Federal Court of Australia

Nobarani v Mariconte [2021] FCAFC 96

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The orders made by the Court on 15 October 2020 be set aside and in lieu thereof it be ordered that:

(a)    the application to set aside bankruptcy notice BN 248686 be dismissed; and

(b)    the applicant, Ms Teresa Anne Mariconte, pay the costs of the respondent, Mr Homayoun Nobarani.

3.    The respondent to the appeal, Ms Teresa Anne Mariconte, pay the appellant’s costs of the appeal.

4.    The time for compliance with bankruptcy notice BN 248686 be extended for 28 days from the date hereof to 5 July 2021.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    The appellant, Mr Homayoun Nobarani, seeks to overturn a determination made on 15 October 2020, pursuant to which a bankruptcy notice issued on 5 February 2020 (the Bankruptcy Notice) and served on the respondent, Ms Teresa Mariconte, was set aside on the ground that it was an abuse of process.

2    The application before the learned primary judge was attended with a not insignificant degree of imprecision which rendered identification of the real ground on which it was based somewhat problematic. Ultimately, however, neither the ground advanced in the application nor that identified in the written submissions succeeded. Nevertheless, her Honour accepted that the Bankruptcy Notice had been issued for the improper purpose of imposing undue pressure on Ms Mariconte in relation to extant litigation which was then, and had been for a long time, proceeding between her and Mr Nobarani. It was on that basis that her Honour concluded that the notice was an abuse of process and set it aside.

3    In circumstances where the alleged improper purpose had not been put to Mr Nobarani nor raised prior to the hearing, the judgment based upon the finding that the Bankruptcy Notice was issued for such a purpose cannot stand and the appeal must be allowed. Moreover, here, it could not be said of the judgment creditor that he did not intend to invoke the bankruptcy processes if his debt was not paid following the issue of the notice, nor that it was objectively apparent to him that the debtor was solvent. It would be a relatively rare case where the issuing of a bankruptcy notice in such circumstances would amount to an abuse of process. At the very least, the existence of some overriding improper purpose for the issuing of the notice needs to be squarely put to the creditor and, in any case, established by sufficient proof in order to deprive them of recourse to the bankruptcy process which, in all other respects, they have regularly invoked.

Background

4    There is no need to set out in detail the background to this matter for the purposes of the appeal. The primary judge carefully analysed the evidence before the Court and a brief summary of it will suffice.

5    The long history of acrimonious litigation between Ms Mariconte and Mr Nobarani arises in the context of probate proceedings relating to the estate of the late Ms Iris McLaren. In those proceedings, Ms Mariconte propounded a Will of Ms McLaren dated December 2013 (the December 2013 Will), being the month in which Ms McLaren died. Mr Nobarani challenged that Will, relying on earlier Wills. The December 2013 Will named Ms Mariconte as the executrix and sole beneficiary of Ms McLaren’s estate. The Wills propounded by Mr Nobarani distributed the estate in a different manner including some, although not a great amount, to Mr Nobarani himself.

6    The probate proceedings took place in the Supreme Court of New South Wales before Slattery J who, on 22 May 2015, granted probate of the December 2013 Will to Ms Mariconte and ordered Mr Nobarani to pay her costs of the proceedings: Re Estate of McLaren; Mariconte v Nobarani [2015] NSWSC 667. Those costs, in the sum of approximately $121,000, were subsequently recovered by Ms Mariconte. The matter then passed through the New South Wales Court of Appeal to the High Court which, on 15 August 2018, allowed an appeal by Mr Nobarani and set aside the orders of Slattery J and of the Court of Appeal: Nobarani v Mariconte [2018] HCA 36; 265 CLR 236. The proceedings were remitted to the Supreme Court of New South Wales for a new trial and Ms Mariconte was ordered to pay Mr Nobarani’s costs of the original trial, the appeal to the New South Wales Court of Appeal, and the appeal to the High Court. By a separate order on 17 August 2018, the High Court directed that those costs be paid out of the estate of Ms Mariconte on a trustee basis: Nobarani v Mariconte (No 2) [2018] HCA 49; 360 ALR 390.

7    Subsequent to the grant of probate by Slattery J in May 2015, Ms Mariconte distributed the assets of Ms McLaren’s estate to herself in accordance with the December 2013 Will. As at the date of distribution, Ms McLaren’s estate comprised assets of approximately $1.8 million in value. It is apparent that Ms Mariconte gave away most of the property she received under the Will. The evidence reveals that the only asset now owned by Ms Mariconte is a unit referred to as the Caringbah property, which was purchased with the proceeds of Ms McLaren’s estate and is estimated to be worth between $620,000 and $650,000.

8    In July 2019, Mr Nobarani filed two notices of motion in the remitted probate proceedings, the first of which sought an order for repayment of the costs which he had been required to pay at the end of the trial of the initial proceedings. Those costs had been assessed and Ms Mariconte enforced them by way of a garnishee notice in December 2016.

9    On 18 December 2019, Parker J of the Supreme Court of New South Wales made an order on Mr Nobarani’s first notice of motion giving judgment in his favour for restitution in the sum of $121,000 together with interest from 1 December 2016, being for the total amount of $141,471.21 (the Restitution Judgment): Re Iris McLaren (No 2) [2019] NSWSC 1894 (Re McLaren (No 2)). Ms Mariconte sought a stay of that judgment but that was refused.

