Mahommed v Cox as Administrator of the Deceased Estate of Dixon

Federal Court of Australia|2022-07-29|Before: Burley J

The application be dismissed.
The applicant pay the respondent's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT 1 INTRODUCTION [1] 2 RELEVANT LAW [7] 3 THE SUBMISSIONS [11] 3.1 The submissions of the petitioning creditor [11] 3.2 The submissions opposing the petition [17] 4 CONSIDERATION [20] 4.1 Existence of the Debt [20] 4.2 Exercise of discretion under s 244 [45] 4.2.1 The SC proceedings [46] 4.2.2 The submissions [51] 4.2.3 Consideration [55]

RELEVANT LAW 7 The operative provision of the Bankruptcy Act is s 244, which relevantly provides: 244 Administration of estates under this Part upon petition by creditor (1) Subject to this section, where: (a) a debt of not less than the statutory minimum was owing by a deceased person at the time of his or her death to a creditor, or debts amounting in the aggregate to not less than that amount were so owing to any 2 or more creditors; … the creditor or creditors to whom the debt or debts is or are owing may present a petition to the Court for an order for the administration of the estate of the deceased person (in this section referred to as the deceased debtor) under this Part. … (5) A petition under this section shall be verified by the affidavit of a person who has knowledge of the facts. (6) A petition under this section shall not be presented unless: (a) the debt, or each of the debts, in respect of which it is presented: (i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and (ii) is payable immediately or at a certain future time; and (b) at the time of his or her death, the deceased debtor: (i) was personally present or ordinarily resident in Australia; (ii) had a dwelling-house or place of business in Australia; (iii) was carrying on business in Australia, either personally or by means of an agent or manager; or (iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners, or of an agent or manager. … (9) Subject to subsection (10), a sealed copy of the petition shall be served upon the legal personal representative of the deceased debtor or, if there is no legal personal representative, upon such person as the Court directs. … (11) At the hearing of the 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, unless service of the petition has been dispensed with; and (c) the fact that the debt or debts to which the petition relates is or are still owing; and if it is satisfied with the proof of those matters, may make an order that the estate be administered under this Part. (12) If the Court is not satisfied with the proof of any of those matters or is of the opinion that for other sufficient cause the order sought ought not be made, it may dismiss the petition. (13) Where proceedings have been commenced in a court for the administration of a deceased person's estate under a law of a State or Territory, a petition for an order under this section in relation to the estate shall not be presented by a creditor except by leave of the Court and on such terms and conditions (if any) as the Court thinks fit. (14) If the Court makes an order that the estate be administered under this Part, the creditor who obtained the order must, before the end of the period of 2 days beginning on the day the order was made, give a copy of the order to the Official Receiver. … 8 The formal requirements for making an order under s 244 require that the applicant be a creditor in respect of a debt of not less than the statutory minimum. Although the petition refers to a total debt of $5,845,545, in his oral submissions Mr Mahommed confined his case to one single debt of $1,472,379.70 plus interest (the Debt). Ms Cox disputes that the Court would be satisfied of the proof offered by Mr Mahommed that the Debt is owed at all, or owing at the time of the presentation of the petition, as required by ss 244(1)(a) and 244(11) of the Bankruptcy Act. There is no dispute that the petition has been verified within s 244(5) or, subject to the disputed existence of the Debt, that the requirements of proof specified in s 244(6) have been satisfied. The other issue between the parties is whether, as a matter of discretion, an order should not be made: ss 244(1) and (12). 9 The relevant discretion has been described as broad: Estate of Hancock (Deceased) v Bennett (Executor) [1999] FCA 295 at [59] (Tamberlin J). In Bonberra Pty Ltd v Hawksford (administrator), in the matter of the Estate of Hawksford [2013] FCA 838 (Yates J), the Court relevantly noted: 33 … The language of s 244(11) makes clear that satisfaction of the requirements of that provision is sufficient to enable an order to be made although, plainly, the Court retains a discretion as to whether such an order should be made. Section 244(12) provides that, if the Court is not satisfied with the proof of any matter identified in s 244(11) or is of the opinion that "for other sufficient cause" an order ought not to be made, it may dismiss the petition. Considered alone, s 244(12) could be taken as suggesting some predisposition to the making of an order in the event that other sufficient cause is not shown. 34 Subsections 244(11) and 244(12) must, however, be read together in order to appreciate the true scope of the discretion to make an order or to dismiss the petition. In Meinhardt (Hong Kong) Ltd v William Lindsay Meinhardt (Deceased) & Ors (No 2) [2006] FCA 1323, Jessup J at [51] preferred the view that the discretion was an open one that should not be guided by a predisposition to make an order unless sufficient cause to the contrary is demonstrated. I respectfully agree with that view. However, an acceptance of that view does not gainsay the different proposition that it is for the party seeking the dismissal of a petition on the basis of "other sufficient cause" to establish the existence of that cause and its sufficiency. 35 Although not a precondition to the making of an order under s 244, it is nevertheless recognised that insolvency, if established, may be a most important matter to take into account in an appropriate case in exercising the discretion: Hancock at [59]. Although alleging solvency, the respondents have not established that the deceased's estate is solvent, whether that question is considered from the perspective of s 46C(3) of the Probate and Administration Act or s 5(2) and (3) of the Bankruptcy Act. … 10 In Meinhardt (Hong Kong) Ltd v William Lindsay Meinhardt (Deceased) & Ors (No 2) [2006] FCA 1323, Jessup J observed at [52] that the apparent, if unstated, object of s 244 within the scheme of the Bankruptcy Act is to provide for an efficacious procedure in bankruptcy in the case of a deceased estate which is, as far as may be, analogous to that available under the Bankruptcy Act in the case of living debtors. I respectfully agree with that view.

