Swaab and Ors v Stojanovski
[2017] FCCA 1509
•30 June 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SWAAB & ORS v STOJANOVSKI | [2017] FCCA 1509 |
| Catchwords: BANKRUPTCY – Sequestration order – whether sufficient cause had been shown why a sequestration order ought not be made. |
| Legislation: Bankruptcy Act 1966, ss.33, 43, 52 |
| Cain v Whyte (1933) 48 CLR 639 Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 Totev v Sfar (2008) 167 FCR 193 In Re Maddestra; Ex parte: Penfolds Wines Pty Limited [1993] FCA 15 Ling v Enrobrook Pty Limited (1977) 74 FCR 19 Radich v Bank of New Zealand (1993) 45 FCR 101 |
| First Applicant: | FREDRICK SWAAB |
| Second Applicant: | HARRY SIMON SNOW |
| Third Applicant: | DAVID MATTHEW HALL |
| Fourth Applicant: | TERENCE PAUL SPERBER |
| Fifth Applicant: | MICHELLE ESTHER HARPUR |
| Sixth Applicant: | MARY ELIZABETH DIGIGILIO |
| Seventh Applicant: | ALISTAIR JAQUE |
| Respondent: | ROBERT STOJANOVSKI |
| File Number: | SYG 1489 of 2016 |
| Judgment of: | Judge Cameron |
| Hearing date: | 22 June 2017 |
| Date of Last Submission: | 22 June 2017 |
| Delivered at: | Sydney |
| Delivered on: | 30 June 2017 |
REPRESENTATION
| Counsel for the Applicants: | Mr B. J. Skinner |
| Solicitors for the Applicants: | Swaab Attorneys |
| Counsel for the Respondent: | Mr A. Crossland with Mr M. Cowden |
| Solicitors for the Respondent: | Foulsham and Geddes |
ORDERS
The respondent’s application for the adjournment of the creditors’ petition be dismissed.
A sequestration order be made against the estate of Robert Stojanovski.
The applicant creditors serve a copy of this order on the Official Receiver in Sydney within two days.
THE COURT NOTES THAT:
The date of the act of bankruptcy is 25 March 2016.
A consent to act as trustee has been signed by Fabian Kane Micheletto and Michael Carrafa.
| FEDERAL CIRCUIT COURT AT SYDNEY |
SYG 1489 of 2016
| FREDRICK SWAAB |
First Applicant
| HARRY SIMON SNOW |
Second Applicant
| DAVID MATTHEW HALL |
Third Applicant
| TERENCE PAUL SPERBER |
Fourth Applicant
| MICHELLE ESTHER HARPUR |
Fifth Applicant
| MARY ELIZABETH DIGIGLIO |
Sixth Applicant
| ALISTAIR JAQUE |
Seventh Applicant
And
| ROBERT STOJANOVSKI |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
The applicants are partners or former partners in Swaab Attorneys. The respondent, Mr Stojanovski, is a former client.
The applicants move on a creditors’ petition filed on 10 June 2016 and amended on 15 December 2016 seeking a sequestration order against Mr Stojanovski’s estate. The petition is founded upon a debt which arises from an order that Mr Stojanovski pay the applicants’ costs of proceeding SYG2289/2014 (being other proceedings in this Court). On 18 November 2014 those costs were taxed at $11,200.
Mr Stojanovski has opposed the petition pursuant to s.52(2)(b) of the Bankruptcy Act 1966 (“Act”) on the basis that there is sufficient reason for the Court to not make the sequestration order sought. Alternatively, Mr Stojanovski seeks an adjournment of the creditors’ petition pursuant to s.33(1)(a) of the Act pending determination of proceedings in the Supreme Court of New South Wales in which he is a defendant (“SC Proceedings”) concerning, relevantly, his joint ownership of a property (“Jersey Ave Property”).
RELEVANT LEGISLATION
The Court’s power to make sequestration orders is set out in s.43 of the Act, which relevantly provides:
Division 2—Creditors’ petitions
43 Jurisdiction to make sequestration orders
(1) Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling‑house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
Section 52 of the Act relevantly provides:
(1) At the hearing of a creditor’s petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Section 33 of the Act empowers the Court to adjourn proceedings such as this one.
