Westpac Banking Corporation v Cossar
[2012] FMCA 602
•10 July 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WESTPAC BANKING CORPORATION v COSSAR & ANOR | [2012] FMCA 602 |
| BANKRUPTCY – Creditor’s Petition – whether respondent debtors’ proposed proceeding against supporting creditor warrants adjournment or constitutes other sufficient cause not to make a sequestration order – whether sufficient evidence that proposed proceedings will proceed without undue delay and are likely to be successful – this criteria not established on evidence before Court – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.40, 42, 43, 44, 47, 52 Evidence Act 1995 (Cth), s.91 Federal Magistrates Court Act 2001(Cth), s.64 Federal Court Rules 2011 (Cth), r.23.12 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.4.02, 4.04, 4.06 |
| Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Re LHF Wools Ltd [1970] CH 27 Re Maddestra; Ex Parte Penfolds Wines Pty Ltd [1993] FCA 15 Australian Bankruptcy Law & Practice, 6th Edition, Thomson Reuters |
| Applicant: | WESTPAC BANKING CORPORATION ACN 007 457 141 |
| First Respondent: | DALLAS ALLAN COSSAR |
| Second Respondent: | ALMA JANINE COSSAR |
| Supporting Creditor: | PRINCIPLED MORTGAGE INVESTMENTS LTD ACN 089 384 172 |
| File Number: | SYG 1457 of 2011 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 15 December 2011 |
| Date of Last Submission: | 15 December 2011 |
| Delivered at: | Sydney |
| Delivered on: | 10 July 2012 |
REPRESENTATION
| Solicitors for the Applicant: | Ms K. Britton of Gadens Lawyers |
| Counsel for the Respondents: | Mr J. King |
| Solicitors for the Respondents: | Platinum Lawyers |
| Counsel for the Supporting Creditor: | Ms T. Dinh |
| Solicitors for the Supporting Creditor: | Rennick & Gaynor |
ORDERS
The Notice Stating Grounds of Opposition to the Petition filed by Dallas Allan Cossar on 1 November 2011 be dismissed.
The Notice Stating Grounds of Opposition to the Petition filed by Alma Janine Cossar on 1 November 2011 be dismissed.
A sequestration order be made against the estates of Dallas Allan Cossar and Alma Janine Cossar.
The applicant’s costs, including any reserved costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
A copy of the sequestration order be given to the Official Receiver in Sydney within 2 working days.
THE COURT NOTES THAT:
The date of the act of bankruptcy is 18 May 2011.
A consent to act as trustee has been signed by Jason Porter and Paul Weston and has been lodged with the Official Receiver.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1457 of 2011
| WESTPAC BANKING CORPORATION ACN 007 457 141 |
Applicant
And
| DALLAS ALLAN COSSAR |
First Respondent
| ALMA JANINE COSSAR |
Second Respondent
PRINCIPLED MORTGAGE INVESTMENTS LTD ACN 089 384 172
Supporting Creditor
REASONS FOR JUDGMENT
Introduction
On 11 July 2011 the applicant creditor, Westpac Banking Corporation ACN 007 457 141 (“Westpac”), filed a creditor’s petition in this court against Dallas Allan Cossar and Alma Janine Cossar, the respondent debtors (the “respondents”), pursuant to a judgment of the District Court of New South Wales entered on 8 July 2010 in favour of Westpac in the amount of $108,763.20. The bankruptcy proceeding was first listed on 15 August 2011 before a Registrar and came before this Court on 15 December 2011.
Background
In proceedings 2009/334280 in the District Court of New South Wales, judgment in favour of Westpac was issued in the amount $108.763.20 on 8 July 2010. A Bankruptcy Notice (NN 4355 of 2010) was issued by the Insolvency and Trustee Service of Australia (“ITSA”) on 8 October 2010 pursuant to the District Court judgment. Time for the service of the Bankruptcy Notice was extended to 5 October 2011 on 5 April 2011 and the Notice was served on the respondents by substituted service, pursuant to orders made by a Registrar of this Court in proceedings SYG 287 of 2011, on 27 April 2011. The 21 days within which the respondents had to comply with the Bankruptcy Notice expired on 18 May 2011 and the debt was not satisfied. The applicants then filed this Creditor’s Petition on 11 July 2011.
The matter was first listed before a Registrar of this Court on 15 August 2011 and the hearing was attended by the legal representatives of the applicant. The applicant had not yet been able to effect service of the creditor’s petition on the respondents and the matter was adjourned generally. On 7 October 2011 a supporting creditor, Principled Mortgage Investments Ltd ACN 089 384 172 (formerly known as Rennick & Gaynor Mortgages) (“PMI”), filed a notice of appearance in the proceedings. The matter was next listed before a Registrar of the Court on 10 October 2011 with the respondents appearing in person and the legal representatives for Westpac and PMI also appearing. The proceedings were again adjourned until 31 October 2011.
On 25 October 2011 a notice of appearance was filed on behalf of the respondents by Platinum Lawyers. The proceedings then came back before a Registrar of the Court on 31 October 2011 and the matter was adjourned to 8 November 2011. The respondents filed joint Notices Stating Grounds of Opposition as well as three supporting affidavits on 1 November 2011. On 8 November 2011 the Registrar made orders for the filing of evidence and submissions and listed the matter for hearing on 15 December 2011.
There are a number of references in this decision to the Supreme Court of NSW proceedings that have been commenced by the respondents in relation to their claim against PMI in respect to the exercise of a power of sale in or around 2009 (the “Supreme Court – Cossar proceedings”). Those proceedings were commenced by a statement of claim filed in the Equity Division of the Supreme Court of New South Wales on 6 December 2011. There was also an earlier proceeding in the Supreme Court in Rennick & Gaynor Mortgages v Cossar [2008] NSWSC 1028 (3 October 2008) per her Honour, Fullerton J (the “Supreme Court – Rennick & Gaynor proceedings”). In those proceedings Rennick & Gaynor Mortgages (now PMI) sought an order for possession of land situated at Barham in the south west of New South Wales (the “Graceland Property”) and a judgment against the first and second defendants in the sum of $3,525,932.35 plus interest. The plaintiff corporation in those proceedings is a public company and the responsible entity for a managed investment trust. On 22 September 2006 it advanced loan funds in the amount of $3,000,000 secured against the Gracelands Property, of which the first and second defendants were the registered proprietors which they operated as a mixed farming enterprise. The judgment against the defendants was in the amount of $3,000,000. On 20 August 2009 the respondents filed a Notice of Motion in the Supreme Court – Rennick & Gaynor Proceedings, which was heard on that date. The respondents appeared that day without legal representation. His Honour Hulme J informed the respondents that, if they wanted to sue for failure to sell in good faith then it would form the basis of a new cause of action and the Notice of Motion was dismissed.
Hearing 15 December 2011
These proceedings were listed before a Registrar of the Court who referred the matter to this Court for hearing. Ms Britton, appearing for Westpac, indicated that Westpac sought to proceed with the hearing of the Creditor’s Petition. Mr King, appearing for the respondents, then indicated that course was one that was objected to by the respondents, and would make submissions as to why the petition should not proceed. Ms Dinh, appearing for the supporting creditor PMI, filed written submissions and sought to rely upon them but did not make a significant oral presentation at the hearing.
Evidence Filed and Read by the Applicant
The applicant filed and read the following evidence:
a)Affidavit of Erica Minnicino sworn 7 April 2011 as to service of the Bankruptcy Notice on the first respondent;
b)Affidavit of Erica Minnicino sworn 7 April 2011 as to service of the Bankruptcy Notice on the second respondent;
c)Affidavit of service of Kris Sabatino sworn 10 April 2011 as to notification of service of the Bankruptcy Notice by SMS (Short Messaging Service);
d)Affidavit of Ivan Angonese sworn 8 July 2011 verifying paragraphs 1, 2 and 3 of the creditor’s petition;
e)Affidavit of Adam Corbett sworn 11 July 3022 verifying paragraph 4 of the creditor’s petition;
f)Affidavit of Richard Allen sworn 28 September 2011 as to service of the creditor’s petition on the second respondent;
g)Affidavit of Richard Allen sworn 3 November 2011;
h)Affidavit of debt of Lindsay Davidson sworn 14 December 2011; and
i)Affidavit of final search of Melanie Louise Skinner sworn 14 December 2011.
