Soutar Accountants Pty Ltd v Combis and Sijabat as Trustees of the Bankrupt Estate of Gasparre (No.2)
[2020] FCCA 1959
•4 September 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SOUTAR ACCOUNTANTS PTY LTD v COMBIS & SIJABAT AS TRUSTEES OF THE BANKRUPT ESTATE OF GASPARRE (No.2) | [2020] FCCA 1959 |
| Catchwords: BANKRUPTCY – Application in a Case – quantification of funds due to the applicant in consequence of previous orders – application for costs. |
| Legislation: Bankruptcy Act 1966 (Cth), s.104 Federal Circuit Court Rules 2001 (Cth) |
| Cases cited: Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171 Soutar Accountants Pty Ltd v Combis & Sijabat as Trustees of the Bankrupt Estate of Cosimo Gasparre [2019] FCCA 1766 |
| Applicant: | SOUTAR ACCOUNTANTS PTY LTD |
| Respondent: | NICK JIM COMBIS & LOUISA MENG LI SIJABAT AS TRUSTEES OF THE BANKRUPT ESTATE OF COSIMO GASPARRE |
| File Number: | SYG 2767 of 2018 |
| Judgment of: | Judge Driver |
| Hearing date: | 17 July 2020 |
| Date of Last Submission: | 27 August 2020 |
| Delivered at: | Sydney |
| Delivered on: | 4 September 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr D Birch |
| Solicitors for the Applicant: | Molloy & Schrader Solicitors |
| Counsel for the Respondent: | Mr B Skinner |
| Solicitors for the Respondent: | CLH Lawyers |
ORDERS
The respondents shall pay to the applicant the sum of $89,565.98 within 21 days.
The respondents shall pay the applicant’s costs of the proceedings, other than the Application in a Case filed on 29 April 2020, fixed in the sum of $30,688.05.
There is to be no order as to costs of the Application in a Case.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2767 of 2018
| SOUTAR ACCOUNTANTS PTY LTD |
Applicant
And
| NICK JIM COMBIS & LOUISA MENG LI SIJABAT AS TRUSTEES OF THE BANKRUPT ESTATE OF COSIMO GASPARRE |
Respondent
REASONS FOR JUDGMENT
Introduction and background
By Application in a Case filed on 29 April 2020, the applicant (Soutar) seeks orders to give effect to my judgment in the principal proceedings[1] as well as costs orders in respect of the principal proceedings and the Application in a Case.
[1] Soutar Accountants Pty Ltd v Combis & Sijabat as Trustees of the Bankrupt Estate of Cosimo Gasparre [2019] FCCA 1766
The general background to this matter is set out in my judgment in the principal proceedings. Since that judgment on 26 August 2019, the parties have been unable to agree on the sum of money to be paid to Soutar out of funds held in trust pending the outcome of the principal proceedings. They are also in dispute on the question of costs.
For the purposes of the Application in a Case, Soutar relies upon the affidavit of Neville Edward Menlove made on 13 May 2020 and the affidavit of Kenneth James Soutar made on 13 May 2020. Soutar also tendered a letter dated 1 May 2018 from CLH Lawyers to Hunt & Hunt Lawyers.[2]
[2] Exhibit A1
The trustees rely upon the affidavit of Aaron Edmonds made on 29 May 2020 and the affidavit of Louisa Meng Li Sijabat made on 3 June 2020.
None of the deponents were required for cross-examination.
The parties filed pre-hearing written submissions and made oral submissions through their counsel at the hearing on 17 July 2020. I also gave the parties the opportunity to file further evidence or submissions on the question of quantification of Soutar’s costs of the Application in a Case and on the current status of the administration of the bankrupt estates. I received the affidavit of Mr Menlove made on 5 August 2020 detailing Soutar’s costs of the Application in a Case and the affidavit of Ms Sijabat made on 27 August 2020 reporting on the administration of the bankrupt estates.
