Simeon v Prior
[2014] FCCA 1662
•31 July 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SIMEON v PRIOR | [2014] FCCA 1662 |
| Catchwords: BANKRUPTCY – Application for review of orders made by Registrar – whether substantial reasons for going behind judgment giving rise to judgment debt – whether non-compliance with requirement to file and serve necessary affidavits – consideration of course to be adopted. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.43, 44, 47(1), 52(1), 153B, 306(1) Federal Circuit Court of Australia Act 1999 (Cth), ss.3, 42, 104(2) & (3) |
| Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Martin & Anor v Commonwealth Bank of Australia (2001) 217 ALR 634; [2001] FCA 87 Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales & Anor (2008) 171 FCR 380; [2008] FCAFC 172 Napiat Pty Ltd v Salfinger (No.7) (2011) 202 FCR 264; [2011] FCA 1322 Olivieri v Stafford & Ors (1989) 24 FCR 413 O’Meara v Hitwise Pty Ltd & Anor (2007) 160 FCR 518; [2007] FCAFC 114 Prior v Simeon [2010] WASC 382 Totev v Sfar & Anor (2008) 167 FCR 193; [2008] FCAFC 35 Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572 |
| Applicant: | NICHOLAS SIMEON |
| Respondent: | JOHN PRIOR |
| File Number: | PEG 264 of 2013 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 12 December 2013 |
| Date of Last Submission: | 12 December 2013 |
| Delivered at: | Perth |
| Delivered on: | 31 July 2014 |
REPRESENTATION
| For the Applicant: | In person |
| Counsel for the Respondent: | Ms PA Martino |
| Solicitors for the Respondent: | P. A. Martino, Barrister & Solicitor |
ORDERS
The further hearing of the matter be adjourned to not before 9.30am on 6 August 2014.
Costs reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 264 of 2013
| NICHOLAS SIMEON |
Applicant
And
| JOHN PRIOR |
Respondent
REASONS FOR JUDGMENT
Sequestration Order made and review sought
On 16 September 2013 in matter PEG 151 of 2013 Registrar Jan of this Court made a sequestration order[1] against the estate of the applicant, Nicholas Simeon.[2] The Registrar also ordered the payment of costs out of the bankrupt estate of Mr Simeon in accordance with the provisions of the Bankruptcy Act 1966 (Cth).[3]
[1] “Sequestration Order”.
[2] “Mr Simeon”.
[3] “Bankruptcy Act”.
On 7 October 2013 Mr Simeon applied for review of the Registrar’s orders of 16 September 2013, and specifically for orders that those orders be set aside, and that the creditors petition filed by John Prior,[4] the respondent in the present proceedings, be dismissed, and that there be no order as to costs.
[4] “Mr Prior”.
Evidence
Two affidavits were filed on behalf of Mr Simeon:
a)the affidavit of Mr Simeon affirmed 5 November 2013;[5] and
b)an affidavit of Rhiane Bruce, a solicitor, sworn 5 November 2013.[6] In the final analysis, nothing turned on the content of Ms Bruce’s Affidavit.
[5] “Mr Simeon’s Affidavit”.
[6] “Ms Bruce’s Affidavit”.
An objection to paragraph 63 of Mr Simeon’s Affidavit was withdrawn at hearing.[7]
[7] Transcript at p.3.
Mr Prior relied upon his affidavit sworn 5 December 2013.[8] Mr Simeon did not seek to cross-examine Mr Prior nor dispute the accuracy of the content of Mr Prior’s Affidavit.[9]
[8] “Mr Prior’s Affidavit”.
[9] Transcript at p.41.
Factual matters
Largely, the facts are not in dispute.
Sometime in 2007 Mr Simeon was seeking finance to buy a property situated at 30 Reynolds Road, Applecross, Western Australia[10] when he met Mr Prior, who had been a former business partner,[11] who offered him finance to purchase the Reynolds Road Property, by way of a loan.[12] It appears likely that the period of the loan was initially intended to be for six months.[13]
[10] “Reynolds Road Property”.
[11] Mr Simeon’s Affidavit, paras.4-5.
[12] Mr Simeon’s Affidavit, paras.12-21.
[13] Mr Simeon’s Affidavit, para.20; Mr Prior’s Affidavit, para.11.
On 30 March 2007 a document entitled “Declaration of Trust”[14] was executed by Mr Simeon, Mrs Simeon (Mr Simeon’s late wife), and Mr Prior.[15]
[14] “Trust Deed”.
[15] Mr Simeon’s Affidavit, para.24 and annexure NS2; Mr Prior’s Affidavit, para.7, annexure JP2.
Mr Prior borrowed money in his capacity as a trustee to fund the purchase of the Reynolds Road Property, subject to a mortgage to the ANZ Bank and to additional security over an existing residential property that he owned.[16]
[16] Mr Prior’s Affidavit, paras.8-10.