Evidence Filed and Read by the Supporting Creditor
PMI read the affidavit of Geofrey Leslie Rowles sworn 9 December 2011. It should be noted that the respondents representative Mr King sought to cross examine Mr Rowles. Mr Rowles was not available for cross-examination at the hearing and, accordingly, pursuant to s.64 of the Federal Magistrates Court Act 2001(Cth) (the “FMC Act”) his evidence is to be given the weight the Court sees fit.
Formal Requirements for Issuance of a Sequestration Order
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”), and subject to the jurisdiction to making sequestration orders under s.43 of the Bankruptcy Act and the conditions on which the creditor may petition under s.44 of the Bankruptcy Act being met.
Section 52(1) of the Bankruptcy Act provides as follows:
(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; verified by an affidavit of service,
(c) the fact that the debt or debts on which the petitioning creditor relies or is still owing;
And, if it is satisfied with the proof of these matters, may make a sequestration order against the estate of the debtor.
Section 43 of the Bankruptcy Act provides that the Court may make a sequestration order when:
(a)A debtor has committed an act of bankruptcy (Bankruptcy Act s.43(1)(a); and
(b)Relevantly, at the time when the act of bankruptcy was committed, the debtor was personally present and an ordinarily resident in Australia (Bankruptcy Act s.43(1)(b)(i).
Section 44 of the Bankruptcy Act provides that the creditor’s petition is not to be presented, unless:
(a) The debt is more that $5,000;
(b)The debt is a liquidated sum due at law and payable immediately (Bankruptcy Act s.44(1)(b); and
(c)The act of bankruptcy in which the petition is founded was committed within 6 months before the presentation of the petition (Bankruptcy Act s.44(1)(c).
The applicant creditor is also obliged by the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (“the FMC (Bankruptcy) Rules”) to put before the Court affidavits:
a)Verifying the petition (Bankruptcy Act s.47(1), FMC (Bankruptcy) Rules r.4.02);
b)As to search of records of the Court and of the Federal Court as to any application in relation to the Bankruptcy Notice (FMC (Bankruptcy) Rules rr.4.04(1)(a) and 4.04(2));
c)Of service of the Bankruptcy Notice (FMC (Bankruptcy) Rules r4.04(1)(b));
d)Of service of the documents required to be served under the FMC (Bankruptcy) Rules r.4.05 (FMC (Bankruptcy) Rules r.4.06(2));
e)A search of the National Personal Insolvency Index no earlier that the day before the hearing date of the petition (FMC (Bankruptcy) Rules r.4.06(4)); and
f)Of debt which the creditor still relies as owing (FMC (Bankruptcy) Rules r.4.06(4)).
Some of the requirements under the FMC (Bankruptcy) Rules overlap with those under the Bankruptcy Act.
In relation to the matters requiring formal proof the Court finds as follows:
a)The matters stated in the petition are supported by:
i)Affidavit of Richard Allen sworn 28 September 2011 accompanying the petition (Bankruptcy Act ss. 47 and 52(1)(a), FMC (Bankruptcy) Rules r.4.02). The petition was served on the respondents on 28 September 2011 at 6.50 pm;
ii)Affidavit of Ivan Angonese sworn 8 July 2011 verifying paragraphs 1, 2 and 3 of the Creditor’s Petition;
iii)Affidavit of Adam Corbett sworn 11 July 20101 verifying paragraph 4 of the Creditor’s Petition;
b)The debt on which the applicant relies is still owing (Bankruptcy Act s.52(1)(c));
c)The respondents have committed an act of bankruptcy (Bankruptcy Act s.42(1)(a)) committed on 18 May 2011 pursuant to s.40(1)(g) of the Bankruptcy Act;
d)At the time the act of bankruptcy was committed the respondents:
i)Were personally present in Australia; and
ii)Ordinarily resided in Australia (Bankruptcy Act s.43(1)(b)).
e)The debt owed by the respondents is $108.760.20, being a sum more that $5,000.00 (Bankruptcy Act s.44(1)(a));
f)The debt of $108,760.20 is a liquidated sum, payable immediately (Bankruptcy Act s.44(1)(b));
g)The first respondent, Dallas Allan Cossar, failed to comply on or before 18 May 2011 with the requirements of a bankruptcy notice served on him pursuant to a substituted service order on 27 April 2011;
h)The second respondent, Alma Janine Cossar, failed to comply on or before 18 May 2011 with the requirements of a bankruptcy notice served on her pursuant to a substituted service on 27 April 2011;
i)Searches of the records of this Court and the Federal Court have been made and that no application has been made in either court in relation to the Bankruptcy Notice;
j)The Bankruptcy Notice NN 4355 of 2010 was served on the first respondent, Dallas Allan Cossar, by post (FMC (Bankruptcy) Rules rr.40.04(1)(a) and 40.04(2)) on 7 April 2011 attaching a copy of the judgment founding the Notice, a judgment/order of the District Court of NSW, List General, Registry Sydney, Case No. 2009/334280 for judgment of $108,760.20. Affidavit of Erica Minnicino sworn 7 April 2011;
k)The Bankruptcy Notice NN 4355 of 2010 was served on the second respondent, Alma Janine Cossar, by post on 7 April 2011 attaching a copy of the judgment founding the Notice, a judgment/order of the District Court of NSW, List General, Registry Sydney, Case No. 2009/334280 for judgment of $108,760.20. Affidavit of Erica Minnicino sworn 7 April 2011;
l)That at least five days before the date fixed for the hearing of the petition the:
i)Petition (FMC (Bankruptcy) Rules r.4.05(a));
ii)A copy of the affidavit verifying the petition(FMC (Bankruptcy) Rules r.4.05(b));
iii)A copy of the affidavit of search of court records (FMC (Bankruptcy) Rules r.4.05(c)); and
iv)A copy of the affidavit of service of the Bankruptcy Notice (FMC (Bankruptcy) Rules r.4.05(d))
Were served on the first respondent personally, Dallas Allan Cossar on 28 September 2011; Affidavit of Richard Allen sworn 28 September 2011;
m)That at least five days before the date fixed for the hearing of the petition the:
i)Petition (FMC (Bankruptcy) Rules r.4.05(a));
ii)A copy of the affidavit verifying the petition (FMC (Bankruptcy) Rules r.4.05(b));
iii)A copy of the affidavit of search of court records (FMC (Bankruptcy) Rules r.4.05(c)); and
iv)A copy of the affidavit of service of the Bankruptcy Notice (FMC (Bankruptcy) Rules r.4.05(d))
Were served on the second respondent personally, Alma Janine Cossar on 28 September 2011; Affidavit of Richard Allen sworn 28 September 2011;
n)The National Personal Solvency Index was searched on 14 December 2011 (the day before the petition was heard) (FMC (Bankruptcy) Rules r.4.06(3)) and that details of references in that index to the respondents are before the Court (FMC (Bankruptcy) Rules r.4.06(3)(a));
o)A copy of the relevant extract of the Index is attached to the affidavit of search of Melanie Louise Skinner sworn 14 December 2011 (FMC (Bankruptcy) Rules r.4.06(3)(b)(i)). As the matter was reserved on 15 December 2011 a new affidavit of search will be required to be filed at the next hearing;
p)There is an affidavit of final debt of Lindsay Davidson sworn 14 December 2011, being a person with knowledge of the facts sworn the day before the hearing of the petition that the debt on which the applicant creditor relies is still owing (FMC (Bankruptcy) Rules r.4.06(3)(c)). However, as the matter was reserved on 15 December 2011 a new affidavit of final debt will be required to be filed at the next hearing.