Consideration
The first issue to resolve is what sum is to be paid out of the money held in trust by the trustees, consistently with the following orders that I made on 26 August 2019:
Pursuant to s.104 of the Bankruptcy Act 1966 (Cth):
(a) the decision of the respondents, as the Trustees in bankruptcy of the bankrupt estate of Cosimo Gasparre, to reject in full the applicant’s proof of debt in the amount of $130,412 is reversed;
(b) in its place, the applicant’s proof of debt in the amount of $130,412 is to be admitted in full;
(c) the trustees shall deal with that proof of debt consistently with the reasons of the Court herein, in particular at [75].
In my principal judgment at [73]-[75] I stated as follows:
The issue of the caveat is ultimately a distraction. Mr Soutar may not have held a caveatable interest in the property being the real estate which was sold. The only clear interest Mr Soutar had was in the proceeds of the sale of that property, based upon his informal agreement with Mr Gasparre. I found the evidence of both Mr Soutar and Mr Gasparre concerning the relationship and the agreement reached to be frank, honest and compelling. I accept it. It follows that I accept that the arrangements they entered into gave rise to an equitable interest in favour of Mr Soutar through his company in the proceeds of the sale of the property at Hunters Hill which otherwise vested in the trustee. The effect of the equitable interest was to charge the proceeds of the sale once they came into existence.
While the bankrupt’s property vested in the Trustees, it did so subject to encumbrances. In my view, it does not matter that the property in question only came into existence after the bankruptcy when the property was sold. It was then that the proceeds of the sale were created and the equitable interest of Soutar attached to those proceeds. In the circumstances, Soutar was right to seek to prove in the bankruptcy as a secured creditor. It follows that the Trustees were wrong to reject that proof of debt and Soutar should receive the relief it seeks, subject to an important qualification.
That qualification is that, prior to the bankruptcy, there was a joint tenancy in the Hunters Hill property and the proceeds of the sale would not have distinguished between the interests of Mr Soutar and his wife who was the other joint tenant. Upon the bankruptcy of Mr Gasparre, however, that joint tenancy was severed and Mr and Mrs Gasparre (who was also made bankrupt) became tenants in common in equal shares with their separate interests vesting in the Trustees. There are two bankrupt estates for the Trustees to administer. While an amount is held in trust by the Trustees being the remaining net proceeds of the sale of the Hunters Hill property, that is reflective of the former interests of both Mr Gasparre and his wife. Soutar has no claim against the estate of Mrs Gasparre and its counsel conceded as much during the trial on 25 June 2019. Assuming the funds held in trust represent the net proceeds referable to both bankrupt estates, only 50 per cent of the available funds are claimable by Soutar. Because the total funds held are slightly less than $200,000 there are insufficient funds held in trust to satisfy in full the claim of Soutar against the estate of Mr Gasparre.
It follows that while Soutar is entitled to prove in the bankrupt estate of Mr Gasparre as a secured creditor for the full amount of its claim, the Trustees are only liable to pay that claim out of the funds referable to the bankrupt estate of Mr Gasparre. In the absence of any evidence that anything more than 50 per cent of those funds are referable to the estate of Mr Gasparre, the amount due to Soutar will be 50 per cent of those funds.
At the time of my principal judgment an amount of $198,711 was held in the trustee’s solicitors’ trust account, being the net proceeds of the sale of the bankrupts’ former home. Prior to the bankruptcy, the home had been held by Mr and Mrs Gasparre as joint tenants. The bankruptcy severed the joint tenancy and subsequently it was held by the trustees on the basis that the bankrupts’ interest had become those of tenants in common in equal shares. My expectation was that Soutar would receive 50 per cent of the moneys held in trust. The parties, however, see the matter differently. Soutar, in oral submissions, claims the sum of $116,554.40, while the trustees assert that only $89,565.98 is payable.
Soutar’s contentions
According to the trustees' evidence, the amount of $197,754.80 is now held in the trust account of the trustees' solicitors; which is to be allocated $89,565.98 as to Mr Gasparre's bankrupt estate and $108,188.82 as to Mrs Gasparre's bankrupt estate.
As the correspondence before the Court indicates, Soutar has long been seeking details from the trustees as to how the proceeds of sale were treated. It was only in the trustees' evidence served on 3 June 2020 that any significant information was provided.
