Volpe v Carrafa
[2014] FCCA 2771
•2 December 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| VOLPE v CARRAFA | [2014] FCCA 2771 |
| Catchwords: BANKRUPTCY – Application by bankrupt pursuant to s.178 of the Bankruptcy Act – whether matters raised are capable of being pursued under s.178 – applicant seeking to compel trustee to litigate in County Court of Victoria – estate bereft of funds – whether applications should be dismissed pursuant to s.17A of the Federal Circuit Court Act – applicant’s case having no reasonable prospects of success – application dismissed. |
| Legislation: Bankruptcy Act 1966, ss.178, 178(2) |
| Samootin v Official Trustee in Bankruptcy [2012] FCA 64 Tomasetti & Scott (as trustee of the property of Tomasetti [2013] FCCA 1693 Freeman v National Australia Bank Limited [2003] FCA 1233 Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352 |
| Applicant: | MANUELA VOLPE |
| Respondent: | MICHAEL CARRAFA (AS JOINT AND SEVERAL TRUSTEE OF THE BANKRUPT ESTATE OF MANUELA VOLPE |
| File Number: | MLG 1535 of 2014 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 3 October 2014 |
| Date of Last Submission: | 3 October 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 2 December 2014 |
REPRESENTATION
| The Applicant: | In person |
| Counsel for the Respondent: | Mr O’Brien |
| Solicitors for the Respondent: | Aitken Partners Lawyers |
ORDERS
The application is dismissed pursuant to s.17A of the Federal Circuit Court Act 1999.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1535 of 2014
| MANUELA VOLPE |
Applicant
And
| MICHAEL CARRAFA (AS JOINT AND SEVERAL TRUSTEE OF THE BANKRUPT ESTATE OF MANUELA VOLPE) |
Respondent
REASONS FOR JUDGMENT
Introductory
The applicant, Ms Volpe, who is self-represented, seeks various orders purportedly pursuant to s.178 of the Bankruptcy Act 1966 (“the Bankruptcy Act”) against her trustee in Bankruptcy. Mr Carrafa is one of her two trustees but, for all effects and purposes, he has had the conduct of the respondent’s case.
Some of the matters sought by Ms Volpe are simply not capable of being pursued pursuant to s.178. Regrettably for the applicant I have come to conclude that the other claims she makes which can be pursued pursuant to s.178 are not sufficiently meritorious to resist the respondent’s application for the summary dismissal of the proceeding pursuant to s.17A of the Federal Circuit Court Act 1999.
For the reasons that follow, Ms Volpe’s application will be dismissed.
The materials filed in the proceeding
This matter can only be understood by relatively detailed recitation of the materials the parties, and in particular Ms Volpe, have filed.
The initiating application filed on 29 July 2014 sought the following final orders:
“1. Michael Carrafa as the trustee of Manuela Volpe’s property submit a financial assessment or report to the Court related to the true value of assets and proof of debt.
2. Michael Carrafa as trustee of Manuela Volpe makes a complete assessment of all her legal matters and provides a complete report of how these matters contributed to her bankruptcy.
3. Michael Carrafa as trustee of Manuela Volpe provides a complete report of the circumstances, which led to Manuela Volpe’s bankruptcy and rectifies any errors related to her bankruptcy if necessary.”
In the section delineating the interim orders sought, in which there is reference to s.178 of the Bankruptcy Act, the orders sought were:
“1. Michael Carrafa as the trustee of the property of Manuela Volpe file and serve a defence in Matter No: CI-13-04786 as per Court Orders.
2. Alternatively allow an assignment of a chose in action so Manuela Volpe is able to run the proceedings in her capacity.
3. Refund $2,000, which Manuela Volpe paid to Aitken Partners Lawyers or provide the report, which she has not obtained to date.”
Ms Volpe filed an affidavit contemporaneously with the application. She deposed that her principal asset is her home at 30 Hoban Court, Doreen. She deposed that:
“This property is encumbered by a first registered mortgage with Commonwealth Bank of Australia Limited (“the Bank”), which is the subject of a current legal proceeding in the County Court.”