3.1 The submissions of the petitioning creditor 11 Mr Mahommed submits that he is a creditor who was owed $1,472,379.70 by the deceased at the time of his death. 12 He submits that Ms Cox has "dishonestly" ignored demands made by him for payment of the Debt, as referred to in the amended statement of claim in the SC Proceedings, in order to advance her own interests and the ulterior interests of other clients of the solicitors acting for Ms Cox. 13 Mr Mahommed contends that the Debt arose from a chain of transactions and obligations commencing with a Deed of Assignment dated 22 December 2014 between the deceased as assignor and Vestecorp Financial Services Pty Limited as assignee, whereby the deceased undertook to guarantee the payment of all moneys due, owing and payable by Loire Consultants Pty Limited to Vestecorp under a written Consultancy Agreement. He contends that a running balance ledger account was provided by Vestecorp to the deceased on 31 July 2018 showing the amount of the Debt, and that there is no allegation that it was disputed or contested by the deceased "who acknowledged the indebtedness by his silence". A statutory demand was made on that day to Loire, which was not set aside, and accordingly Loire was deemed insolvent. Loire was subsequently wound up on 3 July 2019. A demand dated 20 September 2018 was made by Mr Mahommed against the deceased which, he submits, was not disputed or contested. On 6 May 2021, the Debt and the benefit of the guarantee in the Deed of Assignment were assigned absolutely at law by Vestecorp to Mr Mahommed in a Deed of Assignment (Second Deed of Assignment) and by a notice under s 12 of the Conveyancing Act 1919 (NSW). These were provided to Ms Cox and were not, he submits, relevantly contested by her. Demands were made to Ms Cox on 7 and 14 May 2021 and, Mr Mahommed submits, these were not contested. 14 Mr Mahommed accepts that the existence of the Debt is disputed by Ms Cox in her defence filed in the SC proceedings on 5 August 2021, but he submits that her defence discloses no reasonable defence. He submits that Darke J granted him leave on 12 July 2021 to file an application for default judgment in relation to the Debt. That application has not, so far as can be determined from the evidence before this Court, been filed or pursued. 15 Mr Mahommed submits that the existence of the Debt and the demands made for payment have not been disclosed by Ms Cox in her application for letters of administration. Nor, he submits, has Ms Cox filed any application to set aside the documents upon which the Debt is based. 16 In his submissions in reply, in answer to allegations of abuse of process by reason of the duplicative SC proceedings, Mr Mahommed submits that the deceased estate is hopelessly insolvent and that he does not seek any final determination of his claim, but rather that a trustee be appointed who can apply the bankruptcy laws to the debts of the estate.

