Mehajer v Weston in his capacity as Trustee of the Bankrupt Estate of Salim Mehajer

Federal Court of Australia|2020-06-26|Before: Rares J

The application be dismissed.
The applicant pay the respondent's costs of the proceeding fixed at an amount of $5,000.
The respondent be released from his undertaking given on 13 May 2020 to retain the sum of $6,530 in a bank account pending the finalisation of the matter. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 Salim Mehajer became a bankrupt pursuant to a sequestration order made on 20 March 2018 and Paul Weston was appointed his trustee in bankruptcy. Mr Mehajer seeks an order under s 90-15 of Sch 2 to the Bankruptcy Act 1966 (Cth) that would restore to him the amount of $6,530 in cash that, on 4 March 2020, the New South Wales Police seized from the residential premises he was renting at Kirribilli in Sydney when they executed a search warrant. The search warrant related to whether Mr Mehajer had committed an offence in relation to firearms. It was based on his being seen to have participated in pigeon laser shooting on a charter boat. Mr Mehajer says that during the execution of the warrant the police found about $8,030 in cash in a drawer behind a computer disc and another approximately $500, in his wallet or bag. The police allowed Mr Mehajer to retain $2,000 and they took the balance. 2 In his email to Mr Mehajer of 3 April 2020, the trustee informed him that material that he had provided previously consisting of a statutory declaration dated 26 March 2020 purportedly made by his sister Zenah Osman (Ms Osman) and witnessed by a solicitor contained signatures that did not appear to match either those of his sister or the solicitor based on documents that the trustee had seen previously and that the solicitor had confirmed to the trustee that she did not witness Ms Osman's making of the statutory declaration. The trustee's email also noted that, at that time, no documentary evidence had been provided to substantiate that the funds police had seized belonged to Ms Osman or Mehajer Vision. The email stated: You have now had sufficient time and opportunity to prove ownership of the funds and have failed to do so. The trustee is now claiming these funds as after-acquired property pursuant to section 58(1)(b) of the Bankruptcy Act. (emphasis in original) 3 That is the decision of which Mr Mehajer seeks review under ss 90-15 and 90-20 in Sch 2 to the Act.