APPLICANTS’ CASE
The debt
As previously indicated, on 23 September 2014 Mr Stojanovski was ordered to pay the applicants’ costs of proceeding SYG2289/2014. On 18 November 2014 those costs were taxed at $11,200.
Bankruptcy notice
A bankruptcy notice (no.184404) issued on 11 September 2015 and amended on 17 February 2016 is by virtue of orders made by Registrar Hannigan on 8 February 2016 taken to have been served on Mr Stojanovski on 4 March 2016. Relevantly, the bankruptcy notice required Mr Stojanovski within 21 days of service to settle the debt or make arrangements with the applicants so to do.
Mr Stojanovski did not, on or before 25 March 2016, comply with the requirements of the bankruptcy notice and thus committed an act of bankruptcy.
Creditors’ petition
In addition to the above matters, the creditors’ petition discloses that the applicants hold security to the value of $126,286.36 over the property the subject of the SC Proceedings. The applicants have indicated that they are willing to surrender this security for the benefit of creditors generally if a sequestration order is made.
RESPONDENT’S CASE
Mr Stojanovski’s opposition to the petition has been particularised as follows:
1.The respondent and Steven Stojanovski are registered as equal joint tenants in a property at 47 Jersey Ave., Mortdale (Jersey).
2.The respondent is a defendant in [Supreme Court Proceedings No.89349 of 2012] (“SC Proceedings”), being proceedings commenced by Steven Stojanovski.
3.In the SC Proceedings, Steven Stojanovski seeks an order that the whole of the respondent’s interest in Jersey be transferred to him.
4.Steven Stojanovski has lodged a caveat over Jersey pending determination in the SC Proceedings of his claim over the respondent’s interest in Jersey.
5.The applicants have also lodged a caveat over Jersey, such caveat securing a charge that supports a debt owed by the respondents [sic] to the applicants in the sum of $126,283.36.
6.Those properties are also the subject of claims by Steven Stojanovski in the Supreme Court Proceedings and he has lodged a caveat over those properties (in the case of Kemp and Breakwell, at the direction of the Supreme Court) pending the outcome of those claims.
7.The only property owned by Mr Stojanovski from which he is able to satisfy his debt to the applicants is Jersey.
8.Jersey is sufficiently valuable that if he is successful in his defence of the Supreme Court Proceedings and retains his interest in it, the respondent will, on sale, be able to meet his debts to the applicants.
9.The SC Proceedings and Steven’s caveat have prevented Mr Stojanovski from making an application for the sale of Jersey in order to pay the respondents.
10.Mr Stojanovski makes an open offer to extend the respondent’s charge over Jersey so as to encompass the debt referred to in the bankruptcy notice that founds the creditors [sic] petition.
11.Mr Stojanovski has good prospects in defending the SC Proceedings so as to retain his interest in Jersey.
12.The SC Proceedings are part-heard by Robb J of the Supreme Court, having had 5 hearing days, with final oral and written submissions to be delivered in November 2017.
13.Mr Stojanovski has instructed solicitors to defend the proceedings and those solicitors and counsel appear before Robb J.
14.There is a real risk that the making of a sequestration order would put in jeopardy the defence of the SC Proceedings (thus putting in jeopardy payment of the applicants) or would slow the finalisation of the SC Proceedings or make them more costly, that cost to be born [sic] by the respondent’s bankrupt estate (were he made bankrupt).