3.2 The submissions opposing the petition 17 Ms Cox advances two substantive submissions in support of her opposition to the grant of the petition. 18 First, she disputes that Mr Mahommed has established that a debt is or was owed by the estate to him. 19 Secondly, she submits that there is in any event "other sufficient cause" under s 244(12) of the Bankruptcy Act not to order sequestration of the estate and that in its discretion the Court ought not to do so, citing Bonberra at [33]. Ms Cox submits: (a) there is no suggestion that she, as administrator appointed by the Supreme Court of New South Wales, cannot adequately perform the function of administering the estate to ensure that creditors are paid. This serves the same function as Part XI of the Bankruptcy Act. In this regard she notes that Mr Mahommed nominates no trustee in bankruptcy, and points to no advantage in an appointment of someone other than herself; (b) the apparent purpose of the appointment is to render nugatory the SC proceedings or simply transfer them to proceedings under the auspices of the proof of debt for consideration of the trustee in bankruptcy; and (c) the petition is in reality an abuse of process whereby Mr Mahommed, having commenced the SC proceedings, has changed course because those proceedings have not suited him and the time, effort and resources expended in the SC proceedings will be wasted if they do not run their course.

4.1 Existence of the Debt 20 The origin of the Debt is said by Mr Mahommed to lie in the Deed of Assignment between the deceased and Vestecorp. That document includes recitals which refer to: (a) a debt owed by one Steven Coughlin under a Loan Agreement dated 25 April 2006; (b) judgment for $1,070,029 plus costs obtained by the creditor in respect of the Loan Agreement (judgment debt); (c) the bankruptcy of the debtor (Mr Coughlin); (d) the assignment of each of: the judgment debt, the rights under the Loan Agreement and a mortgage over a property located at 713 Lovedale Road, Allandale (Lovedale property) to Dixon Investments Pty Ltd for $950,000; (e) the consideration for the assignment being funded by the deceased and each of: the judgment debt, mortgage and Loan Agreement being held by Dixon Investments in a bare trust for the deceased; and (f) the agreement by the assignor (the deceased) to assign to the assignee (Vestecorp) his interest in each of: the Loan Agreement, the mortgage, the judgment debt and all accrued interest and costs and "all associated and incidental legal, equitable and statutory rights" (defined as the Assigned Property) upon the terms set out thereunder. 21 The first operative clause of the Deed of Assignment provides that the deceased assigns the Assigned Property to Vestecorp. It provides in cl 1(a) that the assignment is for: (a) …consideration comprised of an amount equivalent to the Judgment Debt, the value of which shall be ascertainable and estimated as being the equivalent to the net amount recovered or recoverable by [Vestecorp] from the Debtor and/or through his Bankrupt Estate, less any costs... 22 It provides in cl 1(b) (emphasis added): (b) the Assignor has undertaken and hereby further undertakes to guarantee the payment of all moneys due, owing and payable by Loire Consultants Pty Limited ("Loire") to the Assignor under the written Consultancy Agreement made between Loire and the Assignee; 23 In cl 1(c), the consideration is said to be paid or satisfied exclusively by offsetting any liability of Vestecorp under those guarantees "to the Assignor against the consideration". 24 In cl 1(d), the Deed of Assignment specifies in more detail the "associated rights" referred to in the recitals. 25 The Deed of Assignment was executed by the deceased and by Mr Mahommed as sole director of Vestecorp. 26 Mr Mahommed next relies on the terms of the Consultancy Agreement between Loire and Vestecorp dated 9 October 2015, which is almost a year later than the Deed of Assignment. In it, Loire engaged Vestecorp to provide certain services listed in the agreement. 27 The terms of payment for those services are set out in cl 5: Payment 1. In consideration of the provision of the Services the Principal will pay the Consultant the Fee in the manner provided in item 4 of the Services and Agreement Information, subject to the conditions of this Agreement. Deferred Fee Payment 2 The fee amount is payable weekly while actual payment is deferred as per item 6 of Services and Agreement Information. 