Soutar submits that, in particular, the following funds forming part of the proceeds of sale appear to never have been deposited in the solicitors’ trust account:
a)an amount of $29,551.81 was diverted from the settlement proceeds and distributed to the bankrupt estates. Those funds were part of the proceeds of sale and Soutar contends that they should have instead been paid into the solicitors' trust account to be held in accordance with the Undertaking given in the principal proceedings. The table below [13] of the Ms Sijabat’s first affidavit records a payment of $109,551.81 to the trust account of the solicitors for "1stCash", a secured creditor. However, the trustees have stated that only $80,000 of that amount was in fact paid to 1stCash, and the balance (i.e. $29,551.81) "was paid to the bankrupt estate to cover minor disbursements." It is not clear to which bankrupt estate the surplus was paid. Those funds were part of the proceeds of sale and Soutar contends that they should have been paid into the solicitors' trust account in accordance with the Undertaking;
b)an amount of $5,802.19 was diverted from the deposit funds (which had been held by the real estate agent) and distributed to the bankrupt estates of Mr and Mr Gasparre (in equal amounts of $2,901.09).[3] The deposit funds are part of the proceeds of sale and Soutar submits that they should have instead been paid into the solicitors' trust account to be held in accordance with the Undertaking. Ms Sijabat's explanation is that the amounts were "allocated to each respective bankrupt estate to pay minor disbursments".[4] What these minor disbursements were and to whom they were paid is not explained.
[3] Ms Sijabat’s first affidavit at [15]
[4] Ms Sijabat’s first affidavit at [15]
That is, a total of $35,353.99 of the proceeds of sale is said to have been “diverted away” from the solicitors' trust account and, it appears, paid instead into the hands of the trustees. This is said not to be a minor complaint: that amount is approximately 18 per cent of the proceeds of sale. Soutar contends that the trustees should account for those funds, as they should be treated as part of the proceeds of sale in accordance with the Undertaking. As the Court found in the principal judgment, Soutar is entitled to a proprietary interest in the funds forming part of the proceeds of sale. Accordingly, Soutar asserts, for the purposes of fashioning any order under s.90-15, that funds which were “wrongly disbursed” out of the proceeds of sale must be treated as forming part of the proceeds of the sale to which Soutar is entitled to a proprietary interest.
Soutar submits in its written submissions that, accordingly, half of $35,353.99, being $17,677, should be added back to the $89,565.98 which is currently held in trust as the portion of the proceeds of sale referable to Mr Gasparre's estate, to properly reflect the sum over which Soutar is entitled to a proprietary interest. That should mean that there should be an order that the trustees pay Soutar the total of $107,242.98.
The other issue is that there is a difference between the amounts held in trust which are said to be referable to the bankrupt estates of Mr and Mrs Gasparre. The trustees' position is that $89,565.98 is allocated to Mr Gasparre's bankrupt estate but $108,188.82 is allocated to Mrs Gasparre's bankrupt estate. The difference is said to be to the prejudice of Soutar, because it is only a secured creditor in relation to Mr Gasparre's bankrupt estate.
Ms Sijabat's first affidavit states that the reason why there is a difference is that "some of the Settlement Secured Creditors have different quantum claims". It appears from comparing the spreadsheets at Ex LS-2 on pages 57 and 59 that the difference results from the fact that a claim for $7,459.63 from Austwide Freight Agency Pty Ltd was allocated only to Mr Gasparre's account; and that Cordato Partners Lawyers had a claim of $24,294.43 allocated to Mr Gasparre's account but only $13,131.20 was allocated to Mrs Gasparre's account. Soutar requested the underlying documents from the trustees which may shed any light on the basis upon which these creditors were treated differently between the two bankrupt estates. A subpoena was issued but the documents produced were not called upon.
Trustees’ submissions
It is apparent from the evidence that the trustees’ position depended at least in part upon the application of the Universal Distributing principle.[5] However, the trustees abandoned reliance upon that principle by the time of the hearing on this application.
