Macquarie Bank Limited v Bardetta [2005] FCA 507 | Case summary

Application for leave made by Macquarie Bank Limited ('the Bank') to continue proceedings in the Supreme Court of New South Wales against the respondents and for leave by the Bank to commence proceedings in the Family Court of Australia 1 This is an application by Macquarie Bank Limited for leave pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) ('Bankruptcy Act') to continue and/or 'take fresh steps' in the Supreme Court of New South Wales Commercial List proceedings No. 50126 of 2004 ('the Supreme Court proceedings') against, inter alia, the first respondent, Joseph Bardetta (referred to variously hereafter as 'Mr Bardetta' and 'the Bankrupt'), and additionally to commence proceedings in the Family Court of Australia against Mr Bardetta and the second respondent Ana Maria Bardetta ('Mrs Bardetta') for orders under s 79A of the Family Law Act 1975 (Cth) ('Family Law Act') by way of setting aside or varying existing orders made by consent by the Family Court of Australia on 25 August 2004 in proceedings No SYF 3610 of 2004. The necessity for the Bank to obtain leave to pursue these separate proceedings arises at least largely as a result of the bankruptcy of Mr Bardetta on 3 March 2005. The third respondent Christopher John Palmer ('Mr Palmer') is the trustee appointed to the bankrupt estate of Mr Bardetta, who neither opposes nor consents to the Bank's application. Mr Palmer has indicated that he is without funds to finance any such on his initiative on behalf of that bankrupt estate. 2 Section 58(3) of the Bankruptcy Act provides as follows: 'Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.' The effect of that section in the present circumstances (unless the leave sought be granted) was submitted by counsel for the Bank, first to prevent any further action from being taken in respect of the Supreme Court Proceedings in so far as they affect the bankrupt estate of Mr Bardetta and secondly, to prevent the Bank from commencing any proceedings in the Family Court of Australia also in so far as they affect that bankrupt estate. It is of course par (b) of s 58(3) which is the focus directly of the present application of the Bank. 3 It is first appropriate that I summarise the complex background to these present applications. 4 It was on 31 May 2004 that the Bank commenced the Supreme Court proceedings against Mr Bardetta, and additionally against Riley Street Nominees Pty Limited ('Riley Street'), Raymond Henry Aitken ('Mr Aitken'), Colo Riverside Park Pty Limited ('Colo') and Abrolane Pty Limited ('Abrolane'), to recover amounts allegedly owed to the Bank under a Fixed Fee Facility and Guarantee Agreement ('the Facility') entered into on 1 April 2003 between the Bank as financier, and each of Mr Bardetta, Riley Street, Mr Aitken, Colo and Abrolane, and relating to the making available of loan funds for Riley Street to be drawn down. Pursuant to the Facility, Riley Street drew down loan funds from the Bank and thereby became indebted to the Bank to the extent of the funds drawn down and interest thereon. The Facility was varied on 17 October 2003 by an instrument called the First Deed of Variation of Fixed Fee Facility and Guarantee Agreement, which I will include also within the description 'Facility'. Riley Street executed a mortgage in favour of the Bank over its property situated at 98 Riley Street Sydney as security for the Facility. 5 It was pleaded by the Bank in its statement of claim initiating the Supreme Court proceedings that it was a term of the Facility as so varied that Riley Street would repay to the Bank all moneys advanced thereunder, and all interest and other moneys thereby payable and secured, including all interest and other moneys otherwise payable under the so-called 'Transaction Documents' referred to in the Facility, such repayment to occur on the earliest of: (i) 2 January 2004; (ii) the day of settlement of the sale of certain property; or (iii) the day of termination or cancellation of the Facility by the Bank or Riley Street in accordance with its terms. 