Robert Stojanovski
In his affidavit of 24 February 2017 Mr Stojanovski deposed to the following matters:
a)he and his brother, Steven Stojanovski (“Steven”), own the Jersey Avenue, Mortdale Property (“Jersey Ave Property”) as joint tenants. He did not have any other property assets;
b)he is a defendant in the proceedings. His brother Steven is the plaintiff;
c)the SC Proceedings were the subject of a five-day hearing which commenced on 28 November 2016. It has been listed on 31 August 2017 and 1 September 2017 for further evidence and on 20 November 2017 for addresses;
d)the applicants acted for Mr Stojanovski in the SC Proceedings from 2012 until their retainer was terminated. The applicants also acted for Mr Stojanovski in family law proceedings between his brother and sister-in-law;
e)the applicants have lodged a caveat on the title of the Jersey Ave Property;
f)he understood the Jersey Ave Property to be valued at approximately $2,555,000 to $2,650,000;
g)his only source of income was his employment with Sydney Trains. His weekly expenses left him with very little spare money; and
h)he estimated that he had approximately $70,000 by way of superannuation. He also estimated that his personal property, comprising a car and clothes, was worth approximately $2,000 to $2,500.
Mr Stojanovski’s affidavit annexed, amongst other things, the pleadings filed in the SC Proceedings. Those pleadings relevantly indicated the following:
a)on 7 May 2013 the Family Court of Australia made orders by consent for the transfer of all land owned by Mr Stojanovski (save for his interest in the Jersey Ave Property) to his wife by way of property settlement “on the alleged breakdown of their marriage and in alleged contemplation of their divorce”. Mr Stojanovski’s wife is also a defendant in the SC Proceedings;
b)pursuant to the orders of the Family Court, on 31 May 2013 Mr Stojanovski’s interest in three properties – namely, at Breakwell Street, Mortdale (“Breakwell St Property”), at Kemp Street, Mortdale (“Kemp St Property”) and at Morts Road, Mortdale (“Morts Rd Property”) – were transferred to his wife;
c)Steven alleged that the transfers of title were done to defraud Mr Stojanovski’s creditors, including Steven. He seeks a declaration that the Morts Rd Property is held by Mr Stojanovski’s wife on trust for the estate of their deceased mother, and orders that the Breakwell St Property and Kemp St Property be designated “notional estate” of their deceased mother; and
d)Steven seeks a further order that the whole of Mr Stojanovski’s interest in the Jersey Ave Property be transferred to him.
CONSIDERATION
Bankruptcy Act s.52(1)
Based on the documents filed with the Court, in particular the affidavits of service, search and final debt relied upon by the applicants, I find that the debt owed to the applicants as petitioning creditors has been proved, that service of the petition has been proved and that the act of bankruptcy alleged has been proved.
Before moving from these questions, however, I should note that Steven Lee Cook’s 31 January 2017 affidavit of service of the creditors’ petition states that Mr Cook served the various documents to which he referred:
By delivering the same by placing them in a sealed envelope marked MR ROBERT STOJANOVSKI at [address stated] in the State aforesaid.
However, the substituted service order made by a registrar on 13 December 2016 relevantly stated that service could be effected as follows:
(a)By handing them to any person apparently over the age of 16 years at [address stated] but, if this is not possible, by leaving them in the letterbox or affixing them to the front door in an envelope addressed to the Respondent at [address stated];
It seems implicit that Mr Cook complied with that paragraph of the registrar’s order, presumably by leaving the envelope in the letterbox at the address in question. Mr Stojanovski took no issue with the effectiveness of service. In the circumstances I am satisfied that service of the documents referred to in Mr Cook’s affidavit was effected in accordance with the registrar’s order.
Whether sequestration order ought to be made
In light of my finding that the essential criteria for the making of a sequestration order have been satisfied, it is necessary to determine whether, nevertheless, such an order should not be made.
Principally for reasons associated with the SC proceedings, Mr Stojanovski sought dismissal of the creditor’s petition on the basis that there was sufficient cause for the Court to exercise its discretion in that fashion.
SC Proceedings
Mr Stojanovski noted the potential range of matters which might provide “other sufficient cause’ for the Court to not make a sequestration order, referring to cases such as Cain v Whyte (1933) 48 CLR 639, Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 and Totev v Sfar (2008) 167 FCR 193. He also submitted that:
a)his impecuniosity was only temporary and arose out of his inability to realise an existing, actual interest in property for which he was being sued, not because he was awaiting the outcome of a claim he had made; and
b)the SC litigation was well-advanced, with evidence and addresses due to be completed in the second half of this year.