The relevant terms of the Trust Deed were as follows:
A.The Trustee at the request and cost of the Beneficiary has purchased the property situated at 30 Reynolds Road, Applecross, Western Australia …
B.The property was purchased by the Trustee to be held by the Trustee as Trustee for the Beneficiary and the Trustee has agreed to execute this Declaration of Trust and to enter into the covenants hereinafter contained.
…
1.5 …:
(a)“Beneficiary” means Nicholas Simeon and Maria Simeon both of 30 Reynolds Road, Applecross, Western Australia;
…
(c)“Trustee” means John Prior of 30 Reynolds Road, Applecross, Western Australia;
…
3.TRUSTEE’S COVENENTS
3.1The Trustee hereby covenants with the Beneficiary that the Trustee shall transfer and deal with the property in such manner as the Beneficiary shall from time to time direct.
4.BENEFICIARY’S COVENANTS
4.1The Beneficiary hereby covenants with the Trustee that the Beneficiary shall at all times:
(1) Keep indemnified the Trustee against all loss, damage, expense, cost or liability of any nature which the Trustee may incur by reason of the Property being and remaining registered in the name of the Trustee;
(2) Pay all costs and expenses incurred by the Trustee in the execution of the trusts herein contained, express or implied.
…
On 30 May 2007 Mr Prior became the registered proprietor of the Reynolds Road Property.[17]
[17] Mr Prior’s Affidavit, para.12.
At some time in 2009 Mr Prior told Mr Simeon that he wanted to sell the property to get his money back.[18] Mr Prior says that this followed several requests for repayment of the loan made to Mr Simeon.[19]
[18] Mr Simeon’s Affidavit, para.25.
[19] Mr Prior’s Affidavit, para.13.
Sometime in 2009 Mr Prior, Mr and Mrs Simeon and a company called Nixim Holdings Pty Ltd entered into a Deed of Agreement, which evidenced amounts Mr Prior paid as trustee of the Reynolds Road Property for acquisition and maintenance, and including sums for mortgage repayments, rates and taxes. Mr and Mrs Simeon acknowledged and agreed that a debt existed for the repayment of the mortgage repayments, land tax, rates and taxes for the Reynolds Road Property.[20] Under the Deed of Agreement reference is also made to arrangements between the parties with respect to the acquisition and development of a property at 69D Gairloch Street, Applecross, Western Australia[21] and to cash payments to secure an interest in Pedelos Shipping Pty Ltd[22] made by Mr Prior to Mr Simeon.[23]
[20] Mr Simeon’s Affidavit, paras.26 and 27 and annexure NS3; Mr Prior’s Affidavit, paras.14-15, annexure JP6.
[21] “Gairloch Street Property”.
[22] “Pedelos Shipping”.
[23] Mr Prior’s Affidavit, para.16.
In the Deed of Agreement:
a)in respect of the Gairloch Street Property it was agreed by all parties that the Gairloch Street Property should be sold, and that the proceeds should be used:
i)firstly, to discharge any loans on the Gairloch Street Property;
ii)secondly, to reimburse Mr Prior funds paid by him to Mr and Mrs Simeon; and
iii)that the balance be divided equally between Mr Prior as to one half and Mr and Mrs Simeon as to the other half;[24] and
b)in relation to the Reynolds Road Property:
i)Mr and Mrs Simeon acknowledged that the property had been funded by Mr Prior and that Mr Prior had been making mortgage repayments, land tax and rates and taxes payments;[25]
ii)that Mr and Mrs Simeon agreed to reimburse Mr Prior all mortgage repayments, interest, costs and expenses paid on their behalf in respect of the Reynolds Road Property;[26] and
iii)clarified their respective interests in the Gairloch Street Property and the Reynolds Road Property, including the repayments made by Mr Prior in respect of the mortgage repayments, costs, expenses and rates and taxes.[27]
[24] Deed of Agreement, recital G.
[25] Deed of Agreement, recital L and para.10.
[26] Deed of Agreement, recital M.
[27] Deed of Agreement, recital N.
In August 2009 Mr and Mrs Simeon lodged a caveat over the Reynolds Road Property to protect their beneficial interest under the Trust Deed.[28]
[28] Mr Simeon’s Affidavit, para.28; Mr Prior’s Affidavit, para.18 (“Caveat”).
In February 2010 Mr Prior caused the Registrar of Titles to send a notice under s.138B of the Transfer of Land Act 1893 (WA)[29] to Mr and Mrs Simeon in anticipation of selling the Reynolds Road Property.[30]
[29] “TOL Act”.
[30] Mr Simeon’s Affidavit, para.29; Mr Prior’s Affidavit, para.21. Section 138B of the TOL Act provides as follows:
Mr Prior subsequently appointed a real estate agent, Hopkins Realty, as agent to market the Reynolds Road Property, which the realtor estimated at that time (15 February 2010) to have a current market value of approximately $2 million.[31]
[31] Mr Simeon’s Affidavit, para.30, annexure NS4; Mr Prior’s Affidavit, para.19, annexure JP7.