6 Default had earlier occurred in repayment of the Facility on 2 January 2004, and the Bank had demanded from Riley Street all moneys payable pursuant thereto. No positive response was however made to the demand, and as a consequence all of the moneys payable to the Bank pursuant to the Facility became and remained outstanding. The Bank also made demand upon Mr Bardetta, Mr Aitken, Colo and Abrolane in respect of the amount outstanding under the Facility. The Bank alleged that it was a term of the Facility that those additional parties to the Facility unconditionally and irrevocably guaranteed to the Bank the performance of Riley Street's obligations pursuant to the Facility. The balance of the loan funds and interest owed by Riley Street, as borrower under the Facility, and inter alia by Mr Bardetta as one of the guarantors of Riley Street, had stood at $4,577,722.11 as at 11 May 2004. No response had been forthcoming to the Bank's letters of demand, and hence the Supreme Court proceedings had been initiated as above stated, on 31 May 2004. Liability had been denied by Mr Bardetta at the outset upon the following bases in outline, which I derived from his filed defence: (i) there was a term incorporated by implication into the Facility that the duration of the Facility would be extended upon pre-payment of three months' interest to the Bank, by virtue of a letter sent by the Bank on 30 January 2003 (presumably at least to Mr Bardetta or Riley Street); (ii) the fact of pre-payment of three months' interest on or about 1 October 2003 by Riley Street; (iii) the breach or repudiation by the Bank of that implied term, and the breach of the Bank's implied duty as creditor not to materially prejudice or increase the risk to Mr Bardetta as guarantor; (iv) the consequential discharge of Mr Bardetta from personal liability to the Bank in respect of all moneys payable to the Bank under and pursuant to the Facility; (v) the availability of a set-off in favour of Mr Bardetta equal to or exceeding the moneys claimed by the Bank; and (vi) the engagement of the Bank in unconscionable conduct within s 51AA of the Trade Practices Act 1974 (Cth) ('TP Act') and s 12CA of the Australian Securities and Investments Commissions Act 2001 (Cth) ('ASIC Act'), and in misleading and deceptive conduct within s 52 and s 12DA respectively of those statutes, by reason of the creation in Mr Bardetta's mind of a false impression that the prepaid interest extension was a term of the Facility. 7 Cross-claims against the Bank were correspondingly pleaded additionally by Mr Bardetta upon similar bases to those defences. Both the Bank's claim, and the cross-claims brought by those various defendants, have been set down for hearing by the Supreme Court on 2 May 2005. 8 The property No 98 Riley Street was sold pursuant to the exercise of the Bank's power of sale on 1 October 2004 and completion of the contracts for sale occurred on 11 November 2004, with a consequential reduction in the indebtedness to the Bank. The outstanding claim of the Bank is presently quantified in the vicinity of $1,733,000, being the shortfall between the original amount outstanding under the Facility and the funds generated by the sale of the security, together with interest outstanding. It is the intention of the Bank, in pursuing the leave to 'take fresh steps' (that being the terminology adopted in s 58(3)(b) of the Bankruptcy Act) in the Supreme Court Proceedings, to recover that shortfall from the guarantors to the Facility, of whom Mr Bardetta is one. 9 More recently on 28 February 2005 the Bank filed a notice of motion in the Supreme Court proceedings seeking asset preservation orders and asset disclosure orders against, inter alia, each of Mr and Mrs Bardetta individually ('the Mareva relief'). For this purpose the notice of motion sought leave to join Mrs Bardetta to the Supreme Court proceedings. Leave to do so was granted ex parte on 28 February 2005. Filed in support of that motion was an affidavit of the Bank's director Robert Douglas Gordon sworn 25 February 2005, which is exhibited to the affidavit of Tricia Joy Andres, being a solicitor in the employ of the Bank's retained lawyers, sworn 19 April 2005 filed in this present application. Mr Gordon deposed that prior to the execution of the Facility on 1 April 2003, the Bank had caused searches and enquiries to be undertaken in order to ascertain the assets and liabilities and general financial position otherwise of inter alia Mr Bardetta as one of the guarantors to the Facility. The results of those searches and enquiries were exhibited to Mr Gordon's affidavit and revealed that at the time of making those searches and enquiries, Mr Bardetta owned four shops situate at 51-57 Bayswater Road, Rushcutters Bay, a property located at 4 Jesmond Avenue, Vaucluse, and a $900,000 'investment' in Riley Street, the first defendant to the Supreme Court proceedings, and whereof Mr Bardetta had been a director since 1 April 2003. Mr Gordon also exhibited a series of additional title searches carried out on 28 February 2003, which revealed that Mr Bardetta was as at that date either the owner or joint owner of the following properties: (i) 4 Jesmond Avenue, Vaucluse, New South Wales, being the property comprised in Folio Identifier C/33229; (ii) Units 1, 2, 3 and 4 at 51 Bayswater Road, Kings Cross, New South Wales, being property comprised in Folio Identifiers 1/2/3 and 4 of Strata Plan SP123534; (together referred hereafter as 'the Bardetta properties'). Those title searches also revealed that the Bardetta properties were the subject of mortgages to the National Australia Bank Limited. 