Although Mr Stojanovski’s counsel, who appeared in this and appears in the other proceedings, seemed confident enough, there was no evidence of Mr Stojanovski’s prospects of success in the SC proceedings. It was submitted that it would have been unreasonably onerous to have presented such evidence and that, in any event, the applicants had been Mr Stojanovski’s original solicitors in that case and so must have had confidence in his prospects, at least at that time. Mr Stojanovski also submitted that by securing the other debt he owed to them by means of an equitable mortgage and caveat over the Jersey Ave Property, the applicants had conveyed their confidence in his prospects of success in the SC proceedings.
I note, as was said in Cain v Whyte at 645 that the Court is not limited in what matters it may find may amount to “other sufficient cause”. Having regard to the particular facts of this case, I also have regard to In Re Maddestra; Ex parte: Penfolds Wines Pty Limited [1993] FCA 15 where Lee J said that:
If collateral litigation is well advanced and likely to bring a beneficial result to a debtor, there may be good cause for the Court not to make a sequestration order and it may be satisfied that such an order ought not to be made. The Court may mould its order according to the circumstances, deferring further hearing of the petition subject to review or it may been entirely satisfied that a sequestration order ought not to be made on the petition at any time and that the petition should be dismissed.
I recognise that the SC proceedings are well advanced but I note what the Full Court of the Federal Court said in Ling v Enrobrook Pty Limited (1977) 74 FCR 19:
... the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration. (at 26)
The principal weakness in Mr Stojanovski’s opposition to the creditor’s petition lies in the absence of substantive evidence that his prospects of defending the claim brought against him by his brother in the Supreme Court are sufficiently strong that a sequestration order should not be made. It amounted to no more than the fact that Mr Stojanovski’s legal advisers were acting in the proceedings and the facts that his former advisers, the applicants, had acted for him at a much earlier stage of the SC proceedings and had secured the respondent’s larger obligation to them against his interest in the Jersey Ave Property. Balanced against the latter point was the applicants’ unwillingness to accept similar security for payment of the taxed costs debt.
Given the slightness of the available evidence there is no sound basis on which this Court can conclude that Mr Stojanovski is more likely than not to succeed in his defence to his brother’s claim. That being so, the significance of the SC proceedings for the present proceeding is speculative with the consequence that I am not persuaded that their existence provides sufficient cause to refuse to make a sequestration order.
Availability of security for the debt
Mr Stojanovski referred to an exchange of correspondence between the solicitors for the parties, exhibits A1 and R1, which documented unsuccessful negotiations between the parties for the resolution this matter. I note that the respondent ultimately offered payment of the taxed costs debt, but not the applicants’ costs of this proceeding. When he had earlier offered an immediate payment of half the taxed costs debt coupled with delayed payment of the other half, he also offered to secure the latter obligation by granting an equitable mortgage over his disputed interest in the Jersey Ave Property, supported by a caveat. It was common ground that the applicants had already secured in that way the considerably larger debt owed to them by Mr Stojanovski. Indeed, it was observed that the taxed costs debt was much less than the sum which had already been secured and in respect of which no bankruptcy notice had been issued.
I am not persuaded by Mr Stojanovski’s argument based on his offer to provide security for the taxed costs debt and that fact that security has been given in respect of the other debt owed to the applicants. It depends on him succeeding in his defence in the SC proceedings and thus on him having a proprietary interest in the Jersey Ave Property at the conclusion of those proceedings, matters on which the evidence before this Court is insufficient for me to draw conclusions. Further, the fact that the applicants have been content with an equitable mortgage supported by a caveat in the context of another debt is irrelevant to whether they should be satisfied with a similar arrangement in relation to the taxed costs debt. Consequently it is irrelevant to whether a sequestration order ought to be made in this proceeding.
