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ACN 116 746 859 Pty Ltd (formerly Palermo Seafoods Pty Ltd ACN 116 746 859) v Menniti [2020] FCCA 24 (8 January 2020)

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ACN 116 746 859 Pty Ltd (formerly Palermo Seafoods Pty Ltd ACN 116 746 859) v Menniti [2020] FCCA 24 (8 January 2020)

Last Updated: 8 January 2020

FEDERAL CIRCUIT COURT OF AUSTRALIA

ACN 116 746 859 PTY LTD (FORMERLY PALERMO SEAFOODS PTY LTD ACN 116 746 859) v MENNITI


Catchwords:
BANKRUPTCY – Administration of property – proof of debts – what debts provable – costs.


Legislation:
Bankruptcy Act 1966 (Cth), ss.32, 58(3), 82
Federal Circuit Court Act 1999 (Cth), s.79

Cases cited:
Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52


Applicant:
ACN 116 746 859 PTY LTD (FORMERLY PALERMO SEAFOODS PTY LTD ACN 116 746 859)

Respondent:
LUCIANO MENNITI

Interested Party:
THE TRUSTEE OF THE PROPERTY OF LUCIANO MENNITI (BANKRUPT)

File Number:
BRG 515 of 2019

Judgment of:
Judge Jarrett

Hearing date:
14 November 2019

Date of Last Submission:
21 November 2019

Delivered at:
Brisbane

Delivered on:
8 January 2020

REPRESENTATION

Solicitors for the Applicant:
CJM Lawyers

Solicitors for the Respondent:
Jason Nott Solicitors

Solicitors for the Interested Party:
RBG Lawyers


ORDERS

(1) The creditor’s petition filed on 31 May, 2019 be dismissed;
(2) The respondent pay the petitioning creditor’s costs of and incidental to the creditor’s petition filed on 31 May, 2009 to be taxed in accordance with the Federal Circuit Court (Bankruptcy) Rules 2016.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 515 of 2019

ACN 116 746 859 PTY LTD (FORMERLY PALERMO SEAFOODS PTY LTD ACN 116 746 859)