Background 4 Mr Mehajer and the trustee, I infer, have had a difficult relationship with one another. Mr Mehajer claimed that he has substantial assets through, what he described as, oral declarations of trust between himself and Ms Osman, who is the sole director of, among others, companies in which Mr Mehajer claims either a legal interest or a beneficial interest or both through a shareholding or trust. Those include two companies that held real property at 19 and 21 John Street, Lidcombe, being, respectively, A-Link Technology Pty Limited and Sydney Constructions & Developments Pty Limited. Ms Osman is the sole director of another company called Mehajer Vision Pty Limited. 5 Mr Mehajer claimed that the source of the money in the desk was the bank account of Mehajer Vision. He annexed to his affidavit of 8 May 2020 a statutory declaration that Ms Osman had made in which she deposed that she was Mehajer Vision's sole director and it had been established in January 2015. She said that: I can confirm that I previously withdrew money from [Mehajer Vision's] bank account, namely Westpac (…270), and the confiscated money is from that said account. 6 She referred to having withdrawn at least $50,000 from that account (the 270 account) beforehand that had, as its source, a business loan from a family friend. She said that if Mr Mehajer were successful in obtaining an order from the Court returning the $6,530, "I give consent to Mr Mehajer to have the full amount, which I will record against him as a loan." 7 Mr Mehajer asserted that he was in immediate and serious need of funding for his daily living expenses, including medical bills for his bipolar disorder, which was diagnosed by a well-known psychiatrist. Until the COVID-19 pandemic affected daily life in March 2020, Mr Mehajer said that he had not sought to be in receipt of any social security payments during his bankruptcy. Ms Osman stated that she currently is also suffering financial hardship, and was due to make a substantial payment on 10 May 2020 under court orders, for which she did not have funds. She said that the consequence of her failing to do so would result in her home being repossessed. 8 The Kirribilli premises are the subject of a lease for 180 nights to A-Link, although Mr Mehajer is noted on the lease as the occupant. His sister, as a director of A-Link, used a credit card to guarantee the payment of the monthly rent on the lease of $5,305. Mr Mehajer said that, as a bankrupt, he did not have the financial means, capacity or backing to apply for the lease which was why A-Link undertook to pay his rent. He pointed to his application for an exemption from having to pay Court fees as further evidence of his financial distress and said that his sister and A-Link were currently unable to pay rent on his apartment which was now three months in arrears. 9 In his affidavit of 30 May 2020, Mr Mehajer said that he had asked the leasing agent to wait for the outcome of his present application before taking action to evict him. He also told me that he needed the money to pay for his medical expenses as well as other daily living expenses. 10 The trustee's solicitors had questioned the accuracy of Ms Osman's statutory declaration and had written to her on 15 May 2020 to understand the source of the money that was found at Mr Mehajer's apartment. The letter noted that in Ms Osman's statutory declaration that her brother had attached to his affidavit of 8 May 2020, she had said that Mehajer Vision had not traded in 2020 and was not expected to trade for at least another six months. 11 In her email dated 15 May 2020 in response to the trustee's solicitors' letter, Ms Osman said that she was aware that her brother had commenced these proceedings and that the trustee and his solicitors "should raise this with Mr Mehajer to collate such supporting documents," since she had given her statutory declaration to assist her brother, not the trustee. She said: Please contact Mr Mehajer; I am unable as I have enough pressure and stress following his sequestration order. Mr Mehajer has all the information you require. (emphasis added) 12 The solicitor for the trustee, Dominic Calabria, made an affidavit on 22 May 2020 setting out, among other things, the history of the trustee's interactions with Ms Osman in seeking to ascertain the source of the funds. 13 When Mr Mehajer made his affidavit of 30 May 2020, he annexed to it what he said was a copy of part of a statement of Mejaher Vision's bank account to which his sister had referred in her statutory declaration. However, that bank statement was in respect of an account that had its last three digits as 262 (the 262 account). That bank statement included, among other things, a withdrawal on 30 January 2020 of $50,000 cash against which there appeared an arrow. That withdrawal was immediately followed by a bank made entry on 31 January 2020: Deposit, Salim Mehajer transfer of funds, $4845. 14 Mr Mehajer gave no explanation as to why, if the $50,000 was the source of his receipt of the $8,530 that the police found in his premises, he was repaying Mehajer Vision $4,845 on 31 January 2020. 15 After a case management hearing earlier this month, Mr Mehajer voluntarily obtained and provided to the trustee an unredacted copy of the bank statement on the 262 account, the subject of the redactions, that indicated that Mehajer Vision, in the period between 16 January 2020 and 7 February 2020 engaged in a considerable number of transactions involving total debits and credits of over $357,000. 16 Mr Mehajer and Mr Calabria each cross-examined the other on their affidavits before me. Mr Mehajer said under cross-examination that he thought that when his sister had said that he had all the financial information the trustee needed in respect of the Mehajer Vision bank account, she meant that she had given him (Mr Mehajer) all the relevant information that she could give. He said that Mehajer Vision was a holding company that did not trade, in the sense that it was intended to hold units at 19-21 John Street but that, because of the uncompleted contracts for sale of those properties, it was not then in a position to hold any such units on trust. I asked Mr Mehajer, in the course of his making submissions, about his answer to a written submission by the trustee about the discrepancy between what Ms Osman had said in her statutory declaration as to the account that was the source of the money, being the 270 account, and the statement for the 262 account. He submitted that Mehajer Vision had only one bank account and that the reference to the 270 account may have been a typographical error that he could have made in preparing his sister's statutory declaration. 17 Mr Calabria gave evidence that Mr Mehajer has been a party to several substantial proceedings in which those appearing for him had prima facie entitlements or claims for fees due by him. However, as Mr Mehajer pointed out, there was no evidence as to whether he had any present liability to pay those fees or whether those who were acting on his behalf were doing so pro-bono or on some contingent or deferred basis. Mr Mehajer is also liable under orders made in four different proceedings in this Court to pay the trustee's and others' costs. Those costs orders relate to fees that Mr Calabria assessed as creating a liability, albeit untaxed, in the order of about $95,000. Mr Mehajer did not object to those assessments and they appeared to be reasonable. 18 In addition, the trustee assessed Mr Mehajer under s 139L of the Act as having received income for which he must make contributions to his bankrupt estate totalling over $135,000. The first instalment of that assessment of $11,297.93 was due on 30 April 2020 and the second and following ones in the same amount are due on the 30th day of each month thereafter. As at today, there is over $22,000 owing in contributions by Mr Mehajer to the estate. In addition, Mr Mehajer said, and I accept, that the Australian Financial Security Authority is carrying out a review of the trustee's fees pursuant to a decision by the Inspector-General in recent days.

Mr Mehajer's submissions 19 Mr Mehajer argued that the trustee had power, under s 134(1)(ma) of the Act, to allow him to have such money out of the estate as the trustee thought fit. He contended that the trustee had not properly exercised his powers in concluding in his 3 April 2020 decision that the $6,530 was after-acquired property within the meaning of s 58(1) of the Act. In his submissions, he accepted that there was no evidence that, prior to the police seizing the cash, that money was a loan to him or how it came to be in his possession other than the evidence of its indirect connection to a $50,000 withdrawal from a Mehajer Vision bank account. 20 Mr Mehajer argued that the trustee's decision that the $6,530 is after-acquired property should be set aside, and that the funds should be returned to him or held in trust to allow his medical expenses to be paid by the trustee, as and when the need for such payments arise. He submitted that he was not aware, until after the trustee had informed him in the trustee's evidence and submissions, that he was allowed to live in a substantial residential property registered in Mr Mehajer's own name in Lidcombe. The trustee had submitted that it was unnecessary for Mr Mehajer to incur, or cause his sister or A-Link to incur, the expense of renting at Kirribilli. Mr Mehajer said that this was not relevant now as he had not been aware of his ability to stay at the Lidcombe property before the Kirribilli lease was made.