10 The Bank adduced evidence of becoming aware on 24 January 2005 of the fact that the Bardetta properties had been transferred to, and were by then registered in the name of Mrs Bardetta (being the second respondent to the present application to the Federal Court), and that the same had by then been mortgaged to Permanent Trustee Australia Limited ('Permanent Trustee'). Moreover title searches in respect of the Bardetta properties and registered instruments relating thereto were carried out by Clayton Utz on 17 February 2005 and exhibited to Mr Gordon's affidavit, which disclosed the following dealings: (i) the transfer of the Vaucluse property from Mr Bardetta to Mrs Bardetta had been registered on 22 November 2004, and on the same day the mortgage in favour of Permanent Trustee over that property was registered; (ii) the transfer of the four retail properties in Bayswater Road, Kings Cross from Mr Bardetta to Mrs Bardetta had been registered on 11 January 2005, and on the same day the mortgage in favour of Permanent Trustee over those four properties was also registered. 11 However, each of those two instruments of transfer bore the date 14 July 2004, despite the gap in time between their respective dates of registration. It was not until 27 January 2005 that the Bank obtained copies of the transfers of the Bardetta properties from Mr Bardetta to Mrs Bardetta. Those transfers were not expressed to have been made for any monetary consideration, but rather were each expressed to have been made '[p]ursuant to Orders made at Sydney Family Court'. The date or respective dates of the 'Sydney Family Court' (ie Family Court of Australia) order or orders was not specified in the transfers. Mr Bardetta's signature to each transfer was witnessed by a person whose first name is 'Guiseppe' but whose surname is difficult to decipher, whilst Mrs Bardetta did not sign either transfer, her solicitor Mr Stubbs signing the same on her behalf. Mr Gordon deposed that the Bank was not given notice, either prior to or during the Supreme Court proceedings that Mr Bardetta and Mrs Bardetta were litigating parties to any Family Court proceedings, the Bank not becoming so aware until late January 2005, when copies of the two Transfers were obtained by its lawyers. 12 It was at least largely in that context that the Bank commenced further proceedings in the Supreme Court of New South Wales on 28 February 2005 for the Mareva relief. Orders in the nature of that relief were made by Campbell J on the same day. Additional orders of that nature were made by Campbell J on 3 March 2005. Those orders were also purportedly made against Harmonious Holdings Pty Ltd ('Harmonious Holdings'), a company joined to the Supreme Court proceedings by leave granted to the Bank on this day. An ASIC company extract dated 8 February 2005 and exhibited to the affidavit of Mr Gordon indicated that Mrs Bardetta was, as at that date, the sole director and shareholder of Harmonious Holdings. Also exhibited to Mr Gordon's affidavit are the schedules to the mortgages in respect of the Bardetta properties in favour of Permanent Trustee registered respectively on the 22 November 2004 in the case of the Vaucluse property and 11 January 2005 in the case of the Bayswater Road Kings Cross retail properties, which reveal that each mortgage purported to secure the obligations of Mrs Bardetta and Harmonious Holdings owed to Permanent Trustee as Custodian for Challenger Managed Investments Limited. 