Ms Volpe went on to depose to the fact she was made bankrupt on 18 April 2013 and Mr Carrafa and Terry Grant Van der Velde of SV Partners were appointed as her trustees.
Ms Volpe deposed that between about December 2012 and January 2013 she had initiated three matters in the Victorian Civil and Administrative Tribunal (“VCAT”). As she put it at paragraph 5 of her affidavit:
“These matters related to a fraudulent transfer of land, and to a fraudulent sale of land where fraudulent and unconscionable conduct of lawyers eventually led to my bankruptcy. The trustee abandoned those proceedings although there was a date set for compulsory conference.”
Ms Volpe went on to set out in some detail a history of some of these proceedings, a complaint to the Legal Services Commissioner and further details of the Commonwealth Bank of Australia (“CBA”) proceeding.
The bank applied for summary judgment on 12 February 2014 and Ms Volpe filed a defence but submissions were made that because she was bankrupt she had no standing to prosecute it. On 9 May 2014 his Honour Judge Cosgrave made orders setting the matter down for trial.
Ms Volpe’s affidavit went on to point out that although the orders required the trustee, relevantly, to file a defence, the trustee decided not to defend the proceeding.
At paragraph 28 of her affidavit Ms Volpe deposed that in April 2014 the trustee requested a sum of $2,000 be paid into Aitken Partners trust account for Mr O’Brien to prepare a legal report on the merits of her case against the CBA and she had borrowed the money to endeavour her to pay for that. She complained that she had not been provided with a copy of the report provided by Mr O’Brien and sought return of the $2,000.
It is perhaps important to look for a moment at the pleadings in the County Court case annexed to Ms Volpe’s affidavit. The Writ, dated 16 September 2013, is a relatively straightforward bank mortgagee statement of claim. By paragraph 6 it is asserted that the bank’s predecessor entered into a loan agreement on 22 March 2006 with Ms Volpe to lend $1,440,000. By paragraph 7 of the statement of claim a mortgage of Ms Volpe’s home was asserted.
The statement of claim went on to assert breaches of the loan agreement and an indebtedness on the part of Ms Volpe of over $1,700,000. The claim, typically, sought possession.
Ms Volpe filed a defence. So far as paragraph 6 of the statement of claim, (which asserted the loan agreement), is concerned, the defence expressly concedes that Ms Volpe signed a document titled “Bankwest Home Loan Contract – Gold Home Loan” on 22 March 2006. She took issue arising from the fact that her address, as asserted on the agreement, was one at which she had never lived. She confirmed that the agreement provided for a loan of $1,440,000 repayable over 30 years.
The defence pleads that the purpose of the loan was to refinance debt from another institution in respect of a company controlled by her ex-husband. The defence pleads that Ms Volpe was not provided with the opportunity to obtain independent legal advice prior to entering into the agreement and that for various reasons, including the incapacity on the part of Ms Volpe ever to repay the loan amount, she would not have signed the agreement had she received independent legal advice before executing it.
She went on by reason of those matters to say that the agreement was not enforceable.
From these pleadings it is quite apparent that the CBA did advance Ms Volpe over $1,400,000 and that she did not repay it and that it was secured by a mortgage over her home.
The matter first came before the court on 11 August 2014 and was adjourned on that date and again on 25 August 2014 because the parties were in negotiations about assigning the chose in action (namely the capacity to conduct the County Court proceeding before Judge Cosgrave) was under discussion. On 10 September 2014 the matter was set down for trial and interlocutory orders were made for the filing of an amended application and affidavits.
On 18 September 2014 the applicant filed what was described as an amended statement of claim. It effectively set out in narrative form the long and convoluted history whereby the CBA loan agreement and mortgage had been entered into. Put shortly it would appear that this was an instance in which the debts of Ms Volpe’s former husband, and more particularly his company, were discharged by virtue of the CBA loan. Fraudulent conduct was alleged against a number of solicitors in relation to a property previously owned by the husband’s business, the execution of the CBA loan agreement and mortgage and on the part of the CBA.
