Respondent’s tactic, then it would appear that, by failing to ensure that those small amounts covered the interest which was accruing on the debt, the Respondent left himself open to the course of action taken by the Applicants.
The Applicants were entitled to treat those payments as payment towards the statutory interest owed. In that case, there is no overstatement of the debt on the Notice and the notice of objection does not therefore act to invalidate the Notice.
[22] (1980) 44 FLR 135 at 142.
In those circumstances, it is not necessary to deal with the issue of the validity of the notice of objection. The construction given to s.41(5) of the Act by the full Federal Court in Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120 would, however, appear to give a debtor more leeway in identifying the alleged misstatement than a creditor in identifying with precision the amount owed by the debtor.
I note however, in referring to the adoption of a
“benevolent construction”[22]being given to the debtors notice in
Re Brink; Ex parte Commercial Banking Company of Sydney Ltd(1980) 44 FLR 135, Lockhart J had regard to the difficulties facing an unrepresented debtor; a situation which is clearly not the case with respect to the Respondent.
Other issues with respect to the Notice
The Respondent raises two other issues with respect to the Notice:
·The authenticity of the order of the County Court attached to the Notice; and
·The service of the Notice.
With respect to the first issue, the general form of order bears a seal on the second page. There is a third page headed ‘Schedule of Parties’ which is unsealed. According to the affidavit of Ms FILOMENA LISA MAFFI (“Ms Maffi”),[23] a solicitor in the employ of the Respondent’s solicitors, when Ms Maffi went to the County Court to obtain a copy of the order, there was no Schedule of Parties attached. This raises the issue of what is the order.
[23] Affidavit of Filomena Lisa Maffi filed 3 December 2013.
The evidence of Mr Greenberger, the solicitor for the Applicants,
was that the order he had originally obtained from the County Court did not attach the Schedule of Parties. The order was rejected by Insolvency and Trustee Service Australia (“ITSA”) because
Mr Greenberger did not name the two Applicants in this matter.
Mr Greenberger, therefore, attended the County Court and obtained a copy of the Schedule of Parties. He was informed by the Court that it was not the general practice to seal the Schedule of Parties.
The evidence of Mr Greenberger was further that the documents served with the Notice were the documents as received by him from ITSA.
The General Form of Order referred to the parties as
“SIBONNA NOMINEES PTY LTD (ACN 005 069 394) & ORS (according to the Schedule of Parties) and STEVEN VOUZAS”.[24]
The Applicants are clearly identified as parties in the
Schedule of Parties. I am satisfied that the order, as served, constituted the order as made by Judge Kennedy on 19 April 2013 and sealed by the Court on 27 May 2013.
[24] Affidavit of Noam Greenberger filed 31 October 2013, at Annexure “F”.
With respect to the second issue, the Notice was served on the Respondent by email.[25] The email stated that, pursuant to reg.16.01(1) of the Regulations, the Applicant attached, by way of service,
the Notice issued by the Official Receiver on 18 July 2013 and copy of the Orders of Judge Kennedy made on 19 April 2013.[26] These two documents were contained in two separate PDF files attached to the email. Mr Greenberger stated that he served the documents exactly as they had been provided to him by ITSA.[27]
[25] Ibid.
[26] Affidavit of Noam Greenberger filed 31 October 2013, at Annexure “F”.
[27] Ibid, p.1 at para.4(c).
The Respondent asserts that service was not effective for the purpose of reg.16.01(1) of the Regulations because the copy of the Court order was not attached to the Notice.
The prescribed form for a bankruptcy notice refers to “the attached final judgment/s or final order/s”. A note to reg.4.02 of the Regulations with respect to the prescribed form refers to the provisions of s.25C of the Acts Interpretation Act 1901 which states that, where an Act prescribes a form then, unless the contrary intention appears,
strict compliance with the form is not required and substantial compliance is sufficient.
Regulation 16.01 of the Regulations provides for the service of documents. Regulation 16.01(1)(e)(ii) of the Regulations provides service by electronic transmission “in such a manner (for example,
by electronic mail) that the document should, in the ordinary course of events, be received by the person”.Clearly, the documents in this case were attached to the same email, although in two separate PDF files. By doing so, I am satisfied that the Applicants substantially complied with the requirement that the court order be ‘attached’ to the Notice.
If I am wrong with respect to either of those issues, then I consider that these are matters to which s.306 of the Act would apply, and no substantial injustice could be said to have been caused to the Respondent by any defect in compliance with the Act or Regulations.[28]
[28] Adams v Lambert (2006) 152 FCR 433.
For these reasons, I am satisfied that any objections to the Notice should be dismissed.
It is evident that the Respondent has not complied with the Notice.
He no longer asserts that he is solvent. The Applicants also rely on the Affidavit of Debt and the Affidavit of Search filed in court on
10 December 2013.
For these reasons, I am satisfied that a sequestration order should be made in accordance with the application filed by the petitioning creditors on 23 August 2013.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Judge Whelan
Associate:
Date: 14 February 2014
Key Legal Topics
Areas of Law
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Civil Procedure
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Commercial Law
Legal Concepts
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Abuse of Process
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Costs
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Res Judicata
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Stay of Proceedings
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