28 The "Services and Agreement Information" mentioned is provided later in the agreement. It provides in item 4 that "An amount of $9,500.00 [is] due and payable on a weekly basis". 29 Item 6 of the "Services and Agreement Information" provides: Payment is deferred until recoupment of assets from the recoveries processes as instigated by the Consultant and is payable out of the Principals' Assets. 30 Mr Mahommed gives evidence that on 30 July 2018 Vestecorp provided the deceased with a running balance account ledger showing that the balance of the Debt owing under the Consultancy Agreement was $1,472,379.70, a copy of which he exhibits to his affidavit. He exhibits a demand for payment that he made to the deceased dated 20 September 2018 that refers a) to the Debt owed by Loire to Vestecorp arising from "the Consultancy Agreement made between you ("Dixon") and Vestecorp which took effect from 1 July 2014" and b) to "the Guarantee provided by you in the Deed of Assignment … on 22 December 2014" in relation to the Debt. 31 Mr Mahommed next relies on the Second Deed of Assignment, pursuant to which he contends that Vestecorp assigned to Mr Mahommed all of its interest in respect of the Assigned Property as defined in the Deed of Assignment of 22 December 2014, and referred to at [20] above. The Second Deed of Assignment includes recital F, which refers to the Deed of Assignment and states that the deceased guaranteed the payment of "all moneys due, owing and payable by Loire to [Vestecorp] under the CSA [being the Consultancy Agreement dated 9 October 2015]". 32 For the following reasons I am not satisfied that the evidence adduced by Mr Mahommed in support of the petition demonstrates that a debt was owing by the deceased at the time of his death within s 244(1)(a) or is still owing within s 244(11) of the Bankruptcy Act. 33 As set out at [22] above, cl 1(b) of the Deed of Assignment provides that the deceased (assignor) guarantees the payment of moneys due by Loire to the assignor (i.e. himself). Ms Cox correctly contends that the Deed of Assignment on its face does not support the contention that a guarantee was provided to Vestecorp, being the assignee to that Deed. She also contends that in order to be in a position to enforce the document, rectification of the Deed of Assignment would be necessary, and no application to such effect has been brought. 34 In answer to this contention, Mr Mahommed accepts that cl 1(b) does not expressly signify the guarantee for which he contends, but submits that it is "plainly the case" that the document contains a typographical error, and that "assignor" should be read as "assignee". In further written submissions sent to the Court after the hearing, Mr Mahommed submits that the power of the Court to correct a self-evident absurdity in the literal part of the contract is not confined by any requirement for patent ambiguity, citing YIC Industrial Pty Ltd & Anor v SPA Investments Pty Ltd & Ors [2022] QCA 95 at [33] (Fraser JA, Sofronoff P and Flanagan J agreeing). 35 It is a well-established principle that a Court may correct a "clear mistake" where "it admits of no other construction": Wilson v Wilson (1854) 5 HL Cas 40; 10 ER 811 at 822 (Lord St Leonards). The High Court accepted in Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 426-427 (Dixon CJ and Fullagar J) that: Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. 36 In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11; 99 NSWLR 317, Leeming JA (Payne and White JJA agreeing at [44] and [45] respectively) set out the test for when wording can be corrected at common law as follows: 8 Two conditions are necessary in order to correct the contractual language in this manner: (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]-[119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]: "Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning." 9 Likewise, in the United Kingdom, the court must be satisfied both as to the mistake and the nature of the correction: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429 at [21] (Lord Neuberger); Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [78] (Lord Hodge). 