The statement of claim noted the act of bankruptcy of the applicant on 18 April 2013 and the fact that three VCAT proceedings had been lodged prior to that against the three firms of solicitors, including against Flitner & Company for not filing a defence to the creditor’s writ in time, which had led to her bankruptcy. The statement of claim goes on to deal with the writ lodged by the CBA. It asserts the defence filed by Ms Volpe on 15 November 2013 (after she became bankrupt) and details the proceedings on May 2014 before his Honour Judge Cosgrave who refused to strike out the defence summarily, and set the matter down for trial. His Honour ordered that a defence be filed by the trustee or, alternatively, Ms Volpe if she became in a position to do so. The statement of claim notes that the trustee did not file any such defence.
The final orders sought in the amended statement of claim are effectively those in the initiating application. The interim orders seek, inter alia, an order to allow the applicant to file and serve an amended defence pursuant to Judge Cosgrave’s orders, a refund of the $2,000 to which I have referred, and:
“4. By reason of the matters pleaded in paragraph 29 to 36 above and pursuant to s 178 of the Bankruptcy Act 1966 (Cth) appeal to the Court against the trustee’s decision in The Victorian and Civil Administrative Tribunal to abandon the matters J182/2012, J8/2013 and J9/2013 and have those matters reinstated if necessary.
5. In order that a true assessment and proof of assets and/or debt be ascertained, the trustee makes an application to the Court for an examinable person to produce all relevant books in relation to all debts and matters above.
6. By reason of matters pleaded above the Federal Circuit Court deal with interim matters while the Family Court conducts the final hearing.
7. Alternatively, by reason of the matters pleaded above and pursuant to s 178 of the Bankruptcy Act 1966 (Cth) appeal to the Court against the trustee’s decision in the County Court Proceedings and that the Court may make such an order in the matter as it thinks just and equitable.”
On 18 September 2014 Ms Volpe filed what was described as an amended affidavit. In substance, the amendment incorporates the matters asserted in the amended statement of claim and annexes numerous documents arising from that narrative.
On 1 October 2014 Mr Carrafa filed his affidavit responding to the amended statement of claim and the affidavit to which I have referred. The affidavit deposed to the fact that the applicant had been declared bankrupt pursuant to a Sequestration Order made on 18 April 2013 on the petition of I-Xplore Pty Ltd and Peter Mok.
The affidavit noted the Application for Review of the Sequestration Order filed on 10 May 2013.
On 17 September 2013 the CBA filed a County Court proceeding seeking possession of the applicant’s home, and on 23 October 2013 Mr Carrafa prepared a Report to Court for the Application for Review which contained information concerning the bankrupt’s affairs. The report is exhibit MC-1 to the affidavit.
The Application for Review was dismissed by Judge O’Dwyer on 25 November 2013 and it was only shortly before that, in October 2013, that Mr Carrafa became aware of the CBA County Court proceeding.
At paragraphs 11 and 12 of the affidavit Mr Carrafa deposed:
“11. Between 6 December 2013 and 23 December 2013, I considered the nature and subject matter of the County Court Proceeding, the financial position of the bankrupt estate (which was without funds or any likely source of funds) and consulted my legal representatives about the matter. I determined that it would not be appropriate for me (nor Mr Van der Velde) to defend the County Court Proceeding on behalf of the bankrupt estate. In making this determination I was concerned about a number of issues, including the costs of defending the matter (including my costs and legal fees) and my personal exposure to the possibility of adverse costs orders.
12. On 23 December 2013, I wrote to Gadens and stated that the joint and several trustees of the bankrupt did not intend to defend the County Court Proceeding.”
The affidavit went on to detail the disclosure of this decision to the applicant, the proceedings before Judge Cosgrave in the County Court and further communications to the applicant confirming that the trustee was not able to defend the proceeding or file or serve any defence, most particularly because of cost issues.
The affidavit deposed to endeavours to assign the right to defend the County Court proceeding and the failure of negotiation arising therefrom.
The affidavit went on to depose to assets and liabilities of the bankrupt estate showing an approximate $700,000 deficit, and an excess of the mortgage held by the CBA in excess of the value of the property of well over half a million dollars.