A consent to act as trustee has been signed by Mr Jason Porter and Mr Paul Weston.
Mr Britton, in her written submissions, referred the Court to the High Court decision in Cain v Whyte (1933) 48 CLR 639 for the general authority that a court ought to proceed to make a sequestration order if it is satisfied with the matters set out in s.52(1) of the Bankruptcy Act and it is:
… For the debtor to show some cause overriding the interests of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
Ms Britton submitted that the relevant acts of bankruptcy were committed by both respondents on 18 May 2011 by non-compliance with the Bankruptcy Notice which was served under orders for substituted service and deemed served on 27 April 2011. The creditor’s petition on which the application relies is dated 11 July 2011 and was served personally on the second respondent on or about 28 September 2011 that is evidenced by the affidavit of Richard Allen sworn 28 September 2011. On 31 October 2011 a Registrar of this Court deemed that the petition had been served on the first respondent and a notice of appearance and a notice stating grounds of opposition has been filed on behalf of the first respondent.
Notice Stating Grounds of Opposition to Petition
On 1 November 2011 Ahmad Moutasallem of Platinum Lawyers Pty Ltd filed, on behalf of the first respondent, a Notice Stating Grounds of Opposition to the Petition on the following ground:
1. The opponent relies on Section 52(2)(b) of the Bankruptcy Act 1966 (Cth) which relevantly states that:
(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) …
(b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition.
2. The opponent intends to bring a claim against its former mortgagee [PMI] in relation to the exercise of the mortgagee power of sale in or about 2009.
3. The opponent will be unable to commence these proceedings if the sequestration order is made.
A Notice Stating Grounds of Opposition in the name of Alma Janine Cossar, dated 20 October 2011, was also filed and contained similar grounds to that of her husband. The grounds of opposition were supported by affidavits of Dallas Allan Cossar, Alma Janine Cossar and Ahmad Moutasallem all sworn on 28 October 2011.
Evidence Filed and Read by the Respondents in Support of Notice of Grounds of Opposition
The respondents read the following evidence:
a)Affidavit of Ahmad Moutasallem sworn 27 October 2011 (“First Moutasallem Affidavit”);
b)Affidavit of Dallas Allan Cossar sworn 28 October 2011;
c)Affidavit of Alma Janine Cossar sworn 28 October 2011 (“First Mrs Cossar Affidavit”);
d)Affidavit of Ahmad Moutasallem sworn 2 December 2011 (“Second Moutasallem Affidavit”);
e)Affidavit of Anthony Paddy O’Dea sworn 13 December 2011; and
f)Affidavit of Alma Janine Cossar sworn 14 December 2011 (“Second Mrs Cossar Affidavit”).
Numerous objections were raised by Ms Britton in respect to the reading of these affidavits in respect to the grounds of relevance, being filed out of time and them containing opinion evidence, which were noted by the Court. Ms Britton also sought to cross-examine Mr O’Dea, who was not available to give evidence and again pursuant to s.64 of the FMC Act Mr O’Dea’s affidavit evidence was treated accordingly.
Respondents’ Submissions in Support of Notice Stating Grounds of Opposition
Mr King submitted that the basis on which he intended to proceed was that there was an argument on the proper construction of the cases and the claim sought to be advanced by his clients was open under s.52(2)(b) of the Bankruptcy Act. On 1 November 2011 the respondents filed a Notice Stating Grounds of Opposition to Petition. The respondents sought to oppose the Creditor’s Petition and relied on s.52(2)(b) of the Bankruptcy Act. The grounds they sought to rely on were:
1. The opponent relies on Section 52(2)(b) of the Bankruptcy Act 1966 (Cth) which relevantly states that:
(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
…
(b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition.
2. The opponent intends to bring a claim against its former mortgagee [PMI] in relation to the exercise of the mortgagee power of sale in or about 2009.
3. The opponent will be unable to commence these proceedings if the sequestration order is made.
Mr King contended that the basis of the respondents’ opposition to the hearing of the Petition was that there were proceedings on foot in the Supreme Court of NSW (the Supreme Court – Cossar Proceedings) against the supporting creditor with strong prospects of success, which would lead to the respondents recovering between $1.4 and $1.7 million in respect to the improper sale of their farmland. The orders sought by the respondents were:
a) The petition be dismissed;
b) In the alternative, an order that the petition be dismissed upon payment by the respondents of the difference between the amount of the judgment debt and the amount which it seems probable to the court that the respondents will recover on their claim in the Supreme Court; or
c) In the alternative, this proceeding be adjourned to enable the respondents’ claim in the Supreme Court to proceed to judgment.
Mr King argued that any discretion of the court in finding other sufficient cause not to make a sequestration order in proceedings of this nature must be exercised based on the principle stated by their Honours Rich, Starke, Dixon, Evatt and McTiernan JJ in Cain v Whyte (1933) 48 CLR 639. Their Honours stated at 646:
[P]rima facie, on proof of the matters mentioned in sec. 56(2) [of the Bankruptcy Act 1924 (Cth), the predecessor to the current act], the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
Mr King referred the Court to the decision of their Honours Davies, Wilcox and Branson JJ in Ling v Enrobrook Pty Ltd (1997) 74 FCR 19 where it was held that as a general proposition, there is no apparent reason why a petitioning creditor should not be entitled to have a sequestration order made, if the requirements of s.52 (of the Bankruptcy Act) are otherwise satisfied, simply because the debtor may have a counter-claim or cross-claim against some other creditor.
Mr King submitted that the circumstances constituting “other sufficient cause” are extremely variable and it would not be appropriate to catalogue or circumscribe them and referred to the decision of the Full Court of the Federal Court in Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1.
Mr King contended that the decision in Ling (supra) did not preclude a debtor raising circumstances for consideration as to whether there was other sufficient cause, in those proceedings where the basis is a claim against a creditor who is involved in the proceedings, but not the petitioning creditor. Mr King submitted that there should be a distinction drawn on the authorities he had mentioned between:
a)Petitioning creditors;
b)Other creditors; and
c)Third parties who are not creditors at all.
He accepted that it would be unlikely that there would be any circumstances that would give rise to other sufficient cause. Mr King contended that this was a case in which the second scenario applied, in which the respondents had lodged a case in the Supreme Court against PMI, the supporting creditor.
Mr King submitted that the Court should be reluctant to construe the authority in Ling (supra) as foreclosing any discretion it may have in a case of this nature, where a claim is being advanced by the respondents against a creditor involved in the proceedings who is not the petitioning creditor. Mr King relied on the text of s.52(2)(b) as a broad discretion in respect to other sufficient cause. It was submitted that there was nothing in the Full Court’s reasons in Ling (supra) indicating a limitation, or a hard limitation, on the application of s.52(2)(b).
Mr King contended that the principle basis upon which the argument against his client was advanced was in the decision of Katz J in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 where his Honour discussed the principle that “it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely of only short duration” citing Ling (supra) where his Honour initially discusses the situation against a petitioning creditor and then considers a third party where a claim will not amount to a “sufficient cause” to fall within s.52(2)(b). At [55] of Katz J’s decision he refers to Ling (supra) and the passage at [25] of that judgment where is it stated:
[T]here is no apparent reason why a petitioning creditor should not be entitled to have a sequestration order made … simply because the debtor may have a counter-claim or cross-claim against some other creditor
Mr King argued that the above passage did not preclude a debtor raising circumstances for consideration by the court as to whether there is other sufficient cause, but on the basis of a claim against a creditor who is involved in the proceedings and who was not necessarily the petitioning creditor. Mr King contended a distinction should be drawn on authorities between, on the first hand, a petitioning creditor, secondly, other creditors and thirdly, third parties who are not creditors at all. Mr King acknowledged that, in the latter case, third parties who are not creditors are unlikely to have any circumstances in which a claim could give rise to other sufficient cause.