Consideration 21 The power of the Court to make such orders as it thinks fit in relation to the administration of a regulated debtor's estate under s 90-15 of Sch 2 of the Act is at large. It must be exercised as Brennan CJ, Gaudron and McHugh JJ held in Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 139, "in the particular circumstances of each case" when dealing with the much more simply expressed, and now repealed, s 178 of the Act which is in analogous terms. They said that the supervisory jurisdiction under analogues of s 90-15 had "long been exercised by courts charged with the supervision of administrations in bankruptcy" (at 138). 22 In Young v Thompson (2017) 253 FCR 191 at 217, [109]-[115] Siopis and Rares JJ, discussed the principles applicable to the Court's powers under analogues of s 90-15. Relevantly, a trustee in bankruptcy exercises fiduciary powers and must do so honestly, in good faith and act upon genuine consideration, taking an informed view of whether or not to exercise his or her discretion in relation to matters. A trustee must not act irresponsibly, capriciously or wantonly. 23 As Ryan, Mansfield and Jagot JJ accepted in Frost v Sheahan (2009) 6 ABC(NS) 786 at 789 [8], in exercising its powers under the repealed s 178: the Court will be slow to make orders which will have the effect of interfering in the day-to-day administration of a bankrupt's estate and, in cases involving an exercise of business or commercial judgment, will place considerable weight on the trustee's decision. Furthermore, a Court will not intervene under s 178 simply because the Judge forms a different view from that of the trustee. 24 Relevantly, the Court has full power under s 30 of the Bankruptcy Act to decide all questions, whether of law or fact, in any case of bankruptcy, and may make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act in any such case or manner. Section 58(1) provides relevantly that, subject to the Act, when a debtor becomes, bankrupt after-acquired property vests in, the trustee as soon as it is acquired or devolves on a bankrupt. 25 However, s 116(2) provides that certain property does not form part of property that vests in a trustee. Such property includes the right to take proceedings, such as the proceedings Mr Mehajer says he may be able to bring against one of his secured creditors, a Hong Kong company called SC Lowy. 26 Division 4B of Pt VI of the Act excludes certain items from the ordinary meaning of income, including, the value of any loans made to a bankrupt by an associated entity. However, Div 4B of Pt VI does not apply here, in light of Mr Mehajer's acknowledgement that at the time the cash was found at his apartment, there was no evidence to suggest it had been a loan or some part of a loan to him. 27 The power of the trustee to make payments of allowances out of the estate under s 134(1)(ma) to the bankrupt as the trustee thinks just operates as a safety valve, as Edmonds, Gordon and Beach JJ said in Di Cioccio v Official Trustee in Bankruptcy (2015) 229 FCR 1 at 12 [42]. Their Honours said that that provision is one that "assumes that a trustee will act sensibly and fairly". They noted that any decision of the trustee is subject to review under (what is now) ss 90-15, 90-20 of Sch 2 to the Act. 28 The bankrupt in such a case has an onus to demonstrate that the trustee has acted in a way that calls for the Court to exercise its supervisory power over the trustee, according to the principles that I have discussed. 29 Mr Mehajer does have a home in Lidcombe to which he can go and live without any need to pay rent. 30 Subsequently to his decision of 3 April 2020 to treat the cash as after-acquired property, the trustee assessed Mr Mehajer as liable under s 139L to make contributions to his estate. He also owes the trustee substantial amounts in respect of costs incurred in the course of litigation against the trustee, that, even though not yet taxed, will vastly exceed the $6,530. 31 I am not able to see that the trustee made any relevant error or abused any relevant discretion in forming his conclusion in the email of 3 April 2020 that the $6,530 was after-acquired property. The evidence before me, which is more fulsome than the trustee had before him on 3 April 2020 is, of course, relevant to the review of the trustee's original decision. However, that was a decision made in the day-to-day administration of the trust in circumstances where, as the trustee's email of 3 April 2020 noted, the police's seizure of the money was the third occasion in the previous six months that the police had identified material amounts of cash in Mr Mehajer's possession. While the other amounts of cash may have had a provenance which did not entitle the police or the trustee to take those funds, I am not satisfied that, on the evidence before me, there is any basis to think that the trustee erred in concluding that the $6,530 was after-acquired property that vested in him pursuant to s 58(1)(b) of the Act. Indeed, given that there was no evidence of any loan and, certainly, no explanation as to how the money came to be into Mr Mehajer's possession or what its source was that links it to any identifiable transaction, in my opinion the trustee's decision appears to be right.

Conclusion 32 I am not satisfied that, in all the circumstances, there is any reason to set aside the trustee's decision of 3 April 2020. Accordingly, Mr Mehajer's application must be dismissed with costs. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Bankruptcy Act 1966(Cth)ss 30, 58, 116, 134, Sch

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