On 16 April 2010 Mr Prior commenced proceedings in the Supreme Court of Western Australia against Mr Simeon.[32] In summary, the orders sought in the Supreme Court Proceedings by Mr Prior were as follows:
a)the Reynolds Road Property be sold;
b)the Caveat be removed from the Reynolds Road Property for the purpose of enabling a sale;
c)Mr Prior be indemnified for the liabilities, expenses and costs incurred and paid by him on behalf of Mr and Mrs Simeon pursuant to the Trust Deed; and
d)Mr and Mrs Simeon pay Mr Prior’s costs of the Supreme Court Proceedings on an indemnity basis.[33]
[32] “Supreme Court Proceedings”.
[33] See Prior v Simeon [2010] WASC 382 at para.16 per Corboy J (“Prior”).
The Supreme Court Proceedings were adjourned periodically throughout most of the remainder of 2010 in order to facilitate Mr Simeon’s attempts to obtain finance to purchase the Reynolds Road Property.[34]
[34] Mr Simeon’s Affidavit, paras.31-39; Mr Prior’s Affidavit, para.26.
On 21 September 2010 Mr and Mrs Simeon obtained conditional loan approval for an amount of $1.36 million from The Vision Home Loan Company.[35] The Conditional Loan Approval was conditional on the Reynolds Road Property not being sold for less than $1.7 million, and there being a signed and dated contract of sale for the Reynolds Road Property.[36] Mr Simeon planned to obtain the remaining 20% of the purchase price from what he described as his “normal business associates” with whom he said he “had been dealing with … and borrowing from … for the past 20 or 30 years. I also had a private investor lined up.”[37]
[35] “Conditional Loan Approval”.
[36] Mr Simeon’s Affidavit, para.40 and annexure NS5.
[37] Mr Simeon’s Affidavit, para.41.
Sometime on or after 20 September 2010 Mr and Mrs Simeon submitted an offer to purchase the Reynolds Road Property for $1.7 million.[38] Mr Prior did not accept the offer, and amended the offer document (presumably by way of a counter-offer) to provide for a purchase price of $1.9 million, and a special condition requiring Mr and Mrs Simeon to pay the sum of $518,000 owed by them to Mr Prior on or before a proposed settlement date of 23 November 2010.[39]
[38] Mr Simeon’s Affidavit, paras.43-44; annexure NS6.
[39] Mr Simeon’s Affidavit, para.44 and annexure NS6.
In subsequent discussions with Mr Prior’s solicitor it was indicated to Mr Simeon that Mr Prior needed $1.9 million to clear existing loans, and Mr Simeon says that he said that he:
… could go to $1,650,000 or $1,700,000.[40]
[40] Mr Simeon’s Affidavit, para.54.
The counter-offer was not accepted by Mr and Mrs Simeon, and Mr Simeon indicates that this was because Mr Prior “would not accept less than $1,900,000.00 and I could not gain finance for that amount.”[41]
[41] Mr Simeon’s Affidavit, para.48.
On 7 December 2010 orders were made in the Supreme Court Proceedings, including orders that:
a)the Reynolds Road Property be sold by private treaty;
b)Mr Prior have the conduct of the sale of the Reynolds Road Property, with a qualified and certified real estate agent to act on such sale and to be engaged by Mr Prior, with the agent to recommend a reserve price, and with the agent to market, advertise and otherwise offer the Reynolds Road Property for sale by way of private treaty;
c)the Reynolds Road Property be offered at public auction if not sold by private treaty within three months of the date of retainer of the real estate agent;
d)Mr Prior and Mr and Mrs Simeon be at liberty to bid at any auction;
e)Mr and Mrs Simeon deliver up possession of the Reynolds Road Property within 14 days of any date fixed for settlement of any sale, and that they cooperate fully with the real estate agent appointed by Mr Prior in the sale process including making the Reynolds Road Property available for inspection; and
f)the Caveat be removed forthwith.[42]
[42] Mr Simeon’s Affidavit, para.49 and annexure NS8 (being a copy of the Supreme Court’s order dated 7 December 2010 in the Supreme Court Proceedings). See also Mr Prior’s Affidavit, paras.27-28.
Prior was published on 14 December 2010, and the Supreme Court observed that:
a)Mr Simeon did not dispute the existence or terms of the Trust Deed or that Mr Prior had expended money on the Reynolds Road Property in his capacity as trustee;[43]
b)Mr Simeon’s “primary position throughout the proceedings … was that he should be given time to arrange finance to repay Mr Prior and to discharge or take over a mortgage granted to ANZ to secure the loan made for the acquisition of the [Reynolds Road] Property”;[44]
c)the amount of money expended by Mr Prior to pay expenses associated with the Reynolds Road Property in the period commencing from 30 March 2007 up to 1 November 2010 was $473,895.00;[45]
d)Mr and Mrs Simeon acknowledged and agreed in the Deed of Agreement that Mr Prior had assisted them with repayment of the mortgage and expenses such as rates and taxes,[46] and it was not in dispute that Mr Prior had made the payments in his capacity as trustee for the purpose and benefit of the trust, and there was no suggestion that the payments were made for expenses improperly incurred;[47]
e)the proceedings had been adjourned on 3 and 25 August 2010 and 28 September 2010 by consent, and “following advice from Mr Simeon that he was negotiating with various persons, including ANZ, to obtain funds to repay the amounts that had been expended by Mr Prior and to discharge or take over the mortgage granted to ANZ over the Reynolds Road Property;[48]
f)at the directions hearing on 28 September 2010 it was agreed at Mr Simeon’s request that there be a further directions hearing on 30 November 2010 to ascertain whether he had been successful in obtaining finance;[49]
g)at the directions hearing on 30 November 2010 the Supreme Court had ordered that the originating summons be heard on 7 December 2010, and in so doing refused an application by Mr Simeon for the hearing to be deferred to late January 2011 to provide further time for him to seek finance, and, in so doing, the Supreme Court observed that:
… Mr Simeon had endeavoured for some time to raise finance but had been unsuccessful and the resolution of Mr Prior’s application could not longer be deferred.[50]
[43] Prior at para.6 per Corboy J.