10 The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters at 426-427, it must be "clearly necessary in order to avoid absurdity or inconsistency". As this Court said in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [85]. Courts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties' appreciation that some obscurities are incapable of resolution. As Lord Hoffmann explained, the court does "not readily accept that people have made mistakes in formal documents": Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23]. 37 I am not persuaded that the reference to "assignor" in cl 1(b) is a clear typographical error that should be set to one side, as Mr Mahommed contends. The Deed of Assignment is complex in its terms, and refers to numerous third parties and obligations that are not fully explained, either in the deed itself or in the evidence. For instance, in the next clause after cl 1(b), it provides (emphasis added): (c) The consideration shall be paid or satisfied exclusively by offsetting any liability of the Assignee [Vestecorp] under those guarantees to the Assignor [the deceased] against the consideration; 38 It is entirely opaque what this clause means. However, the emphasised words "those guarantees to the Assignor" on one view suggest that it was indeed intended to be the Assignor who was the beneficiary of the guarantee in cl 1(b), "those guarantees" being the only guarantee mentioned so far in the document. The awkward language used is no doubt susceptible of other constructions, but Mr Mahommed made no submission in relation to sub-cl 1(c). Nor am I satisfied to the requisite level that the language of cl 1(b) is clearly a typographical error that admits of no other construction. Indeed, it is not at all self-evident that it is a typographical error or absurdity at all or, if it is, what the objective intention is to be taken to have been. If it was an error, was that error repeated in cl 1(c), or were there other guarantees to the assignor? 39 Mr Mahommed seeks to rely on Recital F in the Second Deed of Assignment to support his case that the guarantee in the Deed of Assignment was given to Vestecorp. However, Mr Dixon (the deceased) was not a party to the Second Deed of Assignment and it is difficult to see how a recital to that agreement can be binding on him or his estate. 40 These matters lead me to the view that Mr Mahommed has not demonstrated, as required by ss 244(1) and 244(11) of the Bankruptcy Act, that the Debt alleged was owed to him by the deceased at the time of his death or is still owing, because his case is entirely based on the existence of the guarantee. 41 Furthermore, the guarantee identified in the Deed of Assignment relies upon the terms of the written Consultancy Agreement between Loire and Vestecorp. The payment terms in cl 5, set out at [27] above, have not been shown to have arisen. In this regard Item 6 of the "Services and Agreement Information" provides that payment is deferred until recoupment of assets from the recoveries process as instigated by the Consultant and is payable out of the Principals' Assets. There was no agreement to pay the fees on a weekly basis (although by cl 2 and item 4 they accrued weekly in the amount of $9,500). Rather, payment only arises upon the happening of the events described in Item 6. 42 I am not persuaded that the evidence of Mr Mahommed establishes that the events required to trigger payment took place. In his oral submissions in reply, Mr Mahommed contends that the deceased executed a trust transfer of the Lovedale property to Loire as trustee of the Lovedale Ranch Unit Trust (Lovedale Trust). However, that does not amount to evidence of the conditions precedent to payment for which Mr Mahommed contends. 43 Finally, on Mr Mahommed's case the guarantee in cl 1(b) of the Deed of Assignment concerns obligations owed by Loire to Vestecorp "under the written Consultancy Agreement made between Loire and the Assignee", being Vestecorp. The consultancy agreement so mentioned is not defined or otherwise identified in the Deed of Assignment. An ordinary reading of the clause suggests that it is referring to an extant agreement, yet none pre-dating the Deed of Assignment was identified in the evidence. It is by no means clear that the Consultancy Agreement which was entered almost 10 months later than the Deed of Assignment is that to which cl 1(b) refers. Indeed, at least on the basis of the present evidence I am not satisfied that it is the relevant agreement. 44 Accordingly, for these three separate reasons I am not satisfied that the requirements of s 244 of the Bankruptcy Act are satisfied.