[5] Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171 at 174
The trustees do take issue with the formulation of the Application in a Case and the departure from that formulation in the written and oral submissions of Soutar. They claim that the Application in a Case should be rejected, not least for that procedural reason.
Resolution
The claim by Soutar for payment of in excess of 50 per cent of the funds held in trust reflects a detailed analysis of the administration of the bankrupts’ estates identifying a partial add back in respect of a claim by a secured creditor[6] which was not paid in full and an amount of $5,000 which remained after the distribution of the deposit of the sale.
[6] 1stCash Pty Ltd
While Soutar’s calculations are certainly arguable, the dispute I dealt with in the principal proceedings related to Soutar’s claim over the funds held in trust. It is not, in my view, an appropriate approach to notionally add to those funds by reference to other amounts which might have been added to those funds but, for various reasons, were not. The Undertaking given in the principal proceedings by the trustees was to hold the funds in trust, not to add to them.
I note that in without prejudice correspondence dated 18 September 2019 Soutar’s solicitors offered to accept the sum of $89,565.98 on the basis that each party would bear their own costs provided that the money was paid promptly. It was not, because of what the trustees viewed as a competing claim by another secured creditor.[7] That claim was ultimately abandoned by HLB only recently.
[7] HLB Mann Judd (HLB)
There are no other competing claims to the funds held in trust. The appropriate outcome in the ordinary course, consistently with my principal judgment, would be that Soutar should receive 50 per cent of the trust funds, namely $98,877.40. Ms Sijabat details in her second affidavit how the proceeds from the sale of the property were divided equally between the two bankrupt estates, but that one creditor had a claim on Mr Gasparre’s estate greater than his claim on Mrs Gasparre’s estate, and a second creditor had a claim only on Mr Gasparre’s estate. The payment of those claims left a lesser amount, namely $89,565.98 in the trust account referrable to the bankrupt estate of Mr Gasparre. I accept that evidence.
That is the amount that must now be paid to Soutar.
The second issue to resolve is the issue of costs of the principal proceedings. Soutar claims costs in the fixed amount of $30,688.05. The first affidavit of Mr Menlove details those costs and I am satisfied that the claim is fair and reasonable, when assessed on a party/party basis.
I will order that the trustees pay the applicant’s costs of and incidental to the principal proceedings, fixed in the sum of $30,688.05.
There is a question of what source of funds to pay the costs is available, given that the funds held in the trust account referable to the bankrupt estate of Mr Gasparre will be wholly disbursed in accordance with my first order. In the principal proceedings, Soutar claimed the amount of $130,412. The only source of funds available to meet that claim was the trust fund. In my view, the fact that the trust fund is notionally referable to two bankrupt estates is incidental in regard to a dispute over costs of a claim to the whole fund (or the greater part of it). Soutar was claiming the greater part of it and, on my judgment, was entitled to half of it, albeit, refined somewhat in this judgment.
In my view, the funds remaining in the trust account, following the satisfaction of my first order are available to meet the costs order. I do not know what other source of funds may be available to the trustees to meet the costs order and I do not think it appropriate to make an order as to the source of funds for payment. The trustees have no personal liability to pay the costs. They acted in good faith in dealing with a number of secured creditor claims of which the claim by Soutar is the last outstanding.
The third issue is the question of the costs of the Application in a Case. Those costs are quantified in Mr Menlove’s second affidavit in the amount of $29,203.20. In my view, there should be no order as to the costs of that application. The application was only filed after my chambers wrote to the parties pursuant to this Court’s dormant proceedings rule.[8] The parties had been sensibly attempting to resolve the outstanding issues without returning to court but ultimately they required the Court’s intervention. There is no evidence of misbehaviour or maladministration by the trustees. I accept their submission that they were not in the position to pay the principal amount due to Soutar until they had resolved the secured creditor claim by HLB. That was not abandoned until 19 June 2020. Neither, in my view, is the settlement offer made by Soutar material. The orders I made in the principal proceedings were inchoate in that no amount was specified. It now has been.
[8] Rule 13.12 of the Federal Circuit Court Rules 2001 (Cth)
I will order that there be no order as to costs of the Application in a Case.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 4 September 2020
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