[44] Prior at para.6 per Corboy J.
[45] Prior at para.10 per Corboy J.
[46] Prior at para.11 per Corboy J.
[47] Prior at para.12 per Corboy J.
[48] Prior at para.18 per Corboy J.
[49] Prior at para.19 per Corboy J.
[50] Prior at para.19 per Corboy J.
h)there were well-established principles in relation to a trustee’s right of indemnity which were to be applied;[51]
i)“the effect of the principles that have been briefly summarised when applied to the circumstances of this matter is that:
[51] Prior at paras.20-22 per Corboy J.
(a)Mr Prior has a right of reimbursement out of the trust property;
(b)Mr Prior has an equitable lien over the [Reynolds Road] Property which may be enforced by an order for its sale so as to grant a fund from which he can be reimbursed;
(c)Mr Prior’s equitable interest will be preferred over Mr and Mrs Simeon’s beneficial interest in the [Reynolds Road] Property.”[52]
j)in making orders it did so having regard to, amongst other things:
… the apparent inability of Mr and Mrs Simeon to satisfy the indemnity that they had granted Mr Prior under the Deed of Trust and the fact that the creation of a fund from the sale of the [Reynolds Road] Property represented the only means by which Mr Prior could be reimbursed given that Mr Simeon had been unable to obtain finance within a reasonable time.[53]
[52] Prior at para.23 per Corboy J.
[53] Prior at para.24 per Corboy J.
There were subsequent arrangements made for realtors to be engaged to sell the Reynolds Road Property, and various offers by a variety of parties, including Mr and Mrs Simeon, and further Supreme Court orders, including orders for the Simeons to give up possession of the Reynolds Road Property, an unsuccessful auction of the Reynolds Road Property in September 2011, and orders granting leave to reduce the reserve price, twice, ultimately to $1.24 million.[54]
[54] Mr Simeon’s Affidavit, paras.50-60 and annexures NS10-14; Mr Prior’s Affidavit, paras.28, 32 and 36-37, annexure JP11.
The Reynolds Road Property was sold following an offer made in December 2011 which settled in January 2012, but which left a balance owing on the ANZ mortgage of $728,968.28.[55] The final sale figure is not revealed in the affidavit material, although Mr Simeon indicates that he “believes” (the source of belief not being stated) that the Reynolds Road Property sold for $1,218,462.88.[56]
[55] Mr Prior’s Affidavit, paras.38-39.
[56] Mr Simeon’s Affidavit, para.61.
On 13 February 2013 further orders were made by the Supreme Court in the Supreme Court Proceedings ordering Mr and Mrs Simeon to pay to Mr Prior the total sum of $1,275,649.73 “by way of indemnity for the expenses that had been incurred and paid by the Plaintiff [Mr Prior] in his capacity as trustee of the trust created by deed dated 30 March 2007.”[57]
[57] Mr Simeon’s Affidavit, annexure NS1.
The 13 February 2013 order of the Supreme Court indicates that in a previous order dated 5 December 2012 (which does not otherwise appear to be in evidence) the Supreme Court had ordered $473,895 to be paid by Mr and Mrs Simeon to Mr Prior, and that the sum of $1,275,649.73 in the 13 February 2013 order included the sum of $473,895 under the 5 December 2012 order.
In Prior there are two findings which relate to Mr Simeon’s capacity to raise finance, namely:
a)that he had endeavoured for some time to raise finance but had been unsuccessful;[58] and
b)that the creation of a fund from the sale of the Reynolds Road Property represented the only means by which Mr Prior could be reimbursed given that Mr Simeon had been unable to obtain finance within a reasonable time.[59]
Those findings have relevance to the question of whether or not Mr Simeon can show substantial reasons to question the sufficiency of the judgment in Prior as proof that he is indebted to Mr Prior in the amount set out in paragraph 28 above.
[58] Prior at para.19 per Corboy J.
[59] Prior at para.24 per Corboy J.