Mr King submitted that this case concerned the second proposition, in which a claim was brought against a supporting creditor who was a creditor of the respondents. Mr King argued that the Court should be reluctant to construe the authority of the Full Court in Ling (supra) as foreclosing the exercise of the Court’s discretion in all cases in which a claim is advanced by respondents against a creditor involved in bankruptcy proceedings who is not the petitioning creditor. In support of that submission Mr King relied on the general text of s.52(2)(b) of the Bankruptcy Act in that it is a broad discretion of the term other sufficient cause. There is nothing in the Full Court’s decision which indicates a hard limitation on the application of that section. The highest at which the Full Court authority can be taken is that it suggests there might be few circumstances in which a claim advanced by debtors against a creditor, who is not the petitioning creditor, would give rise to other sufficient cause. At the end of that passage attention is drawn to the particular circumstances before the Court and whether those circumstances, having regard to competing interests, are capable of giving rise to other sufficient cause.
Mr King submitted the unique factors of the matter before this Court which would bring it within the exercise of the Court’s discretion in those few circumstances in which a claim against a supporting creditor might give rise to other sufficient cause are:
a)The impecuniosity of the respondents has, on their evidence, been brought about by the conduct of the supporting creditor and the respondents would not be in their present position and unable to pay the debt claimed by the petitioning creditor but for the actions of the supporting creditor which have not yet been able to be tested in the Supreme Court. In a broad sense that argument is really an argument that, by reason of the supporting creditor’s contribution to the respondents’ circumstances, the circumstances of injustice are so great that they warrant an exercise of the Court’s discretion. There is another in which the dictum in Ling (supra) may be distinguished and that can be observed in the wording. What the Full Court has said is that there is no apparent reason not to grant a sequestration order, simply because the debtor may have a counter-claim against some other creditor. Mr King contends that it would be open for the Court to read that statement consistently with other authorities and the general discretion conferred by the Bankruptcy Act as allowing the Court, in a case where other circumstances in addition to the mere presence against another creditor, to call for the exercise of the Court’s discretion. In other words, all the Full Court is saying is that the mere fact that there is a claim advanced against another creditor could not, by itself, justify the exercise of the Court’s discretion. Where the existence of a claim is coupled with other circumstances of injustice or other competing interests, it falls to the Court to determine those interests, to weigh them in the balance of considering the Court’s discretion under s.52(2)(b);
b)The other circumstances relied on by the respondents as justifying an exercise of the Court’s discretion are the strong prospects of the claim that they have against the supporting creditor, who is their former mortgagee. In a proceeding in the Supreme Court (Supreme Court – Rennick & Gaynor Proceedings), her Honour Fullerton J has already found that this mortgagee, the supporting creditor, had previously acted unconscionably towards the present respondents in relation to the mortgage of the farm and the sale of which they are now seeking to impugn. Findings have been made concerning the conduct of this supporting creditor in the past which are bound up in the claim that the respondents now seek to advance. Mr King argues that this is one circumstance which sets this case apart from other cases in which the debtor advances a new claim for the first time, without any formal consideration by any court of the transaction involved;
c)The strong prospects of the claim are demonstrated by the affidavit of Ahmad Moutasallem, the statement of claim filed in the Supreme Court of NSW (in the Supreme Court – Cossar Proceedings) and Mrs Cossar’s affidavit in support of that claim. Essentially the facts are that when the money was originally advanced by the supporting creditor to the respondents, a valuation was carried out at the direction of PMI which valued the property at $5,000,000. The valuation is contained in the document relied upon by the supporting creditor in order to advance funds to the respondents on the basis that their property was a major dairy enterprise. Three years later, after proceedings in the Supreme Court of NSW where Fullerton J made findings about the conduct of the supporting creditor, that supporting creditor sought to sell the farm owned by the respondents and it obtained a new valuation for the purposes of doing so. The new valuation, done by a different valuer, valued the property at $3,000,000 which included a valuation of the dairy operation on the land as $0. The value of the dairy operation had dropped from $680,000 to $0 and there were no enquiries made by PMI at the time as to why there was a discrepancy of $2,000,000 in the space of three years. The evidence of Mr Anthony Paddy O’Dea, who reviewed the valuation relied upon by PMI, stated there was simply no basis for proceeding with the sale of the land valued at $3,000,000 in the absence of any explanation as to why the price had declined in the intervening three years. In his view, on inspection at the time of sale, the dairy farm had retained its value, yet on the face of the valuation there was a difference on $2,000,000. In addition, there was no public auction held as the property was sold by private treaty. Mrs Cossar, in her evidence, stated there were deficiencies and misdescriptions of the property.
Mr King submits that all of these matters are matters which make out not only a prima facie case, but quite a strong case for impugning the mortgagee’s exercise of its power of sale.
Mr King contends that the other principle matter which would justify the exercise of the Court’s discretion in this case is the short time in which the Supreme Court proceedings can be brought on. Significantly, the respondents only became aware of the petition in September 2011. The respondents had no notice of these bankruptcy proceedings prior to that time. They held, almost immediately, a family meeting in order to raise funds to meet the claims sought to be advanced both by Westpac and by PMI, and to finalise action in respect of the earlier wrongful sale of their farm.
Mr King referred the Court to the Second Mrs Cossar Affidavit which lists the respondents’ assets and liabilities, and the basis on which they have obtained funding from their children to run the Supreme Court proceedings expeditiously. Mr King contends that it is not a complex claim that would require substantial oral evidence. The claim is principally based on the mortgagee’s own documents, the valuations that were in its possession at the different times. There will be some expert evidence, but the bulk of that has already been completed and the reports are before the Court.
Mr King filed and sought to read the affidavit of Anthony Paddy O’Dea sworn 13 December 2011. Mr King advised the Court that Mr O’Dea’s affidavit indicated that he had inspected the property and had been familiar with its existence for some considerable time, however, there was concern because of Mr O’Dea’s age and medical condition the trial should happen sooner, rather than later as a result of those factors. Ms Britton objected to the reading of the affidavit, initially, because it had been sworn and served outside the timetable that had been set by the Court on 8 November 2011.
More importantly, there was no evidence contained that the deponent of the affidavit had been referred to the guidelines, in r.23.12 of the Federal Court Rules 2011 (Cth) in relation to the matters which an expert must take into consideration in giving such evidence. Ms Britton contends that this affidavit is lay expert evidence with the deponent having specific knowledge of the matter, but it should not be taken to an expert’s report, in any sense. This objection was noted and the affidavit was allowed in on a limited basis. Mr King submitted that Mr O’Dea was responsible for carrying out several of the valuations which appear in the Exhibits (First Moutasallem Affidavit sworn 22 October 2011, Annexure “J” and Affidavit of Alma Janine Cossar sworn for the purposes of the Supreme Court – Cossar Proceedings). Mr King submits that the Supreme Court hearing is likely to be only one or two days because it is largely a documentary case, unlikely to have any extensive oral examination or oral evidence.
As a final submission, Mr King referred the Court to the decision in Ling (supra) about the appropriateness of relief that could be granted in a case of the nature of the one currently before this Court. At page 25 of that decision the Full Court has extracted a passage from the decision of his Honour Gibbs J (as he was then, Justice of the Federal Court of Bankruptcy) in Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116 where his Honour stated the first course of action to be considered:
If I am satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the judgment debt, I should not make a sequestration order.
The second course of action to consider:
If, however, it appears that the debtor has a claim which is less than the amount of the petitioning creditor’s judgment debt, the proper course would seem to be to require the debtor, if he desires to avoid a sequestration order, to pay the difference between the amount of the judgment debt and the amount which it seemed probable to the court that he will recover in the proceedings against the creditor.
The third option discussed by his Honour is that:
In many cases it would be more convenient, assuming that the debtor showed that he had a real claim to litigate, to adjourn proceedings to enable his claim to be tried in the ordinary course.
