Finikiotis v Sims Partners

REASONS FOR JUDGMENT 1 This is an application for leave to appeal from an interlocutory decision of a Federal Magistrate given on 5 July 2005. The applicants were adjudged bankrupt on 19 February 2001. Alan Geoffrey Scott, a chartered accountant, was appointed trustee of each of the applicants' estates on that day. Prior to their bankruptcy, the applicants were the directors of Gallerie Investments Pty Ltd which owned a shopping centre in the city of Adelaide. That company borrowed in excess of $3 million from Sandhurst Trustees Limited on the security of a mortgage over the shopping centre. In addition, the applicants entered into guarantees of Gallerie Investments Proprietary Limited's obligations under the mortgage. 2 The company became unable to meet its obligations under the mortgage. The applicants, as guarantors, were called upon to meet the company's obligations. They failed to do so. Sandhurst Trustees Limited brought proceedings in the Supreme Court of South Australia and obtained a judgment for a significant sum of money against both Gallerie Investments Proprietary Limited and the applicants. In due course, Sandhurst Trustees Limited took possession of the shopping centre under the terms of the mortgage. 3 The applicants brought proceedings in this Court against Knight Frank (SA) Proprietary Limited, Heine Mortgage Management Proprietary Limited and Sandhurst Trustees Limited. Those proceedings were dismissed by O'Loughlin J on 19 January 2001 on the ground that in respect of each of the respondents no reasonable cause of action had been disclosed. 4 Subsequent to the dismissal of that action, the applicants were adjudged bankrupt. In due course, the applicants sought a review of the Registrar's order sequestrating their estates. That review was dismissed by Federal Magistrate Raphael. The applicants then appealed to North J who also dismissed the appeal. The applicants then sought special leave to appeal to the High Court, but special leave was refused. The applicants have sought to appeal from O'Loughlin J's judgment but the appeal has not been heard and has been stayed. 5 The proceedings which were before Federal Magistrate Lindsay and for which leave to appeal is sought were commenced on 3 June 2004. The proceedings, in their original form, sought loss and damage, although I think what was in truth sought was damages for loss and damage. The action is procedurally defective. The respondent to the proceedings is Sims Partners. Sims Partners is not the applicants' trustee. The proceedings are said to be brought under s 178 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). Section 178(1) of the Bankruptcy Act provides: 'If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.' 6 Clearly enough, s 178(1) gives a statutory cause of action to a bankrupt, amongst other persons, to apply to the Court in relation to an act, omission or decision of the trustee and for the Court to make such orders as it thinks just and equitable. This action was bound to fail because the action was brought against Sims Partners who is not the applicants' trustee. It is the fact that Mr Scott is a partner in Sims Partners but clearly enough Sims Partners is a different entity to Mr Scott. 7 In any event, the application which was brought was accompanied by an affidavit of the male applicant sworn on 3 June 2004. He asserted that the trustee's report of 20 August 2001 was incorrect and misleading, and influenced the Federal Magistrate to refuse to grant an adjournment in the proceedings before Federal Magistrate Raphael who was hearing the review of the Registrar's order sequestrating the applicants' estates. 8 It is also claimed in the affidavit that the trustee collaborated with the lawyers for Sandhurst, ING Bank and Knight Frank to influence the appeal in the Trade Practices claim FCA S19 of 2001 to the detriment of the applicants and to the advantage of Sandhurst, ING Bank and Knight Frank and, similarly, to influence the subsequent appeal of 23 August 2001 to the Federal Magistrate, again to the detriment of the applicants. 9 On 26 November 2004 the applicant filed a statement of contentions. On 14 December 2004 an order was made in the Federal Magistrates Court that the matter proceed on pleadings. On 25 February 2005 the respondent, Sims Partners, brought an application to dismiss the proceedings. The respondent's application for summary dismissal was listed for hearing on 22 April 2005. As I have already said, the Federal Magistrate gave his decision on 5 July 2005 in which he ordered: '(1) that the application filed on 3 June 2004 is dismissed; (2) that the applicant [sic] pay the respondent's costs of and incidental to the application, such costs to be agreed within 28 days or as taxed by a Registrar of the Court in accordance with schedule 1 of the Rules of the Court.' 10 Paragraph 1 of the orders made by the Federal Magistrate is interlocutory; Rana v University of South Australia [2004] FCA 559. It therefore follows that the applicants need leave to appeal to appeal from that decision: s 24(1A) of the Federal Court of Australia Act 1976 (Cth). Leave to appeal will be given if the applicants can satisfy the test laid down in Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. The applicants need to establish that, in all of the circumstances, the decision is attended by sufficient doubt to warrant it being reconsidered by an appellate court and that substantial injustice would result if leave were refused, supposing the decision to be wrong. 11 During the hearing before the Federal Magistrate the male applicant reconfigured the application to seek declarations rather than damages for loss and damage. That, it seems to me, was necessary having regard to decisions of this Court in Macchia v Nilant (2001) 110 FCR 101 and Wilson v The Commonwealth [1999] FCA 219. The applicants did not articulate the declaration which was sought or the reasons for the declaration. 12 In due course, the Federal Magistrate dismissed the proceedings for probably three reasons; first, because the making of a declaration would have no utility; secondly, because of the provisions of s 178(2) of the Bankruptcy Act; and thirdly, because the proceedings were brought against the wrong party. 13 The Magistrate has not explained in any detail why he would have dismissed the proceedings on the basis that there was no utility in making a declaration and I make no comment in relation to that aspect of his reasons. 14 Section 178(2) provides that the application must be made not later than 60 days after the date on which the person became aware of the trustee's act, omission or decision. These proceedings were brought on 3 June 2004 and the act or omission complained about, or probably the act in this case, was on 20 August 2001. 15 However, s 178(2) was first enacted in 2002 and then amended later in 2004. It is not clear that that subsection would have application to an act or omission prior to the enactment of the subsection. Therefore, I make no comment as to whether or not the Magistrate was right to dismiss the proceedings upon that ground. 16 However, in my opinion, the Magistrate's decision to dismiss the proceedings on the ground that the respondent was the incorrect party is undoubtedly correct. The applicants were advised of the procedural irregularity when the matter came before the Magistrate but no application was made to substitute the trustee for Sims Partners. I raised the same matter with the male applicant on this application but, again, he made no application to substitute Mr Scott for Sims Partners and, indeed, he made it clear that he wished to proceed against Sims Partners. Section 178(1) does not give a right of action to a bankrupt to bring proceedings against anyone apart from the trustee. These proceedings therefore are procedurally flawed. 17 For those reasons, in my opinion, it cannot be said that the decision is attended by sufficient doubt to warrant being reconsidered by the Full Court of this Court. The application for leave to appeal is dismissed.