There is unchallenged evidence before this Court that:
a)Mr Simeon had from 2003 to 2006 been a bankrupt;[60]
[60] Mr Prior’s Affidavit, para.56.
b)in the period from 30 March 2007 to January 2012, aside from one and perhaps two payments made by Mr and Mrs Simeon, Mr Prior had paid all of the mortgage payments, land tax, home insurance and other rates and taxes for the Reynolds Road Property;[61]
[61] Mr Prior’s Affidavit, para.12.
c)Mr and Mrs Simeon had paid no rent whilst occupying the Reynolds Road Property;[62]
[62] Mr Prior’s Affidavit, para.31.
d)in January, February and December 2010 Mr Simeon had written cheques to Mr Prior in the sums of $15,000, $105,000 and $80,000 respectively, each of which was dishonoured;[63]
[63] Mr Prior’s Affidavit, para.30(f) and (g).
e)Mr Prior had not received any funds in relation to the Gairloch Street Property in relation to expenses incurred in the acquisition and development of that property;[64]
[64] Mr Prior’s Affidavit, para.60.
f)Mr Simeon had made no contribution to Mr Prior in respect of their joint purchase of a property in Moreing Road, Attadale, Western Australia;[65]
[65] Mr Prior’s Affidavit, para.61.
g)in respect of Pedelos Shipping:
i)Mr Prior had been promised shares in Pedelos Shipping by Mr Simeon;
ii)Pedelos Shipping was apparently a shipping venture in relation to ships in Greece, whereby payments would be received for the use of the ships, which payments Mr Simeon represented as being significant;
iii)Mr Prior advanced Mr Simeon monies for, amongst other things, travel to Greece and in respect of Pedelos Shipping matters;
iv)Mr Prior has not been repaid any of those monies by Mr Simeon; and
v)Mr Prior had not seen any contracts or documents regarding the shipping ventures carried on by Pedelos Shipping;[66]
h)Pedelos Shipping is a company in which there are only ten ordinary shares of issued capital, and in respect of which Mr Simeon’s company NS Nominees Pty Ltd is a shareholder together with a Mr Whitting;[67] and
i)Mr Prior received no shares or any benefit whatsoever from Pedelos Shipping.[68]
[66] Mr Prior’s Affidavit, paras.66-70.
[67] Mr Prior’s Affidavit, para.71 and annexure JP30.
[68] Mr Prior’s Affidavit, para.72.
Mr Simeon was cross-examined at hearing. In regard to his evidence, the Court observes as follows:
a)despite describing himself as a businessman Mr Simeon said he had not “done anything” since 2003;[69]
[69] Transcript at p.11.
b)Mr Simeon had been on a pension since 2003;[70]
c)Mr Simeon had been made bankrupt in 2003;[71]
d)in 2010 Mr Simeon applied for finance on the basis of an income of $600,000 per annum, which he admitted in cross-examination was conditional upon a deal involving the sale of tugs or shares in Pedelos Shipping, which never eventuated, and this conditional deal was the basis for his claim that he would be able to make up the balance of monies to purchase the Reynolds Road Property, namely $340,000, when he obtained the Conditional Loan Approval for $1.36 million based upon a purchase price for the property of not less than $1.7 million;[72]
e)on two occasions when endeavouring to obtain finance in or about 2010 Mr Simeon signed documents which indicated, wrongly, that he had not been bankrupt;[73]
f)Mr Simeon did not produce to the Supreme Court, or to this Court, any contract for the sale of any tugs or shares in Pedelos Shipping;[74]
g)despite all the representations made from April 2010 to December 2010 about obtaining finance to purchase the Reynolds Road Property, Mr Simeon did not obtain any finance;[75]
h)in 2010 cheques written by Mr Simeon to Mr Prior for sums of $105,000, $80,000 and $15,000 were not honoured;[76]
i)Mr Simeon agreed with the proposition that Mr Prior had paid monies for the Reynolds Road Property, and he was not disputing the figures in relation to the amounts spent on the Reynolds Road Property by Mr Prior;[77]
j)the final sum ordered to be paid by the Supreme Court of $1,275,649.73 was calculated by adding to the sum of $473,895 under the 5 December 2012 order (being monies spent by Mr Prior on the Reynolds Road Property) the amount left owing on the ANZ mortgage of $728,968.28, plus interest;[78] and
k)Mr Simeon still thought that an amount to finance the purchase of the Reynolds Road Property was “going to come to fruition”.[79]
[70] Transcript at p.11.
[71] Transcript at p.14.
[72] Transcript at pp.12-13, 15 and 18-19.
[73] Transcript at p.23.
[74] Transcript at p.19.
[75] Transcript at p.21.
[76] Transcript at pp.25-26.
[77] Transcript at p.8.
[78] Transcript at pp.29-30.
[79] Transcript at page 30.
The real estate agent, Mr Hopkins, was subpoenaed by Mr Simeon to give evidence at hearing. Mr Hopkins’ evidence was of no assistance to the Court in the determination of relevant issues.
