Pekar v Jess

The hearing 7 The hearing of the application took place using video-conferencing software (Microsoft Teams), with the parties appearing remotely. At the hearing of the interlocutory application, the Trustees relied on: (a) three affidavits of Mr Kucianski, dated 1 July, 9 July and 21 July 2020; and (b) an affidavit of Ms Tracey Rothwell, a solicitor, dated 9 July 2020. 8 Mrs Pekar relied on: (a) an affidavit of Mrs Pekar dated 23 June 2020; and (b) an affidavit of Mr Pekar dated 23 June 2020. 9 Consistently with the Court's practice guidelines during the current COVID-19 pandemic, a number of the affidavits were filed in unsworn form. In those cases, the deponent adopted their affidavit under oath or affirmation during the hearing. 10 In addition to the above affidavits, both parties relied on certain material that had been filed in proceeding VID 991/2018.

Background facts 11 The following summary of the background facts is based, in large part, on my judgments in proceeding VID 991/2018. In addition to the two judgments referred to above, I refer also to my first judgment in that proceeding: Pekar v Holden (Trustee) [2019] FCA 442 (Pekar (No 1)). The present interlocutory application proceeded on the basis that the parties accepted the factual findings in my three judgments in proceeding VID 991/2018. The parties also relied on the additional facts set out in the affidavits filed in relation to the interlocutory application. 12 On 16 July 2012, Mr Pekar transferred his half interest in the Property to Mrs Pekar. The consideration for the transfer was expressed to be "desire to make a gift". Following the transfer, Mrs Pekar became the sole registered proprietor of the property. 13 On 2 October 2014, a Registrar of the Federal Circuit Court made a sequestration order against the estate of Mr Pekar on the basis of a creditor's petition presented by Rickards Legal. The Former Trustee was appointed as one of two trustees of Mr Pekar's estate. He was subsequently appointed as the sole trustee of Mr Pekar's estate. 14 On 12 February 2015, Judge Burchardt of the Federal Circuit Court affirmed the order of the Registrar and dismissed Mr Pekar's application for review. 15 On 30 April 2015, the Former Trustee applied to the Federal Circuit Court seeking a declaration that the transfer of Mr Pekar's interest in the Property on 16 July 2012 was void, pursuant to s 120 or 121 of the Bankruptcy Act 1966 (Cth), and consequential orders for possession and sale of the Property. This was proceeding MLG 932/2015. 16 On 20 January 2017, Judge Burchardt made the orders sought by the Former Trustee: Holden in his Capacity as Trustee of the Bankrupt Estate of Pekar v Pekar [2017] FCCA 22. The orders included the following declaration (which was not disturbed on appeal): (1) The transfer from Fima Pekar (the Bankrupt) to Ida Pekar (the Respondent) of the property recorded in Certificate of Title Volume 9940 Folio 596, being the property known as and situate at Unit 1, 64 Alexandra Street, East St Kilda ("the Property") dated 16 July 2012, is void against the Trustee. 17 Mrs Pekar appealed to this Court from the judgment and orders of the Federal Circuit Court. The appeal proceeding was the present proceeding, namely VID 81/2017. 18 On 30 May 2017, Tracey J made orders dismissing the appeal: Pekar v Holden (Trustee) [2017] FCA 596. Although Mrs Pekar's appeal was dismissed, his Honour varied the terms of the orders to recognise Mrs Pekar's pre-existing half-interest in the property. The orders made by Tracey J relevantly included: 2. The appeal be dismissed. 3. Paragraphs 2, 3, 4, 5, 9, 10 and 11 of the declarations and orders made by the Federal Circuit Court on 20 January 2017 be set aside. 4. In lieu thereof it be declared and ordered that: (2) The Bankrupt's interest in the Property vests in the Applicant (the trustee of the bankrupt estate of Mr Fima Pekar). (3) The Respondent (Mrs Ida Pekar) and the Bankrupt (Mr Fima Pekar) deliver vacant possession of the Property to the Applicant on or before 30 June 2017. If the Respondent and the Bankrupt fail to comply with this order, a warrant of possession issue forthwith in favour of the Applicant. (4) The Respondent and the Bankrupt remove all personal possessions from the Property on or before 30 June 2017. Any personal property remaining at the Property after that date be deemed to have been abandoned and be disposed of in any manner as the Applicant sees fit. (5) The Applicant be appointed trustee for the sale of the Property. The Applicant is to have the sole conduct of the sale of the Property and be authorised to instruct an agent and/or an auctioneer for that purpose. (9) The costs of the sale be met from the proceeds of the sale. (10) The Applicant pay 50% of the proceeds of the sale to the Respondent. (11) The remaining proceeds of the sale, less the costs of the sale, vest in the Applicant. 