13 In order to obtain the Mareva relief in the Supreme Court, the Bank was required to enter into a number of undertakings. Relevantly, the Bank undertook to the Supreme Court of the 3 March 2005 as follows: 'to commence within 21 days and prosecute proceedings in the Family Court pursuant to s 79A of the Family Law Act in relation to the transfers of properties evidenced by the documents exhibited to the Affidavit of Robert Douglas Gordon sworn 25 February 2005…' An affidavit of Tricia Andres sworn 19 April 2005 on behalf of the Bank in the present application recorded that on 23 March 2005, the Bank applied to re-list the Mareva application before the Supreme Court on 24 March 2005 for the purpose of seeking an extension of that undertaking. The reason for that extension lay in the receipt by solicitors of the Bank a letter from Mr Christopher Palmer of O'Brien Palmer, Chartered Accountants, on 16 March 2004 which informed them that Mr Bardetta was bankrupt, and that Mr Palmer was acting as the trustee in bankruptcy appointed by the Insolvency & Trustee Service Australia on 3 March 2005 to Mr Bardetta's bankrupt estate. As I have earlier foreshadowed, s 58(3)(b) of the Bankruptcy Act would have had the effect of rendering incompetent the commencement of the Family Court proceedings, insofar as they might have applied adversely to the property of a bankrupt. From 4 March 2005 until 8.00pm on 26 April 2005, Einstein J of the Supreme Court of New South Wales granted an extension of Campbell J's orders. It is in these immediate circumstances that the Bank has approached the Federal Court for an order pursuant to s 58(3)(b) of the Bankruptcy Act for leave to commence proceedings in the Family Court of Australia and to 'continue and/or take further steps' in relation to the Supreme Court Proceedings against the Bankrupt. 14 There are significant factual distinctions between the two kinds of proceedings for which leave to commence and continue is sought by the Bank pursuant to s 58(3) of the Bankruptcy Act. It is therefore appropriate that I consider separately those dual circumstances. That consideration coincides with the separation in treatment of each of the two legal processes by counsel for the Bank. It is convenient however to first record the respective positions adopted by the respondents to the Bank's filed present application generally. 15 The first respondent, being the bankrupt Mr Bardetta, did not file an appearance nor subsequently seek leave to appear. The second respondent, Mrs Bardetta, sought leave by counsel to file in court a notice of appearance upon the commencement of the hearing of the Bank's application, but did not make any submissions in relation to the Bank's application (which ultimately took the form of an amended application), save as to two matters. The first was that Mrs Bardetta neither opposed nor consented to the orders being sought insofar as they related to whether the leave sought by the Bank should be granted. The second was that the Bank should bear the costs of Mrs Bardetta's appearance in these present proceedings on the basis that service of the application did not take place until late on the preceding Wednesday, the application being conducted in Court two days later on a Friday preceding a long weekend, and since an unparticularised or unspecific order for costs was sought by the Bank by its application, and therefore conceivably against Mrs Bardetta. Moreover the appropriateness or otherwise of Mrs Bardetta being joined as a respondent to the present application was raised as an issue. Counsel for the Bank responded to the later expression of concern to the effect that the solicitor representing Mrs Bardetta had been afforded adequate time within which to make 'a simple phone call' to the lawyers for the Bank in order to ascertain whether any such order for costs would be sought against her, and that had he done so, he would have ascertained forthwith the negative to that concern. The difficulty with that latter concern was that the Bank's application sought an order as to 'costs' generally, without any distinction as to respondents. Moreover counsel for Mrs Bardetta expressed concern as to whether I might have made findings of fact adverse to Mrs Bardetta in relation to circumstances from her perspective attending the transfer of the Bardetta properties from Mr Bardetta in favour of Mrs Bardetta, pursuant to the Family Court orders of 25 August 2004 to which I have earlier referred. 