4.2 Exercise of discretion under s 244 45 Finally, if I am wrong about these matters, I would in any event not exercise the discretion under ss 244(11) and (12) in favour of the grant of the petition. To explain this, it is first necessary to address some further background matters and the submissions advanced by the parties.

4.2.1 The SC proceedings 46 The SC proceedings were commenced in 2020 with two plaintiffs, Roger Thomas Ward as the first plaintiff and Mr Mahommed as the second plaintiff. The defendants were initially Westpac Banking Corporation Limited and The Registrar General of Titles, NSW. On 31 May 2021 the plaintiffs filed an amended statement of claim joining Ms Cox in her capacity as administrator of the estate of the deceased and adding claims against the estate. 47 The amended statement of claim is detailed and complex in its terms and runs to some 108 pages in length. Mr Smits, solicitor, who appeared on behalf of Mr Mahommed and who is the solicitor acting for the plaintiffs in the SC proceedings, provided in his oral submissions a helpful and detailed summary of the proceedings, the following aspects of which for present purposes I accept: (a) Mr Ward claims security over the Lovedale property under an unregistered mortgage in an amount exceeding $500,000 (first claim). (b) Mr Mahommed claims as a creditor under the guarantee identified in the Deed of Assignment which is advanced in the present petition (second claim). (c) Mr Mahommed also claims as the assignee of certain other rights of action identified in each of the Deed of Assignment, Consultancy Agreement and Second Deed of Assignment (third claim). (d) Mr Mahommed also claims to have been appointed as the trustee of the Lovedale Trust on 20 June 2018 (fourth claim). (e) Mr Mahommed contends, in relation to the fourth claim, that an officer of Westpac fraudulently and dishonestly entered into a registered mortgage over the Lovedale property and a property at 49 Bruce Street, East Maitland (Maitland property) knowing at the time that both properties were owned under trusts held by (respectively) Loire as trustee of the Lovedale Trust and Greenhills Securities Pty Limited as trustee of the Greenhills Finance Trust. (f) Mr Mahommed claims that, in relation to the Lovedale property, the deceased obtained a Rocket Home Loan in about September 2010 and on 24 November 2010 executed a mortgage in favour of Westpac over the property for $1,160,000 ostensibly to complete a purchase of that property for $1,800,000. At the same time, a fraudulent transfer of the property from Loire to the deceased was executed. That document is alleged to be a forgery. The purpose was to enable the deceased to settle the purchase. He refinanced the property for $680,000. (g) On 7 December 2010, the deceased presented the forged title documents to Westpac in order to obtain the $1,160,000 loan. The bank manager at Westpac, and Mr Unicom, a tax adviser, are said to have conspired to arrange for the deceased to obtain the property. The deceased did not pay the further $640,000 for the property. (h) Westpac settled the advance to the deceased and thereafter Mr Unicomb made payments to Westpac to conceal the fraud. (i) Similar allegations are made in respect of the Maitland property owned by the deceased. The plaintiffs contend that a loan of $195,000 was advanced directly to Mr Dixon in about July 2011 purportedly to purchase the Maitland property as an investment property. The deceased is said to have executed a declaration of trust in favour of Greenhills as trustee of the Greenhills Finance Trust, being a trust put in place as a discretionary family trust for Mr Mohammed and his family. The Westpac loans manager and loan broker allegedly knew that Mr Dixon only held the property as trustee. 48 Mr Smits also summarised the effect of a cross-claim in the SC proceedings brought by Westpac against Ms Cox in her capacity as administrator of the estate of the deceased. In short he said that: (a) Westpac seeks judgment for possession of the Lovedale property, an order that Ms Cox make restitution to Westpac in the amount of $1,160,000 and other orders. (b) Westpac claims that the deceased entered into a loan agreement for that amount secured by a mortgage over the Lovedale property. It contends that on 15 April 2013 Westpac issued a notice of default, and that the deceased made no payment. A demand was served in March 2015 for the full amount owing under the loan agreement, being $1,269,824, which has never been paid. (c) Ms Cox has admitted the allegations made by Westpac as pleaded above, with the result that she concedes that possession should be given to Westpac, thereby thwarting the plaintiff's claims. 49 The evidence indicates that the pleadings in the SC proceedings have closed. On 4 April 2022, the defendants secured an order that the plaintiffs pay security for the combined costs of Westpac and Ms Cox in the amount of $275,000. The plaintiffs have sought leave to appeal from that decision. 50 The value of the real estate of the deceased estate is estimated to be $1,500,000 (Lovedale property) and $450,000 (Maitland property).

4.2.2 The submissions 51 In his submissions, Mr Mahommed contends that the SC proceedings were brought to establish the entitlement of Mr Ward and Mr Mahommed to claim beneficial ownership or ranking for payments ahead of Westpac in respect of each of the Lovedale and the Maitland properties. He contends that since the death of the deceased in March 2019, Ms Cox should have taken steps to resolve debt issues pursuant to the letters of administration. She has not done so. He submits that Ms Cox has made no serious attempt to deal with any liability of the deceased estate "rather than to defeat the interests of the plaintiffs, so as to advance her own illegitimate-dishonest claims to beneficial ownership of the said properties". 52 In answer, Ms Cox relies on the following chronology of events to demonstrate the basis upon which she contends that the discretion should be exercised against granting the petition. 53 The deceased died on 7 March 2019 and letters of administration were granted on 27 November 2019. On 3 March 2021, Mr Mahommed was faced with an election. His solicitors wrote to Westpac's lawyers stating that the plaintiffs in the SC proceedings were taking advice on whether or not to file a claim against Ms Cox in those proceedings, or whether to make an application under s 244 of the Bankruptcy Act for the appointment of a trustee in bankruptcy. On 31 May 2021, he chose to pursue the claim in the SC proceedings, joining Ms Cox as administrator of the deceased estate as a defendant. That claim was subsequently pursued, rather than Mr Mahommed seeking to prove his debt in bankruptcy. On 4 April 2022, the defendants applied for security for costs. As set out above, that security was granted in the amount of $275,000, from which (Ms Cox submits) it may be inferred that the defences pleaded by Ms Cox were not considered by the Supreme Court to be without merit. 54 On 22 March 2022, the current petition was lodged. Ms Cox submits that it may also be inferred that Mr Mahommed was aware in May 2021 that he had two choices and that he made the correct choice in joining Ms Cox to the SC proceedings.