5. The appellant (Mrs Ida Pekar) pay the costs of the respondent (the trustee of the bankrupt estate of Mr Fima Pekar) of the appeal in this Court and of the proceeding in the Federal Circuit Court. (Emphasis added.) 19 On 23 June 2017, Tracey Rothwell of Rothwell Lawyers, the solicitors for the Former Trustee, sent an email to Andrew Ball of KCL Law, the solicitors acting for Mr and Mrs Pekar at the time. The text of the email is set out in Pekar (No 1) at [36]. 20 On or about 27 June 2017, Mr Ball wrote to Ms Rothwell as follows: I refer to your email dated 26 June 2017. The bankrupt's proposal for resolution of this matter can be summarised as follows: 1. Payment of the sum of $200,000 into an interest bearing account in the name of the Trustee for the Bankrupt Estate of Fima Pekar by 30 June 2017. 2. The money paid into the account is for payment of creditors and remuneration and expenses of the trustee (including legal costs and disbursements). 3. The trustee agrees to: a. call for and adjudicate on proofs of debt; b. tax the legal costs; and c. for his fees to be reviewed, all in accordance with the Bankruptcy Act 1966 (Cth). 4. If there is any shortfall, the bankrupt cause the money in account to be topped up within 21 days to meet such shortfall, failing which the trustee can immediately enforce the order of Tracey, J for possession and sale. 5. If there is an excess of funds, they be returned to the bankrupt within 21 days. 6. The order for possession be otherwise is stayed in order to give effect to the above arrangement (with liberty to apply to either party). Can you please confirm that the above arrangement is acceptable to the trustee by return and provide the bank account details for payment of the sum of $200,000. (Errors in original; emphasis added.) 21 On 27 June 2017, Ms Rothwell sent an email to Mr Ball stating: I have just attempted to call you. The matters set out in your letter are acceptable. My client is in the process of setting up the Trustee's account and I will advise details in due course. 22 In Pekar (No 1) at [39], I held that the Agreement was formed by the sending of that email, and that the express terms of the Agreement were set out in the letter dated 27 June 2017 from Mr Ball to Ms Rothwell, which Ms Rothwell accepted by her email dated 27 June 2017. I stated that it was possible that Mrs Pekar was also a party to the Agreement because KCL Law seemed to have acted for both Mr and Mrs Pekar, and the terms of the Agreement included the stay of orders to which Mrs Pekar was a party. On the other hand, I noted, the letters referred to "the bankrupt's proposal". It was not necessary to resolve that issue in Pekar (No 1) and that remains the position. 23 On or about 30 June 2017, the sum of $200,000 was deposited by or on behalf of Mr Pekar into a bank account of the Former Trustee. 24 On 7 July 2017, the Former Trustee issued a notice to creditors of an intention to declare a first and final dividend, expressed to be under s 140(3) of the Bankruptcy Act. The terms of the notice are set out in Pekar (No 1) at [41]. 25 On 18 July 2017, Tracey J made the following orders by consent in the present proceeding: 1. Paragraphs 4 (3) and (4) of the order made herein on 30 May 2017 be stayed. 2. Liberty to apply. 26 As at 8 September 2017 (the date for lodgement of proofs of debt), the following proofs of debt had been lodged with the Former Trustee: (a) on 11 February 2015, AIG Australia Limited (AIG) lodged a proof of debt for $60,254.79, relating to various costs orders dated 12 July 2010, 15 July 2010, 22 December 2011 and 17 August 2012 made in favour of Gough Partners; (b) on 31 August 2017, Karen Katz lodged a proof of debt for $5,318.18, relating to a costs order in her favour made on 18 June 2013 plus penalty interest; and (c) on 6 September 2017, Michael Rickards lodged a proof of debt for $32,202.29, relating to costs orders in his favour plus interest. 27 Thus there were three creditors of the bankrupt estate of Mr Pekar and the total amount claimed, if their proofs of debt were accepted in full, was approximately $98,000. 28 On 7 November 2017, Mr Pekar was discharged from bankruptcy. 29 By March 2018, the Former Trustee had not admitted any creditor claims or returned any surplus funds to Mr Pekar. 30 On 20 March 2018, Mr Pekar wrote to the Former Trustee demanding release of the $200,000. 31 On 26 March 2018, the Former Trustee responded to that letter, indicating that he had not yet admitted any creditor claims, and that creditors needed to be provided with sufficient time to facilitate the taxation process. 32 On 2 August 2018, Mr Pekar sent a further letter to the Former Trustee demanding release of the $200,000. 33 The Former Trustee responded on 8 August 2018. In this letter, the Former Trustee stated that he had admitted the claim of Ms Katz. In Pekar (No 1) at [49], I noted that, inconsistently with this, at the hearing on 7 November 2018, the solicitor for the Former Trustee submitted that the Former Trustee had not yet admitted any proofs of debt. 34 On 14 August 2018, Mr Pekar commenced proceeding VID 991/2018, seeking repayment of the $200,000. 