Consequences of a sequestration order
Much was made by Mr Stojanovski of the potential inconvenience to the SC proceedings were a trustee to be appointed to his estate. It was said that there was no guarantee that his present advisers would be willing to perpetuate their current speculative costs arrangement or, even if they were, that the trustee would wish to continue their retainer. It was submitted that a change in legal team would have obvious potential adverse consequences for the progress of the Supreme Court litigation. The potential expense associated with that outcome was also raised, as was the possibility that the trustee would not continue to defend the claim.
The respondent submitted that the creditor’s petition put in jeopardy, for a relatively small sum, not only the prospects that the applicants would recover the two sums owed to them but also the benefits to him of nearly a decade of Supreme Court litigation.
Although I can appreciate Mr Stojanovski’s wish to avoid the potential, identified consequences of a sequestration order, it is not certain that all or any of them would eventuate. Moreover, neither alone nor in combination do those possibilities provide sufficient cause to not make a sequestration order, partly because it is far from clear that the disputed interest in the Jersey Ave Property will be determined to be Mr Stojanovski’s only relevant asset. I note in this connection that Mr Stojanovski advised the Court in addresses that the Family Court order, by which he transferred significant assets to his wife, has been set aside. As Einfeld J said in Radich v Bank of New Zealand (1993) 45 FCR 101:
Part of the reason why courts are reluctant to refuse a sequestration order on discretionary grounds is that it may only be after sequestration, with a full investigation by a trustee in bankruptcy including a possible public examination of the bankrupt and other persons, that assets come to light: In re Leonard ex parte Leonard (1896) 1 QB 473 at 475 approved in Bayne v Blake (1909) 9 CLR 360 at 364 (at 112).
In the same case Drummond J said at 123, Foster J agreeing at 115:
There is authority that where the debtor has no assets, that may justify a refusal to make a sequestration order. But the consistent trend of the modern cases has been to make it increasingly difficult, as a matter of practicality, for a debtor to avoid bankruptcy on this ground. In Re Field (1978) Ch 371, Megarry VC said: “A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy.” This court, in Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 6: “[T]his course has been regarded as appropriate only in cases where the lack of assets is clear beyond question so that the presentation of the petition amounts to oppression.” See also In Re M.P. Darcy; Ex parte The Pre-term Foundation (Full Federal Court, Fox, Wilcox and French JJ, unreported 23 May, 1988) and Bayne v Blake (No. 2) (1909) 9 CLR 360 at 364. The reason for this approach is obvious: when a petition is presented, it will not normally be possible for the court to know whether there will prove to be assets or not if the bankruptcy goes ahead: Clyne at 6-7.
As noted earlier, the Court is in no position to assess the strength of Mr Stojanovski’s defence in the SC proceedings and so it is in no position to determine whether that asset will be available to him or his creditors at the conclusion of that litigation. In circumstances where the availability of that asset is speculative, the Court should not overlook the possibility that there may be other assets which will come to light upon enquiry by a trustee appointed pursuant to a sequestration order. In that connection I also observe that although in his affidavit affirmed 24 February 2017 Mr Stojanovski deposed that he has little discretionary income with which to satisfy his creditors, he did not in fact annex to his affidavit the payslips which were meant to be annexed and so the Court cannot assess the accuracy of that assertion.
In all those circumstances, any inconvenience or related expense caused to the SC proceedings by the appointment of a trustee to Mr Stojanovski’s estate do not provide sufficient cause to not make a sequestration order.
Generally
None of the matters raised by Mr Stojanovski, either singly or in combination, satisfy me that there is sufficient cause to not make a sequestration order in this case.
Adjournment of creditors’ petition
In the alternative to his opposition to the making of a sequestration order Mr Stojanovski sought the adjournment of the creditors’ petition until the SC proceedings were decided. For the reasons expressed earlier at [19] to [25] it would be inappropriate for the determination of the present case to await the outcome of the SC proceedings.
CONCLUSION
The opposition to the creditors’ petition has been unsuccessful and the application for an adjournment of the petition will be dismissed. There will be a sequestration order in this case.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Judge Cameron
Associate:
Date: 30 June 2017
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