It should be noted that exhibit MC-1, earlier referred to, followed the provision of the applicant’s Statement of Affairs. It would seem improbable, as a result, that the position set out by Mr Carrafa in both exhibit MC-1 and in his affidavit is substantially inaccurate.
This, of course, is the evidentiary position against which the matter proceeded in Court.
The Evidence Given in Court – Mr Carrafa
Mr Carrafa attended pursuant to an indication by Ms Volpe that she wished to cross-examine and adopted his affidavit as true and correct. Mr Carrafa was unable to say what the applicant’s income was prior to her becoming bankrupt but he conceded that she would not have had the capacity to finance the loans that were taken out.
Mr Carrafa was cross-examined about the three VCAT matters and said that he obtained legal advice about these matters. The advice was to abandon the claims. He pointed out that there was a very limited time to make his election.
Mr Carrafa confirmed that he had attended the proceedings on 9 May 2013 before Judge Cosgrave. Mr Carrafa was aware that in the Saddoui VCAT matter that fraud was alleged as the applicant had given him the material.
He said he had no contact with the police about Saddoui and had not investigated that matter himself except to an extent in the early part of his trusteeship.
When it was put to him that he had permitted Ms Volpe to represent herself before Judge Cosgrave he replied that he was not able to stop her. Judge Cosgrave set the matter down for trial because he thought this was necessary and the Judge mentioned the Civil Procedure Act.
Mr Carrafa was cross-examined about the $2,000 provided to him by the applicant for legal advice. In my view his answers were direct and to the point. He was not able to pay for legal advice because he had no funds and therefore required funds from Ms Volpe to obtain such advice.
Mr Carrafa confirmed that the debts referred to in his report are just claims, which he had not yet adjudicated, but that in any event there was no likelihood of a dividend. He confirmed that only a kerbside appraisal had been obtained of the applicant’s home and that no voidable transactions had been identified.
It should be noted that Mr Carrafa was an excellent witness. He responded directly and cogently to the often largely irrelevant questions put to him. I have no doubt whatsoever that he was telling the truth and that he had an accurate memory of the matters to which he was taken in cross-examination, as well as his evidence generally.
The Submissions Made at Court
The respondent was content to rely upon the written submissions handed up, to which I shall return.
Ms Volpe said but little by way of submissions. She referred to the fact that she had been permitted to attend the County Court proceeding. This was done at a time when the respondent knew she was bankrupt. If I understood Ms Volpe correctly she was complaining of the failure of the respondent to file a defence in the County Court proceeding notwithstanding that Judge Cosgrave’s order required them to do so.
The respondent’s written submissions pointed out, at paragraph 4 that the applicant does not have standing to defend the County Court proceeding and the respondent has determined not to defend it. Accordingly, when the matter proceeds on 21 October 2014 CBA’s claim will be unopposed. The written submissions, in my view, correctly analysed the applicant’s claim at paragraph 5 as:
“The Applicant seeks a review of the Respondent’s decision not to defend the County Court Proceeding and to abandon, various proceedings that the Applicant had instituted in the Victorian Civil and Administrative Tribunal (VCAT) prior to commencement of the bankruptcy. The Applicant also seeks various other orders concerning the circumstances which led to her bankruptcy and the administration of her bankrupt estate.”
Having set out the orders sought by the applicant, and referred to the amended statement of claim, the written submissions go on to analyse each of the claims made by the applicant in some detail. Regrettably for the applicant, the analysis put forward by the respondent is in my view entirely accurate and it follows that this decision from now on will tend somewhat closely to follow the respondent’s written submissions.
The Applicant’s Claims as Articulated in the Amended Statement of Claim
Michael Carrafa as the trustee of Manuela Volpe’s property submits a financial assessment of report to the Court related to the true value of assets and proof of debt.
The respondent has already provided exhibit MC-1. This was provided to the Court, as trustees often do, at an earlier stage.