Mr King summarises his argument that it is open to the Court, rather than dismissing the petition outright, to adjourn to a future point in time where any submissions relating to an absence of expedition on the part of the respondents could, for example, be re-agitated so as to require the respondents to provide a further impetus for the respondents to prosecute their proceedings with diligence. That is a course which would involve no great prejudice to either creditor. Accepting, of course, that they are kept out of their debt, the reality is that there is not likely to be any great recovery in any event. It is the circumstances of the respondents and their proposed claim, the injustice of being able to pursue that claim which outweighs the interests sought to be pressed by the creditors gives the Court discretion to either make a sequestration or adjourn the proceedings to an appropriate date.
Applicant’s Submissions Opposing the Notice Stating Grounds of Opposition to Petition
Ms Britton submits the respondents do not allege that they have any set-off, cross-demand or counter-claim as against the petitioning creditor, Westpac. The respondents assert that they have a claim against PMI and have conceded that the basis for the matters associated with their claim arose in 2009. The proceedings that have now been commenced in the Supreme Court (Supreme Court – Cossar Proceedings) have been commenced more than six months after the date of the act of bankruptcy, and approximately two years after the cause of action appears to have arisen. There’s no interlocutory order sought in relation to a stay to the enforcement of the monetary judgment as against PMI and/or Westpac.
Ms Britton contends that, although Mr King made submissions that the Supreme Court – Cossar Proceedings could be expeditiously heard in the Supreme Court, it should be noted that proceedings were listed for directions for the first time on 23 January 2012. There is no evidence that the proceedings have, in fact, been served on PMI. There is no current timetable for the service of evidence in the proceedings and, importantly, no defence has been filed by PMI which would allow this Court to ascertain whether there is a real issue to be tried. No hearing date has been allocated, no evidence has been provided as to when the proceedings are likely to be concluded. In addition, given that PMI has filed an appearance in the proceedings before this Court, and in view of the matters contained in the affidavit of Geofrey Leslie Rowles, this Court should not be satisfied that the Supreme Court – Cossar Proceedings are likely to be settled in the near future.
Ms Britton referred the Court to the decisions in Rigg v Baker [2006] FCAFC 179 and Totev v Sfar (2008) 167 FCR 193, which say that the existence of an arguable claim by a debtor does not necessarily constitute other sufficient cause to dismiss a creditor’s petition. In Totev (supra) the Court held that the determination of such questions depend on an assessment of the particular facts in the case considered with the interests of the petitioning creditor. Westpac has had a judgment in their favour which has remained outstanding since 8 July 2010. A bankruptcy notice was served, and an act of bankruptcy was committed on 18 May 2011. In the decision of his Honour Lee J in the matter of Re Maddestra; Ex parte Penfold Wines Pty Ltd [1993] FCA 15, his Honour stated:
The mere existence of a generally made out claim against a third party will not constitute other sufficient cause, if the litigation in which it is asserted is long-running and unlikely to be resolved in the short term.
Ms Britton referred to the submissions made by Mr King that the matter could possibly be resolved by August 2012, however, there is no evidence before the Court that that is the case. At this stage, no application had been made for expedition. In the judgment in Maddestra (supra), his Honour Lee J referred to a number of matters which are relevant to the exercise of the court’s discretion where a debtor has filed a notice of opposition to a creditor’s petition on the basis of a claim against a third party and those include:
a)Whether the claim is likely to yield sufficient funds to discharge the claimant’s debt;
b)Whether the litigation has been prosecuted vigorously;
c)Whether there are any prospects of a beneficial settlement; and
d)Whether the petition has already been extended and is near the end of its life.
Ms Britton concedes that the petition has not been extended, however, was issued in July 2011.
Ms Britton submits, in respect of the decision in Ling (supra), the facts before the Court were not dissimilar to this matter in that an action was propounded against a third party and the respondent debtor in that case sought either that the Court dismiss or adjourn the creditor’s petition. In Ling (supra) the facts differed in not an insignificant way in that the Court was taken to evidence that the debt owing to the creditor in that matter was slightly connected to the debt which was due and owing to the third party. Whereas there is no evidence that the debt due and owing to Westpac in these proceedings is, in any way, connected to the debt which is due and owing to the third party, PMI and subject to the Supreme Court proceedings.
Ms Britton contends that the issue in relation to delay in the respondents bringing the Supreme Court application is significant. There is evidence that the respondents had considered bringing such an application revealed by the affidavit of Mr Rowles that a motion was filed in 2009 and was ultimately dismissed by his Honour Hulme J. The Rowles Affidavit notes that Legal Aid NSW was looking into the matter in 2009, however, at no time were proceedings commenced by the first or second respondent against the supporting creditor, which is significant: International Alpaca Management Pty Ltd v Ensor (supra) per Katz J. In that case, the Court drew an inference that the debtor’s action had been calculated to avoid commencing defamation proceedings with respect to an alleged defamatory letter which was involved in those proceedings. The Court was not satisfied that the defamation claim was at all likely to bring his state of insolvency to an end in the near future. There is no allegation in this matter that there has been a significant delay in the proceedings being brought.
Ms Britton submits, at [35] of her written submissions, that there is a lack of sufficient evidence showing that:
a)The claim could not have been commenced and liquidated by the first and second respondents at the time the cause of action arose in 2009;
b)The proceedings have good prospects of success;
c)The proceedings are being diligently progressed;
d)The proceedings will be determined by the Supreme Court in the near future;
e)There are any prospects of proceedings being settled in the near future; and
f)If the first and second respondents are successful in the Supreme Court proceedings:
i)Sufficient funds will be produced to discharge all claims by any creditor against the first and second respondent;
ii)The first and second respondent will be legally bound to make payments to their creditors; and
iii)Any judgment in favour of the first and second respondent could be readily enforced against PMI;
And therefore the first and second respondents have not established that there is other sufficient cause for the Court to exercise its discretion not to make a sequestration order.
Ms Britton submits that in relation to solvency in general, from the Second Mrs Cossar Affidavit it could be inferred that the respondents are currently insolvent. The grounds of opposition raise no issue as to solvency for a reason why the creditor’s petition should be dismissed. In the affidavit of Mr Moutasallem, sworn 2 December 2011, which attaches an affidavit sworn by Mrs Cossar in the Supreme Court – Cossar Proceedings, there is an assertion at [39] of the affidavit that, had the respondents received a proper surplus from the sale of the Gracelands Property or even a lesser amount, the debt claimed by Westpac would have been paid. However, there is no evidence before this Court as to what creditors there were of the first and second respondent at the time the property sale took place. The only evidence which the Court could give regard to in relation to the financial position of the first and second respondents is the affidavit of debt of Lindsay Davidson (see [7(h)] above) which confirms that Westpac are currently owed in excess of $108,000 and the affidavit of Geofrey Leslie Rowles (see [8] above) confirms the supporting creditor’s debt as approximately $425,000.
Ms Britton submits that the only evidence which the Court has for consideration as to the respondents’ ability to pay debts due and owing to the petitioning creditor is the Second Mrs Cossar Affidavit, which suggests that the respondents cannot pay their debts as and when they fall due. The decisions in Ling (supra) and International Alpaca Management v Ensor (supra) suggest the court may find other sufficient cause exists if the insolvency of the debtor is for a short duration only while the proceedings are prosecuted. The assessment of such short term insolvency will involve a consideration of the strength of any claim on liability, the strength of the claim on the quantum and the stage, if any, the prosecution has reached.
Ms Britton argues that the prosecution of the Supreme Court – Cossar Proceedings has reached a very limited stage. At the time of these proceedings the first directions hearing in the Supreme Court had not yet been held. The respondents have submitted evidence as to their ability to meet the costs of the Supreme Court proceedings, however, no evidence has been provided in relation to the estimated costs of those proceedings to be finalised and whether the $100,000 referred to in the Second Mrs Cossar Affidavit would be sufficient to cover the Supreme Court Proceedings. There is no formal valuation of the assets which the Cossar children have referred and there is no evidence as to assets being sold in the short term. Ms Britton submits that this Court should not be satisfied that the first and second respondents are able to pay their debts as and when they fall due and that the insolvency of the first and second respondents is for a short duration.