Submissions
Mr Simeon’s submissions
Mr Simeon’s written submissions:
a)set out some of the undisputed facts set out above;
b)assert that Mr Simeon ought to have been able to obtain personal finance as he had in the past from banks, mortgage brokers or personal loans to fund the remainder of the purchase price in relation to his $1.7 million offer for the Reynolds Road Property;
c)are disjointed and make a number of irrelevant submissions in relation to:
i)Mr Prior’s refusal to accept the $1.7 million offer;
ii)the position of Ms Martino (who appeared as Counsel for Mr Prior in these proceedings); and
iii)the prior business relationships between Mr Simeon and Mr Prior; and
d)do not address a critical issue, namely, whether there is a substantial reason or reasons to question the sufficiency of the judgment in Prior giving rise to the debt.[80]
[80] Citing Wren v Mahony (1972) 126 CLR 212 at 224-225 per Barwick CJ (with whom Windeyer and Owen JJ agreed at 237) (“Wren”).
Mr Simeon did make short final oral submissions, the effect of which can be summed up in the following plea made by him:
… all I’m asking is if I could have a chance to go out and borrow some money without being bankrupt. That’s all I can ask.[81]
[81] Transcript at p.45.
Mr Prior’s submissions
Mr Prior’s submissions acknowledge that the Court has the capacity to look behind a judgment where there are substantial reasons given for questioning whether behind that judgment there was in truth a debt due.[82]
[82] Wren and Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572 (“Wiltshire-Smith”).
Mr Prior submits that:
a)there is no evidence in Mr Simeon’s Affidavit of his financial means at any time since 2000;
b)there is no evidence in the form of financial documentation or valuations as to the activities or value of Mr Simeon’s shareholding in Pedelos Shipping;
c)the onus is upon Mr Simeon to ask the Court to go behind the judgment in Prior and in doing so to satisfy the Court that there are substantial reasons for questioning the validity of the judgment in Prior; and
d)on the history of the matter, and because financial evidence of the worth or sale of the Pedelos Shipping shares is lacking, Mr Simeon did not have the financial means to purchase the Reynolds Road Property, and has therefore failed to satisfy the Court that there are substantial reasons for questioning the validity of the judgment in Prior.
Consideration
The law
Under s.104(2) of the Federal Circuit Court of Australia Act, 1999 (Cth)[83] the Registrar’s exercise of power to issue the Sequestration Order may be the subject of an application for review. Under s.104(3) of the FCCA Act, this Court “may make any order or orders it thinks fit in relation to” the Registrar’s exercise of power in issuing the Sequestration Order.
[83] “FCCA Act”.
The review proceeds by way of a hearing de novo,[84] and the Court may receive as evidence any affidavit or exhibit tendered before a Registrar, and may receive further evidence if leave is granted to a party or the parties to adduce further evidence.[85] It is open to the Court to make an order for annulment of bankruptcy[86] when reviewing a sequestration order.[87]
[84] Pattison v Hadjimouratis (2006) 155 FCR 226 at 230-231 per Nicholson J and 237 per Jacobson J; [2006] FCAFC 153 at paras. 10-11 per Nicholson J and para. 59 per Jacobson J (“Hadjimouratis”); Travaglini v Raccuia (2007) 211 FLR 127 at 133 per Lucev FM; [2007] FMCA 777 at para. 21 per Lucev FM.
[85] Federal Circuit Court Rules 2001 (Cth), r.20.03(a)-(c) (“FCC Rules”).
[86] Bankruptcy Act, s.153B.
[87] Hadjimouratis, FCR at 230-231 per Nicholson J and 237 per Jacobson J; FCAFC at paras. 10-11 per Nicholson J and para. 63 per Jacobson J.
Because the application is a fresh proceeding, albeit by way of review, Mr Prior, as petitioning creditor, must prove all matters necessary for the making of a sequestration order.[88] The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, and subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met.
[88] Hadjimouratis, FCR at 235 per Jacobson J and 252 per Lander J; FCAFC at para. 43 per Jacobson J and para. 156 per Lander J; O’Meara v Hitwise Pty Ltd & Anor (2007) 160 FCR 518 at 521 per Kiefel, Sundberg and Gyles JJ; [2007] FCAFC 114 at para. 9 per Kiefel, Sundberg and Gyles JJ.
Mr Prior as petitioning creditor is also obliged to put before the Court affidavits:
a)verifying the petition;[89]
b)as to search of the records of the Court and the Federal Court as to any application in relation to the bankruptcy notice;[90]
c)of service of the bankruptcy notice;[91]
d)of service of documents required to be served under r.4.05 of the FCC (Bankruptcy) Rules;[92]
e)of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition;[93] and
f)of debt on which the creditor still relies as owing.[94]
[89] Bankruptcy Act, s.47(1); Federal Circuit Court (Bankruptcy) Rules2006 (Cth), r.4.02 (“FCC (Bankruptcy) Rules”).
[90] FCC (Bankruptcy) Rules, r.4.04(1)(a) and (2).
[91] FCC (Bankruptcy) Rules, r.4.04(1)(b).
[92] FCC (Bankruptcy) Rules, r.4.06(2).