16 At the commencement of the hearing, counsel for the Bank tendered a letter dated 21 April 2005 from the lawyers representing Mr Palmer, the trustee of the bankrupt estate of Mr Bardetta, and as such the third respondent to the Bank's present application. That letter indicated that in relation to the present application, in so far as the same concerned the Supreme Court proceedings, the trustee neither consented to nor opposed the application for leave the Bank to take the foreshadowed steps, and that in relation to the application insofar as leave was sought to commence proceedings in the Family Court, consent would be provided on the following terms: (i) the Bank to pay the bankruptcy trustee's costs of the application; (ii) the Bank to undertake: (a) to hold the benefit of any order made in the Family Court proceedings on behalf of the bankrupt estate of Joseph Bardetta; and (b) to notify the trustee of any settlement proposed to be entered into in respect of the Family Court proceedings, and not to enter such settlement unless consented to by the trustee. I should further record that the Bank, in its amended short minutes of order, submitted after the conclusion of the present hearing in the Federal Court, that there should be thereby included an order that the Bank pay the trustee's costs of the application assessed in the sum of $1,758, being a course for which the Bank's consent had apparently been already obtained. 17 As I have foreshadowed, leave was also sought by the Bank pursuant to the Bankruptcy Act to commence proceedings in the Family Court of Australia, pursuant to s 79A of the Family Law Act for relief in relation to the circumstances which had been discovered by the Bank. That section provides for the alteration of orders made under s 79 of the Family Law Act 1975 (Cth) which in turn relates to orders made concerning the interests of parties to a marriage or of either one of them, subsection (1) thereof reading as follows: '(1) The proceedings with respect to the property of the parties to a marriage, or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines.' Exhibited to the affidavit of Tricia Joy Andres sworn 19 April 2005 was the draft order which the Bank would pursue against both the Bankrupt (Mr Bardetta) and additionally Mrs Bardetta in the Family Court, in the event of leave being granted. That proposed order is as follows: 'An order, pursuant to section 79A of the Family Law Act 1975 (Cth), to set aside, or in the alternative, vary, consent orders made by the Family Court under section 79 of the Family Law Act 1975 (Cth), on 25 August 2004 in proceedings No. SYF3610 of 2004.' 18 That order of the 25 August 2004 mandated, relevantly, the transfer of all of the right title and interest of the bankrupt Mr Bardetta previously in the real property which I have earlier identified, being the residence No 4 Jesmond Avenue, Vaucluse and the shops Nos 1, 2, 3 and 4 at 51-57 Bayswater Road, Kings Cross.

Reasons for grant of leave to the Bank to commence and pursue Family Court proceedings 22 Section 79A(1)(a) of the Family Law Act provides in its current form as follows: '(1) Where, on application by a person affected by an order made by a court under section 79 in proceedings with respect to the property of the parties to a marriage or either of them, the court is satisfied that: (a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance … the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.' 23 In Fraser v Commissioner of Taxation (1996) 69 FCR 99, in the context of a successful application made by the Commissioner of Taxation pursuant to s 79A(1)(a) of the Family Law Act as it then was, a Full Federal Court (Black CJ, Beaumont and Tamberlin JJ), confirmed that the Family Court was authorised to set aside an order of the Family Court, earlier made in proceedings with respect to the property of parties to a marriage, in circumstances where the Court was satisfied that there had been a miscarriage of justice by reason of fraud or suppression of evidence by a party in obtaining that order. At the times material to the proceedings in Fraser, the bracketed words '(including failure to disclose relevant information)' did not appear in par (a) of s 79A(1). Subsequently, and for the period now relevant, s 79A(1)(a) was amended by the addition of that bracketed expression; hence the Bank has the advantage of that amendment, in the case of any doubt relevantly arising, which I do not think in any event to be the case. 24 In his reasons for judgment (at 111), Beaumont J (with whose reasons Tamberlin J agreed, and Black CJ generally agreed, though added some observations of his own) held as follows, in relation to the prohibition the subject of s 58(3)(a) of the Bankruptcy Act (as then in force): '… the absolute bar imposed by s 58(3)(a) should be construed so as to apply only to the enforcement of remedies, including extra-curial remedies, as distinct from the institution of legal proceedings and their maintenance up to the point of recovery of judgment…' That is to say, the 'absolute bar' imposed by s 58(3)(a) does not apply to the type of action foreshadowed by this leave application, being the institution of legal proceedings