While the applicant complains of the circumstances in which the CBA (in fact its predecessor, Westbank) advanced over $1.4 million to her, she does not deny that the funds were advanced.
Even allowing for some room for error in the appraisal it is clear that the secured creditor is owed more than the value of Ms Volpe’s property. Her Statement of Affairs has not given rise to the proposition that she has any other significant assets. Indeed that is her own position as I understand it.
Ms Volpe has not identified any legal basis upon which it would be appropriate to compel Mr Carrafa to produce the sort of report she now seeks. Mr Carrafa’s failure to do so would not, in my view, give rise to a valid claim pursuant to s.178 of the Bankruptcy Act in these circumstances.
Michael Carrafa as trustee of Manuela Volpe makes a complete assessment of all of her legal matters and provides a complete report of how these matters contributed to her bankruptcy.
Once again this application proceeds, in my view, on a misconception. The trustee’s function, once appointed, is to administer the estate, ascertain and if possible pay the creditors and then provide any surplus to the bankrupt.
It is not a proper discharge of the trustee’s function to embark upon the wide-ranging investigation into the matters that gave rise to the bankruptcy. Furthermore, it is quite apparent that there are simply no funds available to enable such an inquiry to be made. It should be noted that the trustee has already obtained legal advice that none of the claims in VCAT, nor the claim in the County Court, had any significant prospects of success.
Michael Carrafa as trustee of Manuela Volpe provide a complete report of the circumstances, which led to Manuela Volpe’s bankruptcy and rectifies any errors if required by law related to her bankruptcy.
This part of the application suffers from exactly the same deficiency as that I have just discussed. It is not part of the trustee’s proper function to proceed in this fashion. It is, in any event, impossible, given the absence of funds, to enable this to occur.
In order that a true assessment of the Applicant’s financial position is to be determined, an order that the Respondent allow the Applicant to file and serve an Amended Defence as per orders made by his Honour Judge Cosgrave on 9 May 2014, in the County Court Proceedings.
It is true, of course, that on one view of the matter the trustee has failed to comply with the express terms of Judge Cosgrave’s order that a defence be filed. Nonetheless, it is not to be presupposed that his Honour, who knew that the applicant was bankrupt (see the terms of the orders made in May 2014) would have intended to compel the trustee to disperse funds that might not be available. I would take the terms of his Honour’s order to be that the trustee file any defence if so advised. So much is clearly implicit. Thus while his Honour felt that the matter should go to trial, his Honour clearly had not in mind to compel the trustee to conduct the trial.
In the circumstances, and bearing in mind that the trustee has taken the decision, communicated it would appear many times over some months to the applicant, not to defend the proceeding, on legal advice, there can be no claim, in my view, validly pursued under s.178 arising out of this aspect of the matter. Once again, the absence of available funds with which to prosecute the proceeding is a very relevant consideration.
Alternatively allow an assignment of chose in action so Manuela Volpe is able to run the proceedings in her capacity.
The trustee has deposed that endeavours to come to an agreement about assigning the right to defend the action before Judge Cosgrave were not successful. The written submissions filed by the respondent correctly assert that Ms Volpe has not put in evidence the terms upon which she sought such an assignment. In these circumstances it cannot be shown that the trustee’s actions are such as to give rise to curial intervention pursuant to s.178 of the Bankruptcy Act.
Refund $2,000, which Manuela Volpe paid to Aitken Partners Lawyers, or provide the report, which she has not obtained to date.
This sum was required by the trustee to obtain legal advice about defending the County Court proceeding. In circumstances where no funds were available to the estate otherwise to obtain legal advice the trustee’s action does not, in my view, constitute any impropriety. The legal advice obtained was clearly privileged and there is nothing to suggest that legal profession privilege has been waived.
By reason of the matters pleaded in paragraph 29 to 36 above and pursuant to s 178 of the Bankruptcy Act 1966 (Cth) appeal to the Court against the trustee’s decision in The Victorian and Civil Administrative Tribunal to abandon the matters J182/2012, J8/2013 and J9/2013 and have these matters reinstated if necessary.