Consideration
I am satisfied that the formal requirements for the issuance of a sequestration order have been met. 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 a sequestration order under s.43 of the Bankruptcy Act and the conditions under which a creditor may petition under s.44 of the Bankruptcy Act being met, together with the obligations under the FMC (Bankruptcy) Rules. These requirements of the Act and Regulations are set out above at [9]-[13]. In relation to the matters requiring formal proof, they are set out at [14] above and have been met.
The Notices Stating Grounds of Opposition were filed by both respondents on 28 October 2011 and seek the evoking of the discretion of the Court that the creditor’s petition be dismissed for other sufficient cause, or in the alternative that the Court should adjourn the hearing of the Creditor’s Petition in order to give the respondents an opportunity to litigate their claim against PMI in respect to the exercise of PMI’s power of sale. The respondents attempt to rely on s.52(2)(b) by a claim the funds would necessarily be available to meet the petitioning creditor’s debt, evidence about the respondents’ financial position is of direct relevance. More generally evidence as to other indebtedness of the respondents or as to their solvency generally, even if they were successful in the foreshadowed proceedings against PMI, would be relevant to whether there was other sufficient cause for dismissal of the Creditor’s Petition: Ling (supra) at [26] – [27] or, alternatively, an adjournment.
However, in the circumstances that a sequestration order is made the Trustee appointed as a consequence of that order has the right to determine whether the Supreme Court – Cossar Proceedings should be pursued or terminated. That decision will be based on the Trustee’s assessment of the prospects of success and the quantum of recovery by the estate. The respondents acknowledge that they will be unable to commence proceedings against PMI in relation to the exercise of the mortgagee’s power of sale in 2009 if a sequestration order is made. The respondents carry the onus of proving that there is proof for establishing that for some other sufficient cause, the sequestration order ought not to be made.
At the commencement of the hearing I indicated that since the brief hearing earlier in the day, I now had had the benefit of reading the file in its entirety, together with the benefit of both parties’ written submissions and authorities. I indicated to Mr King that the evidence filed and the weight of the authorities was substantially against him and binding on this Court. In both of Mr King’s opening remarks and his submissions he informed the Court that the only basis on which he could proceed was that there was an argument about the proper construction of those cases and whether the claim sought to be advanced on behalf of the first and second respondents was open under s.52(2)(b) of the Bankruptcy Act.
The first affidavit of Ahmad Moutasallem sworn 27 October 2011 sets out the circumstances relating to his and Mr King’s retention as solicitor and counsel in this matter, and then at [42] of his affidavit he states:
I will shortly be filing proceedings on behalf of my clients in the Supreme Court of NSW against Rennick & Gaynor in relation to exercise of the mortgagees power of sale.
In the second affidavit of Ahmad Moutasallem sworn 2 December 2011 the respondents’ solicitor provides the following details:
5. On 1 November 2011 I caused to be filed in the Supreme Court of New South Wales the following documents:
a. The Statement of Claim dated 2 December 2011, a copy is annexed and marked “A”;
b. The affidavit of Alma Janine Cossar sworn 2 December 2011, a copy is annexed and marked “B”.
6. I have also compiled an exhibit to the affidavit of Alma Janine Cossar sworn 2 December 2011 known as AJC-1.
…
12. After a comprehensive review of the evidence in my possession I formed a view that the evidence supports the claim against Principal Mortgage Investments (previously known as Rennick & Gaynor).
In the Statement of Claim which is Annexure “A” to the affidavit of Ahmad Moutasallem sworn 2 December 2011 there are details of the alleged breach by PMI in respect of its exercise of power of sale of the respondents’ property known as Gracelands is set out. The nature of the claim is the way in which the power of sale was exercised resulting in the respondents suffering a loss and the proceedings were being launched to recover that loss. As an indication as to the quantum of the recovery sought by the respondents Mr King filed an affidavit of Anthony Paddy O’Dea, certified property valuer, sworn 13 December 2011 where at [14] he states:
14. For the reasons given in my reports, this figure falls far short of the market value, including when the property is valued on a forced sale basis. As per paragraph 10 above, the sale price is in the order of $1.9 million less that the market value upon a forced sale.
In respect of Mr O’Dea’s affidavit I note at [34] and [35] above that Ms Britton raised an objection the affidavit sought to be filed in court and read by Mr King, due to it being filed outside the timetable set on 8 November 2011, which required the respondents to file all evidence by 1 December 2011. More significantly, in relation to the matter set out in the affidavit, the evidence appears to be given in terms that the deponent is an expert. However, there is no evidence contained within the affidavit that the deponent has been referred to the guidelines in r.23.12 of the Federal Court Rules. The evidence was admitted to be that of a lay expert because Mr O’Dea did have specific knowledge of the issues before the Court.
The learned authors PP McQuade and MGR Gronow of Australian Bankruptcy Law & Practice, 6th Edition, Thomson Reuters at [52.2.20] state that once a court is satisfied of compliance with the matters in s.52(1), it will only be in exceptional circumstances it will refuse a sequestration under s.52(2)(b). As I indicated above I am satisfied that s.52(1) has been complied with (see [9]-[17] and [48]).
Where the debtor seeks to establish other sufficient cause for exercising the court’s discretion to decline to make a sequestration on the grounds of a claim against a third party, in this case, a secured creditor, and not the petitioning creditor, for an amount equal to or greater than the amount the debtor owes the creditor the debtor must show that the claim is genuine and serious, which they have not been reasonably able to litigate: Re LHF Wools Ltd [1970] CH 27, and that there is a real claim that is likely to succeed to justify a dismissal or adjournment of the petition: Re Schmidt; Ex Parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116; Re Kostezky; Ex Parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101 per Sundberg J at 106; Re Capel; Ex Parte Caram Finance Australia Ltd [1998] FCA 372 per Finn J; St George Banking Ltd v Helfenbaum [1999] FCA 1337 per Sundberg J at [13]; Yu v Today Distribution Pty Ltd (2006) 4 ABC (NS) 133 per Young J at [34] and [39]; Totev v Sfar (2006) 230 ALR 236 per Allsop J; ICM Agriculture Pty Ltd v Young (2009) 7 ABC (NS) 397 per Lindgren J. The learned authors also state that the mere existence of an “arguable” claim or appeal by the debtor does not, however, by itself necessarily constitute other sufficient cause to dismiss a creditor’s petition: Rigg v Baker (supra); Totev v Sfar (supra); ICM Agriculture Pty Ltd v Young (supra).
In ICM Agriculture Pty Ltd v Young (supra) his Honour Lindgren J at [86] stated:
The test is more stringent than that which applies under section 41(7) of the Bankruptcy Act, which relates to the extension of time for compliance with a bankruptcy notice where a debtor has applied for an order setting aside that notice on the ground that a debtor has a counter-claim, set-off, or cross-demand of the kind referred to in section 40(1)(g) of the Act. As Allsop J observed in Totev at [45], the context is different under section 52(2)(b). The authorities referred to by his Honour show that a debtor’s claim against the petitioning creditor must be one which is “likely to succeed”.
Given that context, this brings me to the key issue in determining whether the requirements of s.52(2)(b) can be satisfied. Mr King made submissions (see [21]-[37] above) in support of the respondents’ argument that on a proper construction of the cases the claim sought by them was open to s.52(2) of the Bankruptcy Act. Mr King advanced his argument by establishing the parameters for consideration and referred the Court to the decision in Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 per Fisher, Morling and Wilcox JJ at [7] where their Honours state:
The circumstances which may constitute “other sufficient cause” for dismissing a bankruptcy petition are extremely varied. It is not appropriate to attempt to catalogue or circumscribe them: see Cain v Whyte [1933] HCA 6; (1933) 48 CLR 639 at 645.
and debtors are not precluded from raising the argument where the claim is against a creditor who is involved in the proceedings but is not the petitioning creditor: Ling (supra) and that the court should be reluctant to construe Ling (supra) as foreclosing any discretion with the claim being advanced by the respondent debtor against a creditor, but not the petitioning creditor. I am satisfied that that element of the argument is accepted and not in dispute.