35 On 3 April 2019, I gave judgment in Pekar (No 1). I rejected Mr Pekar's contention that his bankrupt estate was free of debt (this being the basis upon which he had contended that the $200,000 should be returned). However, I stated at [15] that an issue arose as to whether Mr Pekar was entitled to return of the $200,000 on the basis that the Former Trustee had breached the Agreement by failing to admit or reject the proofs of debt in accordance with the Bankruptcy Act and/or within a reasonable time. As this had not been the basis upon which Mr Pekar had sought the return of the $200,000, I listed the matter for mention to ascertain whether Mr Pekar sought the return of the money on that basis. 36 The matter was subsequently listed for mention, at which Mr Pekar indicated that he did seek the return of the money on the basis outlined above. The Former Trustee sought and was given the opportunity to file further evidence, and a further hearing took place. 37 On 7 August 2019, I gave judgment in Pekar (No 2). At [13], I held that the Former Trustee had breached certain express and implied terms of the Agreement. At [14], I held that each of the relevant terms was an 'intermediate' term, giving rise to an entitlement to terminate the Agreement if the breach deprived Mr Pekar of a substantial part of the benefit of the Agreement. I held that breach had deprived Mr Pekar of a substantial part of the benefit of the Agreement; it was therefore open to Mr Pekar to bring the Agreement to an end by demanding repayment of the $200,000, which he had done by his letter dated 2 August 2018. Accordingly, I concluded, the Agreement had been terminated by Mr Pekar on 2 August 2018. I held, at [15], that Mr Pekar was entitled to repayment of the funds that remained of the $200,000 (approximately $180,000 as at 1 May 2019) on the basis that there had been a total failure of consideration. I did not make orders to give effect to my reasons, but indicated that I would hear further from the parties on the form of orders. 38 On 23 September 2019, the Former Trustee filed the present interlocutory application, seeking an order that the consent order made by Tracey J on 18 July 2017 be vacated. 39 A further hearing took place on 18 November 2019. In light of the Former Trustee's interlocutory application, both proceeding VID 81/2017 and proceeding VID 991/2108 were listed for hearing on that date. At the conclusion of the hearing, I delivered the reasons which are referred to in these reasons as Pekar (No 3). At [9], I determined that it was appropriate to make declarations relating to the breach and termination of the Agreement as proposed by Mr Pekar. At [15], I concluded that I would make an order for the repayment of the amount then held by the Former Trustee. At [23]-[26], I dealt with whether an order should be made that the Former Trustee cease to be the trustee, concluding that such an order should be made. At [33]-[38], I discussed the Former Trustee's interlocutory application in proceeding VID 81/2017. At [38], I stated: … I propose to defer making any order vacating the stay order for the time being. In circumstances where the trustee is to be replaced, I consider it preferable for the new trustee to consider whether or not to press for the stay order to be lifted. I will therefore adjourn [the Former Trustee's] interlocutory application to a date to be fixed. I will reserve the costs of that application. 40 Following the orders made on 18 November 2019, the Official Trustee became the trustee of the bankrupt estate of Mr Pekar. 41 On 13 March 2020, the Trustees were appointed as trustees of the bankrupt estate of Mr Pekar. 42 On 1 April 2020, Mr Kucianski wrote to Mr Pekar advising of his appointment. Mr Pekar replied on 8 April 2020. 43 On or about 23 June 2020, Mr Pekar filed and served an affidavit in this proceeding. He stated that he and Mrs Pekar jointly hold an account with the National Australia Bank Ltd (NAB) which held approximately $233,000. Mr Pekar indicated his preparedness to offer an undertaking to the Court if the Court were minded to make certain orders. The affidavit stated at [7]: If the Federal Court makes either of the following orders, until the administration of my estate is finalised, I will maintain a minimum of $200,000 in the NAB Account for use by the Respondents in paying: (1) a dividend to any properly recognised creditor of my estate; and (2) to the Respondents for properly incurred expenses in finalising the administration of my estate: (a) an order that the declarations and orders made by Justice Tracey on 30 May 2017 in this proceeding be set aside, and the declarations and orders made by Judge Burchardt on 20 January 2017 in Holden v Pekar Federal Circuit Court [2017] FCCA 22 be set aside to the extent that those orders were not set aside by Justice Tracey on 30 May 2017; or (b) an order that the stay order made by Justice Tracey in this proceeding on 18 July 2017 not be lifted and the Respondents have liberty to apply in the event that they can satisfy this Court, on sworn evidence, that the amount of $200,000 is insufficient to pay: (1) a dividend to any properly recognised creditor of my estate; and (2) the Respondents for any properly incurred expenses in finalising the administration of my estate. 