The respondent’s written submissions first submit that insofar as the applicant seeks review of the decision to abandon the VCAT matters, and the decision not to defend the County Court proceeding, these matters are statute-barred by way of operation of s.178(2) of the Bankruptcy Act which imposes a 60 day time limit from the time at which the bankrupt becomes aware of the trustee’s act, omission or decision.
It is clear that the 60 day limit is an absolute one (see the assumptions made in Samootin v Official Trustee in Bankruptcy [2012] FCA 64) and the review of authorities in Tomasetti & Scott (as trustee of the property of Tomasetti [2013] FCCA 1693 at [11].
This would appear to operate as an absolute bar to these two sub-aspects of the matter in any event.
Insofar as the applicant’s claims might not be time-barred in this way, the trustee points to authority governing the nature of the trustee’s functions and how they should be performed (see Freeman v National Australia Bank Limited [2003] FCA 1233 at [12] and [18]; and Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352 per Bennett J at [19]-[25]). It is not necessary to review those authorities in detail (although they are set out in the respondent’s written submissions for convenience).
Suffice to say that while the Court has the broadest power to control and review the conduct of the trustee, one matter that is likely to have achieved considerable significance in circumstances such as these is the availability of funds. Funds are quite clearly just not available to the estate to prosecute any litigation.
There is simply nothing in the trustee’s conduct that would give rise to the Court’s intervention in the fashion that the applicant seeks in these circumstances.
In order that a true assessment and proof of assets and/or debt be ascertained, the trustee makes an application to the Court for an examinable person to produce all relevant books in relation to all debts and matters above.
This matter has not really been the subject of any definition by the applicant. One might infer that she would seek that some third party be brought to Court to be examined as to the debts which gave rise to the applicant’s bankruptcy. It is not the function, to repeat, of the trustee in bankruptcy to investigate in this way the fashion in which Ms Volpe became bankrupt. Rather it is the trustee’s function to administer the bankrupt estate as I have described.
By reason of matters pleaded above the Federal Circuit Court to deal with interim matters while the Family Court conducts the final hearing.
Although the applicant’s affidavit material sets out in some detail the background to the proceedings in VCAT and the County Court of Victoria, there is nowhere that I can see any direct reference to proceedings in the Family Court of Australia. One might infer that Ms Volpe’s marriage has totally broken down in difficult circumstances and it is, of course, very possible there are such proceedings. Since, however, the applicant has not identified them it is difficult to know what to make of this aspect of the application. Furthermore, the implied application for some sort of stay is effectively impossible to construe. It is not clear what this Court would do to stay the actions of any third party, presently unidentified, as the applicant appears to seek.
Alternatively, by reason of the matters pleaded above and pursuant to s178 of the Bankruptcy Act 1966 (Cth) appeal to the Court against the trustee’s decision in the County Court Proceedings and that the Court may make such an order in the matter as it thinks just and equitable.
This is a repeat of the matter that really stands at the forefront of Ms Volpe’s case. She wants this Court to order the trustee to defend the County Court proceedings. For the reasons already given the Court would not be minded to make such an order.
Is the applicant’s case without reasonable prospects of success within the meaning of s.17A of the Federal Circuit Court Act 1999?
The respondent has sought the summary dismissal of the applicant’s case. The written submissions set out copious authority about the operation of that section.
It is not in this particular circumstance of this case to detail the authorities. The applicant’s case is, regrettably, hopelessly misconceived. It has no reasonable prospects of success. The primary claims that the applicant makes which relate to challenges to the trustee’s decision in relation to the VCAT and County Court proceedings are out of time and barred by s.178(2) of the Bankruptcy Act. The other matters are hopelessly misconceived. It is clear, on the evidence as it stands (and there is no prospect of further evidence coming forward because the applicant has already been given the opportunity to put on all the material that she might wish) that the application cannot possibly proceed. The application will be dismissed. Given that Ms Volpe is bankrupt I will hear the submissions as to any orders as to costs.
I certify that the preceding sixty-eight (68) paragraphs are a true copy of the reasons for judgment of Judge Burchardt.
Associate:
Date: 2 December 2014
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