The next element in the argument focuses on the time taken to resolve the other litigation. Initially, Mr King relied upon the decision in International Alpaca Management Pty Ltd v Ensor (supra) per Katz J, where his Honour states at [54]:
It is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely of only short duration: citing Ling.
Mr King submitted that there is nothing in the Full Court decision which states the outer limit for delay due to the completion of another proceeding involving the parties. However, it is important to note, in Re Maddestra (supra) per Lee J at [21] – [23] that it is in the public interest for creditor’s petitions to be dealt with promptly and before they expire. A claim, even generally made, by the debtor against a creditor (not the petitioning creditor) may not be other sufficient cause if the litigation in which it is asserted is long-running and unlikely to be resolved soon. Allied with this contention is that the respondents have had ample time since August 2009 to bring a claim against PMI, but have not done so until after the service of the Creditor’s Petition.
Mr King then proceeded to identify and canvas the factors that are unique in the Supreme Court – Cossar Proceedings which include:
a)The respondents’ impecuniosity was due to the conduct of PMI;
b)That there are strong prospects of a claim against PMI; and
c)That the strong prospects of the claim are demonstrated in the Statement of Claim filed in the Supreme Court of NSW.
Mr King advanced the claim that the proceedings in the Supreme Court will be resolved quickly and the prospects are strongly supported by the affidavit of the property valuer, Mr O’Dea. I note that Mr O’Dea’s provided formal evidence but that remains to be tested at trial under cross-examination.
Ms Britton, in her written submissions, contends that the mere existence of a genuinely made claim against a third party will not constitute other sufficient cause if the litigation in which it is asserted is long-running and unlikely to be resolved in the short term: Re Maddestra (supra) per Lee J where his Honour referred to a number of other matters which are relevant to the exercise of the Court’s discretion where a debtor files an opposition to a creditor’s petition on the basis of a claim made against a third party. They include:
a)Whether the claim will yield sufficient funds to discharge the claimant’s debts;
b)Whether the litigation has been prosecuted vigorously;
c)Whether there are any prospects of a beneficial settlement; and
d)Whether the petition has already been extended and is near the end of its life.
His Honour, Lee J, refused to find that there was other sufficient cause for a sequestration order not to be made. The decision was confirmed by the Full Court of the Federal Court in Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303 per Ryan, O’Loughlin and Drummond JJ. The other authority relied upon by Ms Britton is Ling (supra) (see [42] above).
At the time of the hearing on 12 December 2011 the status of the Supreme Court – Cossar Proceedings established by the material before the Court has been effectively marshalled by Ms Britton, in her written submissions, and I partially rely upon that material to prepare the following summary:
a)The respondents had considered the claim against PMI as early as August 2009 by filing a notice of motion in the Supreme Court – Rennick & Gaynor Proceedings, resulting in a judgment debt against them, but his Honour Hulme J dismissed their motion on the basis that a stay of proceeding was sought in the circumstances that PMI had a judgment of Fullerton J and proceeded to sell the property before the motion was heard. The judgment date of Fullerton J in Rennick & Gaynor Mortgages Ltd v Cossar [2008] NSWSC 1028 was 3 October 2008 entered 5 November 2008 (I note the provisions of s.91 of the Evidence Act 1995 (Cth) but these references are raised only to help explain the sequence of events that are not specifically addressed in any of the affidavit evidence before the Court). Her Honour indicated to the respondents that their claim needed to be in the form of new proceedings (Affidavit of Geofrey Leslie Rowles sworn 9 December 2011 at [3] – [10]). However, the respondents took no further steps to prosecute the alleged claim at that time and there is no other reference to this issue in any other affidavit;
b)The Supreme Court – Cossar Proceedings were commenced more than two years after the alleged cause of action arose (Fullerton J Judgment 5 November 2008, these proceedings filed 2 December 2011, act of bankruptcy committed 18 May 2011). That was six months after the act of bankruptcy was committed: International Alpaca Management Pty Ltd v Ensor (supra) per Katz J at [59]:
c)In the Supreme Court – Cossar Proceedings there is:
i)No evidence the proceedings have been served on PMI;
ii)No timetable for service of evidence in the proceedings;
iii)No defence has been filed by PMI: International Alpaca Management Pty Ltd v Ensor (supra);
iv)No hearing date has been allocated;
v)No evidence has been provided as to when the proceedings are likely to be concluded; and
vi)Given the notice of appearance filed by PMI and the Rowles affidavit it is unlikely that the proceedings are to be settled in the near future;
d)In relation to the Supreme Court – Cossar Proceedings as a whole, there is a lack of sufficient evidence showing that:
i)The claim could not have been commenced and liquidated by the respondents at the time that the cause of action arose in 2009, note comments made by his Honour Hulme J on Thursday 20 August 2009;
ii)The proceedings have good prospects of success – the only affidavit evidence appears in Mr Moutasallem’s affidavit sworn 2 December 2011 which states “After a comprehensive review of the evidence in my possession I formed a view that the evidence supports a claim against Principled Mortgage Investments (previously Rennick & Gaynor)”;
iii)The proceedings are being diligently progressed – Mr King made submissions that expedition was to be pursued and the trial would be brief because the evidence was predominantly documents already in existence;
iv)The proceedings will be determined by the Supreme Court in the near future;
v)There are any prospects the proceedings will be settled in the near future;
vi)If the respondents are successful in the proceedings:
· Sufficient funds will be produced to discharge all claims by any creditors of the respondents;
· The respondents would be legally bound to make payments to their creditors; and
· Any judgment in favour of the respondents could be readily enforced against PMI
There is no balance sheet or any other accounting record in evidence. The Second Mrs Cossar Affidavit at [4] – [6] makes reference to their financial position which estimates their indebtedness to be in the vicinity of $310,000.00. This ignores the balance due to PMI and Westpac. The affidavit of Anthony Paddy O’Dea at [14] expresses the view that “the sale price is in the order of $1.9 million less that the market value upon a forced sale”. In the affidavit of Ahmad Moutasallem sworn 2 December 2011, Annexure “B” is an affidavit of Alma Janine Cossar sworn 2 December 2011 where she addresses the issue of the “Exercise of mortgagee’s power of sale” at [29] – [39]. At [39] Mrs Cossar states “[h]ad we received a proper surplus of $2 million for the sale, or even a lesser amount, we would have paid other debtors alleged to be owed by us, including the debt claimed by Westpac (which has increased from $63,839.03 to $108,763.20).” The Court has a situation before it that was addressed by his Honour Katz J in International Alpaca Management v Ensor (supra) at [59] where his Honour stated:
With no more material than I presently have, I would be unable to do anything more than speculate about the strength of the debtor’s claim.
In St George Bank Ltd v Helfenbaum [1999] FCA 1337 per Sundberg J at [13], his Honour states:
A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against the creditor: Re Rivett; Ex Parte Edward Faye Ltd (1932) 5 ABC 182; Re Player (1962) 19 ABC 277 at 282, or by pointing to the existence of current litigation against the creditor: cf Re Douglas Griggs Engineering Ltd [1963] 1 Ch 19 at 23. While the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed: cf Vogwell v Vogwell (1939) 11 ABC 83 at 88; Player at 282.
In Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 per Lehane J, his Honour stated:
The critical question then is how that discretion should be exercised. As earlier stated, the parties have made, both orally and in writing, detailed submissions concerning the issue which will arise for determining of an appeal and have invited the Court in effect to express a view provisionally though it may be, on the likely outcome of the appeal. To a degree I have felt obliged to look at the matter myself, but I think it is most undesirable that a Judge of this Court should in effect undertake some provisional review to determine the correctness or otherwise of the judgment of another court especially when the judgment is under appeal to the Court of Appeal which has jurisdiction to hear appeals in the normal course.