[93] FCC (Bankruptcy) Rules, r.4.06(3).
[94] FCC (Bankruptcy) Rules, r.4.06(4).
Fresh affidavits of search and debt must, unless an order waiving compliance has issued, be filed on an application for review.[95]
[95] Martin & Anor v Commonwealth Bank of Australia (2001) 217 ALR 634 at 637-638 per North, Mansfield and Katz JJ; [2001] FCA 87 at paras.16-19 per North, Mansfield and Katz JJ (“Martin”).
The Court has jurisdiction to go behind the judgment in Prior giving rise to the debt to determine if the debt really is owed, with the onus being on Mr Simeon, as debtor, to demonstrate that there exists a reason for questioning the debt.[96]
[96] Wolff v Donovan (1991) 29 FCR 480 at 481 per Davies J and 485-487 per Lee and Hill JJ.
As to the question whether this Court ought to go behind the judgment in Prior, the law as to whether a court vested with bankruptcy jurisdiction[97] ought to do so was summarised succinctly in Dwyer & Anor v B.J. Magees Pty Ltd[98] where it was said that:
6. There is no doubt that in an appropriate case a court exercising federal jurisdiction in bankruptcy can go behind a judgment relied upon by a judgment creditor and inquire whether, despite the judgment, there is in truth and reality a debt due: Corney v Brien (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212. The power to go behind the judgment may be exercised by the Court on an application to set aside a bankruptcy notice: Oliveri v Stafford (1989) 24 FCR 413.
7. In this particular case the judgment was obtained after a contested hearing in which the applicants were legally represented. A bankruptcy court will not readily go behind such a judgment. As I understand the authorities, substantial reasons must be shown by the debtor to question the sufficiency of the judgment as proof that the debtor is, in truth and reality, indebted to the creditor in the respect reflected in the judgment: Wren v Mahoney at 224 and 225; Wolff v Donovan (1991) 29 FCR 480 at 486. Because of the effect of a sequestration order, however, it is appropriate to go behind a judgment obtained even after a contested hearing on the merits if a judgment debtor presents to a bankruptcy court a sufficiently cogent case that he or she is not truly indebted.
8. Whether the Court should go behind a judgment is a matter of discretion. A bankruptcy court would only be prepared to re-try, as it were, the contest between the judgment debtor and the judgment creditor on the same materials on which the judgment creditor obtained the judgment in a wholly exceptional case….[99]
[97] As this Court is: see Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales & Anor (2008) 171 FCR 380 at 383-384 and 387 per Branson J, 399 per Greenwood J and 429 per Perram J; [2008] FCAFC 172 at paras.4 and 20 per Branson J; 80-81 per Greenwood J and 201 per Perram J (“Meriton Apartments”).
[98] [2004] FMCA 525 (“B.J. Magees”).
[99] B.J. Magees at paras.6-8 per Jarrett FM (footnote deleted).
Olivieri v Stafford & Ors[100] is a judgment of a Full Court of the Federal Court in which the appellant contended that that the amount of a final judgment in the District Court of New South Wales, being $19,318.93, which was the same amount as the debt said to be owing under the bankruptcy notice, was overstated by an amount of $389, and that the bankruptcy notice was therefore invalid. The appellant had failed in an application to the District Court of New South Wales to set aside the final judgment. The majority in Olivieri upheld the validity of the bankruptcy notice and dismissed the appeal, observing that a court exercising bankruptcy jurisdiction has power to “go behind” the judgment relied on to found the bankruptcy notice so as to inquire into the existence of the alleged debt,[101] and does so on the basis that a bankruptcy notice which has been “issued for a debt which is liable to be set aside or varied such that the creditor does not have a debt upon which the bankruptcy proceedings can be founded” does not give effect to the provisions of the Bankruptcy Act.[102]
[100] (1989) 24 FCR 413 (“Olivieri”).
[101] Olivieri at 422 per Beaumont J.
[102] Olivieri at 429-430 per Gummow J.
The law applied to this case
It is convenient to first deal with the question of whether the Court ought to go behind the judgment in Prior. The judgment in Prior was based on largely undisputed facts, which in these proceedings remain largely undisputed. Three essential facts emerge:
a)that by reason of the provisions of the Trust Deed and the Deed of Agreement, Mr Simeon was indebted to Mr Prior in the sum of $1,275,649.73 at the time of judgment in respect of mortgage and other expenses for the Reynolds Road Property;
b)Mr Simeon was unable to raise finance to repay Mr Prior the debt of $1,275,649.73 prior to judgment in Prior being delivered; and
c)there was no evidence that Mr Simeon had income which would enable him to pay the debt of 1,275,649.73.
There is, and can be, no suggestion or argument that the Supreme Court incorrectly applied the law to the facts in determining Prior.
In the above circumstances, there is no basis whatsoever for this Court, in its capacity as a court exercising bankruptcy jurisdiction, to go behind the judgment in Prior.