4.2.3 Consideration 55 For present purposes there is no dispute that the estate is insolvent. This factor weighs in favour of the grant of the petition, but it is not the only relevant consideration: Bonberra at [35]. It is also important to note that the SC proceedings are currently on foot. They involve, in broad terms, the four claims identified at [47] above and the cross-claim identified in [48]. 56 The effect of allowing the petition will be to vest the property of the estate in the trustee in bankruptcy: s 249(1) of the Bankruptcy Act. Furthermore, after an order has been made for the administration of the estate, it is not competent for a creditor to enforce any remedy against the estate in respect of a debt provable in the administration or, except with the leave of the Court, to commence or continue with any legal proceedings in respect of such a debt: s 249(3). 57 Taken alone, this might suggest an efficiency in bringing all claims under the umbrella of the trustee in bankruptcy to resolve any disputes from creditors. However, s 249(5) provides that nothing in s 249 affects the right of a secured creditor to realise or otherwise deal with his or her security. This indicates that the claim by Mr Ward (the first claim) and two of the three claims advanced by Mr Mahommed (the third and fourth claims), which involve competing claims in respect of the security provided in respect of the Lovedale and Maitland properties, will proceed in the SC proceedings notwithstanding the appointment of any trustee in bankruptcy. So too will the cross-claim advanced by Westpac. 58 Furthermore, the claim advanced by Mr Mahommed in the present application is intimately linked with the other claims. The likely effect of the grant of the petition would be as follows. First, it would enable the newly appointed trustee in bankruptcy to consider the second claim, being Mr Mahommed's claims under the guarantee in the Deed of Assignment, while that claim is stayed in the SC proceedings. Secondly, the trustee may accept or reject the second claim. If the second claim is accepted or rejected, it is likely that one or other party would contest that outcome, giving rise to the bifurcation of the dispute, with part of it being heard in the Federal Court and another part in the SC proceedings. Both appear to have complex and significantly overlapping facts. Thirdly, any stay arising from the operation of s 249 of the Bankruptcy Act will not operate to stay the cross-claim advanced by Westpac concerning its registered mortgage. Nor is it likely to operate to stay Mr Ward's claim and the third and fourth claims advanced by Mr Mahommed. It appears that the factual matrix relevant to those claims is intimately intertwined with the factual matrix giving rise to the second claim under the guarantee. Fourthly, Mr Mahommed appears to have chosen in May 2021 to pursue his claim against Ms Cox in the SC proceedings rather than to apply to this Court. That has led to additional costs in the SC proceedings. To grant the petition would be to allow Mr Mahommed to change course in circumstances that would only lead to additional cost and complexity. 59 Finally, Mr Mahommed has made the allegation that Ms Cox as the administrator of the estate has acted to advance her own dishonest claims to beneficial ownership of the properties. She was not cross-examined on her affidavit, the proposition was not put to her, and the factual material to which I was taken in the course of the hearing did not support the proposition. It ought not to have been put. I do not accept that Mr Mahommed has established that Ms Cox is not a person who is able properly to administer the estate of the deceased. 60 In the circumstances, even if I was satisfied that Mr Mahommed had established that he was owed a debt by the deceased at the time of his death, I would not be disposed to exercise the discretion under s 244 of the Bankruptcy Act in favour of the grant of the petition. 61 Accordingly, the petition must be dismissed. Mr Mahommed must pay the costs of the petition. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Burley.

Bankruptcy Act 1966(Cth)ss 244, 249

At a glance

Court

Decision date

Before

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (12)

Cited By (3)