In the matter before this Court the proceedings have not progressed past the point of the filing a Statement of Claim in the Supreme Court of NSW. In this case this Court has been invited to form a view as to the possible outcome of proceedings where there have been no directions and no orders for the future conduct of the matter. The evidence that has been filed is untested, however, the substantial body of evidence is yet to be filed. In those circumstances I believe it not possible to form a view as to the possible outcome or even to estimate when the Supreme Court of NSW is likely to consider the matter itself.
On 15 December 2011 after receipt of evidence and hearing the submissions of all parties I reserved the matter and indicated to the parties that I hoped to hand down my finding in January 2012. Due to major surgery in January I was unable to resume the consideration of the matter until June 2012. Because of this substantial delay I believe it was appropriate for the parties to attend directions on Monday 2 July 2012 to provide the Court with an update in respect to the proceedings before the Supreme Court of NSW as that may have had a considerable bearing on the exercise of the Court’s discretion. At that directions, after hearing a brief report from the parties, I made the following orders:
1. The respondents file and serve a brief affidavit (and forward a copy by email to my associate) as to the current status of the respondents’ proceedings against the supporting creditor in the Supreme Court of New South Wales by 4.00 pm on Friday 6 July 2012.
2. The supporting creditor file and serve a brief affidavit (and forward a copy by email to my associate) as to the current status of the respondents’ proceedings against the supporting creditor in the Supreme Court of New South Wales by 4.00 pm on Friday 6 July 2012.
3. The proceedings be listed for judgment at 9.30 am on Tuesday 10 July 2012 in Court 6C, John Maddison Tower, 88 Goulburn Street, Sydney.
Affidavits were filed by Ahmad Moutasallem sworn 5 July 2012 for the Cossars and Scott Anthony Reid sworn 3 July 2012 for PMI. As disclosed by oral submissions on 2 July 2011 and the Moutasallem affidavit sworn on 6 July 2011 and the Reid affidavit sworn on 3 July 2011, the following has occurred in the Supreme Court – Cossar Proceedings (2011/39391):
a)PMI filed its defence on 10 January 2012.
b)A motion by the Cossars to have the proceedings transferred to the expedition list was heard and dismissed by Pembroke J on 2 March 2012.
c)An application for a stay of the proceedings until the outcome of these bankruptcy proceedings were finalised was filed by PMI was heard and dismissed by White J on 15 March 2012.
d)On 15 March 2012 White J made orders granting leave to the Cossars to adduce expert evidence from Mr Anthony (Paddy) O’Dea and Mr David Shuter.
e)The Cossars’ affidavit evidence is chief has been served.
f)The matter was last before the Supreme Court on 12 June 2012 for directions, on which occasion the Court ordered by consent that:
i)PMI serve its affidavits in chief by 6 July 2012; and
ii)The Cossars serve any affidavits in reply by 20 July 2012.
g)The matter is next listed for directions in the Supreme Court on 1 August 2012.
h)The Defence in subparagraph [16(e)] states that
Documents providing details of the sale process and advertising of the mortgaged property will be provided by way of discovery in this Proceeding
This material came before this Court makes no reference to this procedural step and there is no indication of what impact this will have in the overall timetable to final hearing.
At the hearing on 15 December 2011 Mr King, in oral submissions, indicated that the likely timetable for the hearing could be:
… It’s not a complex claim. It’s not a claim that will require substantial oral evidence of any kind. The claim is principally based on the mortgagee’s own documents, the valuations that were in its possession at different times. There will be some expert evidence, but the bulk of that has already been completed, and the reports are before your honour. Mr Paddy O’Dea’s report is already before your Honour. There may be a possibility of a further report in reply, but it would only be dealing with such matters as are raised by the mortgagee. Interlocutory steps such as the finalisation of pleading and discovery, the filing and serving of affidavits – that could all be completed in relatively short order in February or March next year. The reason for that is that many of the relevant documents have already been exchanged between the parties: the issues have, by virtue of this proceeding, effectively already been crystallised in a sense and for that reason, the proceeding have become quite advanced, although it has only been brought on in a short space of time.
Depending on the availability of judicial officers, there may be a hearing date assigned for March or April 2012. I have instructions to offer your Honour an undertaking on behalf of the respondents to prosecute that proceeding with expedition and all the diligence and the respondents propose to file a motion to expedite that position and have the matter placed in the expedition list…
(Transcript 15 December 2011, p 6; line 13-35)
The thrust of the argument advanced by Mr King was to adjourn the proceedings to an appropriate date to allow the respondents to pursue their Supreme Court proceeding against PMI. The motion seeking an order that the proceeding be expedited was dismissed on 2 March 2012 and proceedings are now listed for mention on 1 August 2012 for the assigning of a hearing date. Mr Moutasallem acknowledges that if parties raise any discovery issue this may impact the issue of a hearing date. I note that neither party has raised any issue in respect to discovery other than the reference in the Defence filed by PMI on 10 January 2012 at [16(e)] (see [66(h)] above). Assuming that there is no issue in respect to discovery and a hearing date is issued on 1 August 2012 the Daily Court list contains the following information.
Arrangement for the Allocation of Hearing Dates in the Equity Division (General Equity List and Probate List) of all the Supreme Court
Matters ready for hearing will no longer be listed for call-over before Equity Registrar.
Hearing dates will be allocated by Registrars, usually at the Registrar’s Direction Hearing
…
Parties must attend Court having conferred regarding a range of suitable hearing dates and will generally be expected to take a hearing date with 6 months. The range of available hearing dates will be published daily on the Court’s website.
The current range of dates are;
From July/ August 2012 onwards.
In the absence of any information from the parties a hearing date could possibly be allocated from late August to February 2013 (to fall within the Court’s current estimates). To this there is the further possibility that the matter may be reserved for the preparation of written reasons.
This timetable is considerably longer than the projection made by Mr King on behalf of the respondents. The significant factor in the delay was the unsuccessful motion seeking expedition. The substantial body of authorities, referred to above, are in favour of the petitioning creditor having a sequestration order granted unless there are exceptional circumstances.
I note that Westpac has had a judgment which has remained outstanding since 8 July 2010 and an act of bankruptcy committed by the respondents on 18 May 2011. Although the respondents have brought a claim against the supporting creditor the authorities in Rigg v Baker (supra) and Totev v Sfar (supra) establish that a debtor does not necessarily constitute the basics to dismiss the creditor’s petition as other sufficient cause under s.52(2)(b) of the Bankruptcy Act. Support is also found in Re Maddestra (supra).
Although the legal representatives for the respondents claim that they have an arguable case before the Supreme Court this is yet to be tested at a hearing and appears to be substantially based on the competing evidence of two valuers. Both valuers have filed affidavits but indications are that these will be subject to objections and cross examination of both. Indications are that both sides will vigorously pursue these proceedings and the outcome is not assured for either side. At the time of the hearing on 15 December 2011 the Supreme Court proceedings were not well advanced and subsequent to that time, despite submission that the preparation was near completion and with expedition a result was anticipated by August 2012, the progress has been only to the stage of obtaining a hearing date of 1 August 2012.
I refer to the decision in Commissioner of Taxation v Cumins [2008] FCA 353 per Gilmore J at [31] that in determining whether to exercise discretion under s52(2)(b) a court “will consider the prospects of success of the relevant proceeding to the extent that this is capable of being done on the material before” the Court. The matter before this Court has only limited evidence and the substantial arguments in respect of a rapid resolution of the issues is in the form of oral submissions by Mr King. In these circumstances I am not satisfied that I should exercise my discretion and adjourn the hearing of the Creditor’s Petition until the outcome of the Supreme Court – Cossar Proceedings are finalised.
I am further supported in this view because of the issues of solvency of the respondents and whether they will be resolved by the outcome of the Supreme Court – Cossar proceedings. Nor is there sufficient material before the Court to indicate that the respondents and their family can adequately fund the proceeding. Consequently the Notices Stating Grounds of Opposition to the Petition filed by Dallas Allan Cossar and Alma Janine Cossar ought to be dismissed and sequestration orders be made against their respective estates.
I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Date: 10 July 2012
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