Applicant

And

LUCIANO MENNITI

Respondent

THE TRUSTEE OF THE PROPERTY OF LUCIANO MENNITI (BANKRUPT)
Interested Party

REASONS FOR JUDGMENT

  1. This was a contested creditor’s petition. It came before a registrar for hearing on 31 July, 2019 at which time it was transferred to a judge for hearing. It came before me on 19 August, 2019 at which point it was adjourned for further directions on 4 October, 2019. On that day it was listed for hearing on 14 November, 2019.
  2. The respondent to the present proceeding was also a respondent to a creditor’s petition (BRG4 of 2019) that was presented on 21 December, 2018 by a different creditor than that in the present proceeding. On 3 July, 2019 a registrar of this court made a sequestration order against the respondent’s estate.
  3. On 16 July, 2019 the respondent applied to review the registrar’s decision to grant a sequestration order against his estate. That application, too, came before me on 4 October, 2019 for directions. It was listed for hearing together with the present proceeding on 14 November, 2019.
  4. When the present proceeding and BRG4 of 2019 came before me for hearing on 14 November, 2019 the trustee of the property of the respondent appointed by reason of the sequestration order made on 3 July, 2019 appeared in both proceedings. I was informed that all of the parties had reached an accommodation and I was invited to make orders dismissing the application for review and dealing with each of the parties’ costs, with the consent of all parties concerned in BRG4 of 2019. I made those orders.
  5. I was also invited to make orders in the present proceedings dismissing the creditor’s petition and making an order that the petitioning creditor’s costs (save for the costs ordered in separate, but related proceedings) be taxed and paid from the estate of the respondent. Whilst the petitioning creditor and the respondent appeared to be in agreement about the making of that order, the trustee of the respondent’s estate brought to my attention some authorities which might be seen to suggest that such an order would be inappropriate. As the argument developed, the point seemed to me to be whether I had power to make an order that effectively directed the trustee of the respondent’s estate to accept as a debt provable in the bankruptcy, a debt which would not otherwise be provable in that bankruptcy because it did not arise until after the making of the sequestration order. I gave the parties the opportunity to make written submissions on the point if they wish to do so. The transcript of the hearing of 14 November, 2019 records the following direction:
  6. Only the petitioning creditor has filed written submissions. Those written submissions, unfortunately, address many other matters other than that to which I directed the parties’ attention. Indeed, the petitioning creditor seems to have expanded the relief sought by seeking the following orders:
  7. Before proceeding further, it is necessary to understand something more of the relationship between the two proceedings that I have identified earlier. The present petitioning creditor filed a notice of appearance and affidavit of debt in BRG4 of 2019. On 15 May, 2019 the petitioning creditor made an application before the registrar in BRG4 of 2019 to be substituted as applicant. The registrar refused that application on the basis that the judgment debt upon which BRG4 of 2019 was based was still the subject of an appeal.
  8. The respondent had also applied to have the bankruptcy notice upon which the present petitioning creditor relies in these proceedings set aside. On 23 May, 2019 the respondent’s application to set aside the petitioning creditor’s bankruptcy notice was dismissed with costs. The respondent filed an application to review the registrar’s decision, although did not immediately serve that application on the petitioning creditor.
  9. On 31 May, 2019 the petitioning creditor filed the present petition because:
    1. BRG4 of 2019 could not then proceed pending an appeal in relation to the judgment upon which the bankruptcy notice in that case was based; and
    2. the petitioning creditor was unable to prosecute the petition in BRG4 of 2019 in its own right.
  10. The petitioning creditor remained unaware of the respondent’s application to review the registrar’s decision dismissing his application to set aside the bankruptcy notice.
  11. On 13 June, 2019 the petitioning creditor made a further application to be substituted as applicant in BRG4 of 2019 and the application was again refused by the registrar.
  12. On 27 June 2019, the District Court of Queensland dismissed the appeal against the order founding the bankruptcy notice upon which BRG4 of 2019 was based.
  13. On 3 July 2019, BRG4 of 2019 and the present petition were both heard by a registrar of this court. BRG4 of 2019 proceeded first and a sequestration order was made. The respondent sought a stay of the sequestration order pending an application for review of the decision of the registrar. The present creditor’s petition was adjourned to 31 July 2019. I have set out the history of these two proceedings thereafter more generally, in the introductory paragraphs of these reasons for judgment.
  14. On 4 July, 2019 I set aside the decision of the registrar refusing to set aside the bankruptcy notice relied upon by the petitioning creditor in the creditor’s petition filed on 31 May, 2019. I ordered that the bankruptcy notice be set aside. That prompted an application by the petitioning creditor on 12 August, 2019 to amend the creditor’s petition so as to rely upon an act of bankruptcy committed by the respondent constituted by his failure to comply with the bankruptcy notice upon which the creditor’s petition in BRG4 of 2019 was based. I have not been called upon to determine that application.
  15. The exchanges that occurred on 14 November, 2019 were to the effect that the petitioning creditor and the respondent had agreed on the costs orders that ought to be made subject to the court being satisfied that it could make them. The order that was proposed was simply that the petitioning creditor’s costs of and incidental to the creditor’s petition be taxed in accordance with the Bankruptcy Act 1966 (Cth) and paid from the respondent’s estate. The written submissions that have now been delivered on behalf of the petitioning creditor go well beyond that and to the extent that they exceed what was proposed as an agreement between the petitioning creditor and the respondent on 14 November, 2019 I propose to ignore them.