44 Also on or about 23 June 2020, Mrs Pekar filed and served an affidavit containing a paragraph to the same effect. 45 On 24 June 2020, Mrs Pekar's outline of submissions for the present interlocutory application was served. This reiterated the proposal set out in Mr Pekar's affidavit at [7]. 46 On 6 July 2020, Mr Kucianski sent a letter to Mr Pekar advising that the bankrupt estate's interest in the Property remained unresolved. The letter stated: "Notwithstanding the ongoing proceedings I am open to negotiating an amount which would satisfy the Bankrupt Estate's interest in the Property without the need for the Property to be sold". In order to progress such a resolution, the letter sought: (a) access to the Property to obtain a current market valuation; (b) a current statement regarding the mortgage; and (c) "[a]ny offer which you intend to satisfy the Bankrupt Estate's interest in the Property". Unfortunately, the parties have not, at this stage, been able to resolve matters so as to avoid the need for further litigation, including the present application. 47 In his affidavit dated 9 July 2020, Mr Kucianski stated at [6] that he has not yet formally adjudicated the proofs of debt. He explained that it is "usual practice for a trustee of a bankrupt estate to only formally adjudicate proofs of debt submitted by creditors where there are assets which can be readily realised and distributed to creditors, owing to the costs and expenses associated with and incurred by the adjudication process and any subsequent challenge to the admission or rejection of proofs of debt". He stated that the Trustees are currently without funds to conduct this process or to otherwise further the administration of the estate. 48 On 15 July 2020, Mrs Pekar's outline of submissions in reply was filed and served. In this document, it was stated that, if the Trustees' concern with Mr Pekar's proposal is that the funds in the NAB account may be dissipated, the Pekars have no objection to paying a higher amount of $240,000 into Court on terms. 49 As summarised in the Trustees' outline of submissions, the liabilities of the bankrupt estate are potentially as follows: (a) a debt to Ms Katz estimated to be $5,318.18; (b) a debt to AIG estimated to be $60,254.79; (c) a debt to Rickards Legal estimated to be $32,202.29; (d) legal expenses in the proceedings before Judge Burchardt and Tracey J totalling about $135,000; (e) the Former Trustee's unpaid remuneration and expenses totalling about $136,000; (f) the Official Trustee's outstanding remuneration of $2,500; (g) the Trustees' remuneration to date of about $21,500; and (h) further remuneration and costs to finalise this proceeding and the administration. 50 However, some of the creditor claims set out above need to be qualified by matters set out in Mr Kucianski's affidavit of 21 July 2020. First, at [9] of that affidavit, Mr Kucianski stated that, while it is likely that AIG has a provable debt in the bankrupt estate, in the absence of certificates of taxation he did not intend to admit its claim. Secondly, in that affidavit at [13], Mr Kucianski stated that Ms Katz's claims in the bankrupt estate appeared to be admissible for $4,244.91. Thirdly, at [20] of the affidavit, Mr Kucianski stated that he is seeking further advice regarding aspects of Rickards Legal's claim. 51 I note that, in my view, the total amount incurred by way of trustee remuneration and expenses is very troubling. On the basis of the figures set out above, the total amount incurred by way of trustee remuneration and expenses is approximately $295,000 in respect of an estate that has only three creditors, whose claims (if accepted in full) total only approximately $98,000. The total of the trustee remuneration and expenses (even if reduced on account of the costs orders against Mrs Pekar) appears to be disproportionate to the complexity and quantum of the claims against the bankrupt estate. At the hearing before me, Mr Galvin QC, senior counsel for the Trustees, accepted that the amount was disproportionate (T13), but submitted that this was common in cases where the administration of the estate has involved litigation; he also submitted that the litigation in the present case was necessary because the Pekars did not accept that the transfer of Mr Pekar's interest in the Property was voidable. At the hearing before me, both sides accepted that it is open to Mr Pekar to seek review of the trustee remuneration and expenses.