in the Family Court seeking an order under s 79A of the Family Law Act. Beaumont J went on to consider whether s 58(3)(b) of the Bankruptcy Act had any application to the proceedings there sought to be instituted by the Deputy Commissioner of Taxation, which were almost identical to those the Bank currently seeks to commence in the Family Court. After reviewing the authorities, Beaumont J concluded that an action in the Family Court seeking orders under s 79A setting aside or varying a transfer of property made by the Family Court pursuant to s 79(1) of the Family Law Act, was a legal proceeding 'in respect of a provable debt' for the purposes of s 58(3)(b) of the Bankruptcy Act. The rationale for this conclusion was twofold: the foundation of the Commissioner's claim before the Family Court was the existence of an unsatisfied debt - this made the Commissioner a 'person affected' under the terms of s 79A. Secondly, Beaumont J viewed the orders sought by the Commissioner from the Family Court under s 79A as an attempt on the Commissioner's part to enlarge the body of assets available to all creditors who prove in the estate, thereby rendering that Family Court proceeding one 'in respect of a probable debt'. 25 The relevant question for the Full Court in Fraser then became whether or not Davies J, as the primary judge in Fraser, had been right in granting leave to proceed under s 58(3)(b) of the Bankruptcy Act. Beaumont J considered that the grant of leave by Davies J 'but only on conditions having as their objective the protection of the position of the Official Trustee, in effect as dominus litus, in the interests of the general body of creditors' involved a proper exercise of the Court's discretion (at 115). His Honour's essential words, to my mind, are 'in the interests of the general body of creditors'. As I have acknowledged above, the Trustee in Bankruptcy, Mr Palmer, has not the funds to litigate on behalf of the bankrupt estate of Mr Bardetta in the Family Court. The willingness of the Bank to enter into an undertaking in terms discussed below render in my opinion the proposed proceedings 'in the interests of the general body of creditors'. 26 Earlier in Semmens v Commonwealth (1989) 99 FLR 294, involving an appellate decision of three members of the Family Court of Australia (Fogarty, McCall and Bulley JJ) relating to consent orders made by the Family Court at first instance in the context of a property settlement, that earlier decision was set aside in circumstances where there had occurred non-disclosure to the Family Court of substantial fines and other amounts imposed upon the husband in the context of prosecutions for the smuggling of goods into Australia, and where the husband had been granted by the Magistrates' Court (which imposed the fines) an extension of time within which to make payment thereof, yet where the wife had obtained the approval with the consent of the husband of the Family Court to a property settlement involving the transfer of property to the wife. At 302-303, the Family Court's judgment on appeal observed as follows: 'Whilst we think it appropriate, in the absence of Rules of Court to this effect, to require notices to be given to third parties in all such circumstances, it must be recognised that the failure to do so in particular cases can severely impinge upon the "legitimate interests of third parties" and may almost inevitably in many cases be a "miscarriage of justice" within s 79A.' No adverse observation was later made in Fraser in relation to that earlier decision of the Family Court in Semmens. Similarly, there is a strong inference available from the timing of the making of the orders after the Supreme Court proceedings were commenced, the failure to inform the Bank of the Family Court proceedings and the making of the orders and the significant delay in registering the transfers, that the purpose of Mr and Mrs Bardetta in obtaining the orders was to defraud creditors, and in particular the Bank: see Semmens at 299-300. 27 I am thus of the further opinion that the Bank's invocation of s 79A(1)(a) of the Family Law Act is soundly conceived, and that the Bank is entitled to the leave of the Court which it presently seeks. I am fortified in this belief by the willingness of the Bank to undertake to hold the benefit of any order made in the Family Court proceeding on behalf of the Bankrupt estate of Mr Bardetta: see Green v Official Trustee in Bankruptcy [2001] FCA 1644 (Hill J) at [10]-[11].

Macquarie Bank Limited v Bardetta

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