Consideration

  1. In its written submissions, the petitioning creditor accepts that authority demonstrates that costs orders made after the date of bankruptcy are not caught by the bankruptcy and that the costs obligations arising from an order subsequent to the date of bankruptcy are not caught by the Act.
  2. So much was decided by the High Court of Australia in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [65] – [67]. Costs orders made after a sequestration order fall outside s.82 of the Bankruptcy Act because they are not provable as a debt incurred by reason of an obligation incurred before the date of the bankruptcy. Such costs orders are not a provable debt under s.58(3) of the Act.
  3. To ameliorate part of the difficulty faced by the petitioning creditor exposed by Foots, the petitioning creditor has now proposed that the orders for costs be in the terms that I have set out above which will in effect, provide for part of its costs of the present petition to be paid and the bankrupt estate and part of those costs to be paid by the respondent personally.
  4. The petitioning creditor argues that costs orders can be made with retrospective operation to the date of bankruptcy.
  5. It is undoubtedly true that the Court has broad discretion to make costs orders pursuant to s.79 of the Federal Circuit Court of Australia Act 1999 and s.32 of the Bankruptcy Act. The petitioning creditor argues that the power permits the Court to make costs orders retrospectively to the date of bankruptcy of the respondent. It argues that such an order would not offend Foot because the High Court there did not consider retrospective orders and “left such matters within the discretion of the lower courts in cases where the exercise of such a discretion was appropriate in the circumstances”. However, the question of retrospective orders or orders that have some sort of retroactive effect were not considered at all in Foots.
  6. It is said that it therefore follows that the Court can and ought to make:
    1. a costs order in the petitioning creditor’s favour for costs incurred prior to the making of the sequestration order, retrospective to the date of bankruptcy; and
    2. an order for costs in the petitioning creditor’s favour after the date of bankruptcy of and incidental to the petition.
  7. However, these submissions must be rejected. The difficulty with them is that they do not grapple with the proposition that underpins Foots namely, that there is no provable debt unless the relevant costs order is made before the sequestration order. A costs order can only be provable as a debt incurred by reason of an obligation incurred before the date of the bankruptcy, if the costs order was made before the date of the bankruptcy. Here, the respondent incurred no obligation before the date of the bankruptcy. The obligation to pay costs only arises upon the making of the costs order and not before: Foots at [35]. Whilst no doubt a court might fashion an order which provides for costs that are incurred up to a certain point in time to be assessed on one basis or another and paid from a particular fund and costs incurred thereafter to be assessed on a separate or different basis and paid from a separate or different fund, the obligation to pay any costs at all only arises upon the making of the costs order.
  8. The petitioning creditor’s submissions do not address the issue with which I was initially concerned, namely whether the Court has power at all to make an order which would effectively direct the respondent’s trustee in bankruptcy to accept as a provable debt in that bankruptcy, a debt which is not otherwise provable in it.
  9. Nothing in the petitioning creditor’s submissions satisfies me the “retrospective” orders for costs sought by the petitioning creditor are appropriate. Indeed, if the petitioning creditor’s submission was correct and the Court could indeed make orders in the terms proposed by the petitioning creditor, the present application, to the extent that it concerns costs incurred prior to the making of the sequestration order, must necessarily be seen as an application by the petitioning creditor to enforce a remedy against the bankrupt, or the property of the bankrupt in respect of a provable debt. That is to say, s.58(3) of the Bankruptcy Act would be engaged and it would not be competent for the petitioning creditor to pursue such an application without the leave of the Court. The petitioning creditor has not sought such leave and none has been granted.
  10. The petitioning creditor and the respondent agreed on 14 November, 2019 that the petitioning creditor should have its costs of and incidental to the petition taxed and paid in accordance with the Bankruptcy Act. In deference to that agreement, it is appropriate to order that the respondent pay the petitioning creditor’s costs of and incidental to the creditor’s petition filed on 31 May, 2009 to be taxed in accordance with the Federal Circuit Court (Bankruptcy) Rules 2016.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 8 January 2020

Associate: D Marcolin

Date: 8 January 2020

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