More difficult is the question of whether there has been compliance with the provisions of the FCC (Bankruptcy) Rules, and what effect, if any, any non-compliance might have at this stage of the hearing. Ordinarily, non-compliance would result in an order setting aside the Sequestration Order and dismissing the creditors petition.[103] This however is no ordinary case. The Supreme Court Proceedings were lengthy and were so in an endeavour to facilitate Mr Simeon’s many requests for adjournment to enable him to raise finance, which he ultimately failed to do. Further, for reasons set out above, in these proceedings Mr Simeon has failed to persuade the Court that the Court ought to go behind the judgment in Prior.
[103] Lasm v Body Corporate for La Porte D’Or CTS 12681 [2011] FMCA 800 at para.14 per Lucev FM.
There was no indication by either Mr Simeon or Mr Prior as to what, if any, evidence by way of affidavit or exhibit tendered before the Registrar would be sought to be relied upon at hearing, as parties were entitled to do pursuant to order 3 of the Court’s orders of 15 October 2013. There was no compliance by Mr Prior with the requirement to file various affidavits under the FCC Bankruptcy Rules.[104] The parties effectively conducted the final hearing on the basis that there was an application to set aside the Sequestration Order, rather than a review of the orders of a Registrar, and regrettably the Court failed to recognise that distinction at the time of the final hearing.
[104] FCC (Bankruptcy) Rules, rr.1.03(1), 4.02, 4.04(1)(a) and (b) and (2), 4.05, 4.06(2), (3) and (4).
In the above circumstances, issues arise as to whether:
a)the Court can or ought to waive compliance with the provisions of the FCC (Bankruptcy) Rules or the FCC Rules insofar as they may be applicable;[105] or
b)the Sequestration Order against Mr Simeon’s estate ought to be set aside and Mr Prior’s creditors petition dismissed for non-compliance with the FCC (Bankruptcy) Rules; or
c)the Court ought to grant Mr Prior leave to file the necessary affidavits required for compliance with the FCC (Bankruptcy) Rules at this stage of the hearing.[106]
[105] FCC (Bankruptcy) Rules, rr.4.02, 4.04(1)(a) and (b) and (2), 4.06(2), (3) and (4); FCC Rules, r.1.06; and see also Martin ALR at 637-638 per North, Mansfield and Katz JJ; FCA at paras.16-19 per North, Mansfield and Katz JJ. Totev v Sfar & Anor (2008) 167 FCR 193 at 197 per Emmett J and 204 per Bennett J; [2008] FCAFC 35 at para.15 per Emmett J and para.52 per Bennett J; Napiat Pty Ltd v Salfinger (No. 7) (2011) 202 FCR 264 at 284 per Foster J; [2011] FCA 1322 at paras.93-99 per Foster J.
[106] Boutros v Santa Sabina College Ltd [2011] FCA 477 at para.18 per Nicholas J; de Robillard & Carver (2007) 159 FCR 38 at 55 per Buchanan J; [2007] FCAFC 73 at paras.93-95 per Buchanan J.
What course the Court should adopt may also be affected by the objects of the FCCA Act and FCC Rules,[107] the requirements of the Bankruptcy Act,[108] and issues of case management and the interests of justice and the administration of justice. It would be a denial of procedural fairness to both parties for the Court to make final orders at this stage without hearing from the parties as to what course the Court might adopt in relation to the present non-compliance by Mr Prior with the provisions of the FCC (Bankruptcy) Rules in relation to the filing of the necessary affidavits and service thereof. For that reason, the Court proposes to adjourn the matter and hear further oral submissions in relation to these issues on 6 August 2014 at not before 9.30am.
[107] FCCA Act, s.3; FCC Rules, r.1.03.
[108] For example, Bankruptcy Act, ss.52(1) and 306(1).
Conclusions and orders
The Court has concluded that:
a)there is no basis for this Court, in its capacity as a court exercising bankruptcy jurisdiction, to go behind the judgment in Prior; and
b)in order to afford the parties procedural fairness, it is necessary to hear further oral submissions in relation to what course the Court might adopt in relation to the non-compliance by Mr Prior with the requirement to file and serve various affidavits under the FCC (Bankruptcy) Rules.
The Court will order that the proceedings be adjourned to not before 9.30am on 6 August 2014 and that costs be reserved.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 31 July 2014
(1) If a section 138A caveat has been lodged then the proprietor of the land in respect of which the caveat was lodged, or the judgment creditor named in a property (seizure and sale) order registered under section 133 in respect of the judgment debtor’s saleable interest in such land, may apply, in an approved form and on payment of the prescribed fee, for the Registrar to serve the caveator with a notice to the effect that, unless the caveator takes the action referred to in subsection (2) within 21 days after the day on which the notice is served, the caveat will lapse.
(2) If the notice referred to in subsection (1) is served on the caveator then the caveat lapses 21 days after the day on which the notice was served unless, before that time, the caveator has —
(a) obtained from the Supreme Court an order extending the operation of the caveat —
(i) for such further period as is specified in the order; or
(ii) until the further order of the court;
and
(b) lodged with the Registrar a copy of the order.
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