Consideration 52 In my view, notwithstanding my concerns as to the trustee remuneration and expenses, the resolution of the present interlocutory application is straightforward. The premise of the consent order made on 18 July 2017 (staying the order for possession made on 30 May 2017) was that the parties had entered into the Agreement. In circumstances where the Agreement has now been terminated, the premise of the consent order no longer exists and, prima facie at least, the consent order should be vacated. This will return the parties to the position they were in before the Agreement was entered into. 53 The question, then, is whether there is another basis to maintain the stay of the order for possession. The proposals set out in Mr Pekar's affidavit (see [43] above) and in Mrs Pekar's reply submissions (see [48] above) do not, in my view, provide a basis to maintain the stay of the order for possession. The proposals are in some respects similar to the Agreement: they make a sum of money ($200,000 or $240,000) available for the payment of creditors and the trustee remuneration and expenses in lieu of the Trustees enforcing the order for possession. The problem, however, is that the Trustees have not agreed to this way of proceeding. It is one thing for the parties to agree that a sum of money will be available for the administration of the estate in lieu of the order for possession; it is another for the Court to impose this on the Trustees. Further, it is not clear whether the amount of money in the NAB bank account (or the higher amount proposed in the reply submissions) will be sufficient to cover the payment of creditor claims and the trustee remuneration and expenses. As things presently stand, the amounts would be insufficient to cover the creditor claims (if accepted in full) and the trustee remuneration and expenses. 54 It may be accepted that, as submitted by Mrs Pekar, the Court has broad discretionary powers in relation to a bankruptcy: see Bankruptcy Act, s 30(1)(b) and Sch 2 (Insolvency Practice Schedule (Bankruptcy)), ss 45-1 and 90-15; Young v Thomson (2017) 253 FCR 191 at [112]-[113]. It may also be accepted that, as submitted by Mrs Pekar, a trustee is required: to take appropriate steps to recover property for the benefit of the estate; to administer the estate as efficiently as possible by avoiding unnecessary expense; to exercise his or her powers and perform his or her functions in a commercially sound way; and to realise only those assets (i) that will give a cost-effective return to creditors or (ii) that contribute to the payment of the costs of the administration (Bankruptcy Act, s 19(f), (j), (k), Insolvency Practice Rules (Bankruptcy) 2016 (Cth), r 42-40). However, it is not for the Court to determine how the Trustees are to conduct the administration of the estate, including having regard to the proposals set out in [43] and [48] above. The Trustees will need to consider whether it is necessary and appropriate to enforce the order for possession and sell the Property having regard to all the circumstances of the case, including the quantum of the creditor claims, the proposals set out above and the potential review of the trustee remuneration and expenses. But these are matters to be determined by the Trustees consistently with their duties under the Bankruptcy Act and the Insolvency Practice Rules (Bankruptcy); they do not provide a basis for the Court to maintain the stay of the order for possession. 55 For these reasons, none of the matters raised by Mrs Pekar provide a basis to maintain the stay of the order for possession. 56 Insofar as Mrs Pekar submitted that paragraph 1 of the orders made by Judge Burchardt on 20 January 2017 and the orders made by Tracey J on 30 May 2017 should be set aside, there is no proper basis to do so. Paragraph 1 of the orders of Judge Burchardt was not disturbed on appeal and cannot now be the subject of challenge in this proceeding. The orders of Tracey J were final orders, determining the appeal. In my view, it is not open to the Court to set aside the orders pursuant to the Court's supervisory jurisdiction in relation to the bankruptcy. In any event, even if the Court did have such power, for the reasons set out above it would not be appropriate to set aside the orders. 57 I note for completeness that the Trustees submitted that, in the ordinary course, a bankruptcy trustee realises assets before adjudicating on proofs of debt. A similar point was made in [8] of Mr Kucianski's affidavit dated 1 July 2020. However, it may be that, in the circumstances of this case, it would be more appropriate to adjudicate upon the proofs of debt before obtaining possession of and selling the Property; that is because the quantum admitted may be relevant (together with other relevant considerations) in determining whether it is necessary and appropriate to obtain possession of and sell the Property.

Conclusion 58 For these reasons, I will make an order that paragraph 1 of the orders made on 18 July 2017 (whereby it was ordered by consent that paragraphs 4(3) and (4) of the orders made on 30 May 2017 be stayed) be vacated. 59 In relation to costs, it appears to be appropriate that there be no order as to costs. I will make an order to this effect, but will give the parties a period of time in which they can file a written submission if they wish to seek a different order. In that event, the other party will have a period of time in which to respond, and I will determine the issue of costs on the papers. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.