10    After announcing the above decisions on 18 December 2019, Parker J turned his attention to what ought to happen next in the proceedings. This assumed a great deal of importance in the present matter. After making the Restitution Judgment, his Honour inquired of counsel for Mr Nobarani whether he intended to seek any specific enforcement relief by way of execution against the Caringbah property or the appointment of Mr Nobarani as the administrator of Ms McLaren’s estate pendente lite. His Honour was informed that Mr Nobarani did not seek any such relief. His counsel advised the Court that some other form of enforcement action might take place for instance by way of bankruptcy proceedings. Ultimately, Mr Nobarani did not press an application to be appointed as the administrator pendente lite and his application for those orders was dismissed, albeit without prejudice to his entitlement to make a further application in the future.

11    The Bankruptcy Notice was then issued by the Official Receiver on 5 February 2020 and shortly thereafter Mr Nobarani instructed his solicitors to engage a process server to serve it upon Ms Mariconte. A number of unsuccessful attempts were made to serve her at the Caringbah property on 11 February 2020 at 7.40pm, 20 February 2020 at 8.30pm, and 28 February 2020 at 7.00am.

12    Later in the day on 28 February 2020, a mediation was held between Ms Mariconte and Mr Nobarani in relation to the probate proceedings. Both parties attended with their respective legal teams. Settlement was not reached and the mediation was terminated.

13    Immediately after the mediation concluded, the process server engaged by Mr Nobarani’s solicitors served the Bankruptcy Notice on Ms Mariconte as she was entering a train station. The circumstances in which that occurred were apparently quite distressing for her.

Ms Mariconte’s assets and liabilities

14    Ms Mariconte’s only asset is her interest as the registered proprietor of the Caringbah property. As was mentioned above, its value is estimated to be between $620,000 and $650,000. She is unemployed and her only source of income is a pension. Apart from Mr Nobarani’s claims, Ms Mariconte discloses, as at 21 April 2020, that she has other creditors to the value of approximately $150,000.

15    Mr Nobarani also claims to be a creditor. First, he claims the sum of approximately $141,000 which is the subject of the Restitution Judgment and post-judgment interest accrued thereon. He also claims the benefit of a number of unassessed costs orders which have been made against Ms Mariconte, the total value of which he says exceeds $420,000.

The issuing of a bankruptcy notice

16    The Bankruptcy Notice issued to Ms Mariconte on 5 February 2020 was founded upon the Restitution Judgment and it sought payment of the sum of $142,892.75. That amount comprises the Restitution Judgment of $141,471.21 plus post-judgment interest to that date of $1,421.54.

17    On 20 March 2020, Ms Mariconte filed an application in this Court seeking an order that the Bankruptcy Notice be set aside as an abuse of process. The foundation for that assertion appeared in the affidavit of Ms Harvey, who was Ms Mariconte’s solicitor, dated 20 March 2020. At paragraph 16 of that affidavit, Ms Harvey stated:

The Respondent is using the Bankruptcy Notice as a means of securing repayment of the costs orders made in the High Court in circumstances where he knows the Applicant is not insolvent.

18    Ms Harvey was apparently mistaken as to the judgment upon which the Bankruptcy Notice is founded. It was, in fact, the Restitution Judgment made by Parker J on 18 December 2019 and not any order of the High Court. Nothing turns on this error and the important aspect of Ms Harvey’s statement is the identification of the purpose said to be improper, namely issuing the notice despite knowing that Ms Mariconte was solvent.

19    The application was heard by the primary judge on 20 August 2020. Ms Mariconte was represented by counsel and solicitors both of whom appeared pro bono. Mr Nobarani was also represented by counsel and solicitors.

20    At the hearing, counsel for Ms Mariconte informed the Court that the issuing of the Bankruptcy Notice was “entirely unnecessary and therefore unjustifiably oppressive … because the respondent was presented with a perfectly good opportunity in December of last year by Justice Parker … to seek orders for the ... judicial sale of a property of which the applicant is a registered proprietor” and did not avail himself of that opportunity. The thrust of this submission appears to depart from the ground advanced in Ms Mariconte’s application and it is not unfair to say that, throughout the hearing before the primary judge, the basis on which it was alleged that the notice was issued for an improper purpose was both ambiguous and amorphous.

21    Much of the hearing before the primary judge centred upon the service of the Bankruptcy Notice on Ms Mariconte. It was submitted that the manner in which the notice was served upon Ms Mariconte by process servers was intended to exert undue pressure on her in relation to the probate proceedings and, thus, supported the conclusion that its issue was to further some improper purpose. The primary judge ultimately rejected the submission that the manner in which service was effected reflected some improper purpose in the issuing of the notice. However, her Honour did accept the claim advanced by Ms Mariconte, first made at the hearing, that the improper purpose was to advance Mr Nobarani’s position in the probate proceedings.

22    In her written submissions to the primary judge, Ms Mariconte relied upon the events before Parker J in the Supreme Court of New South Wales, in particular the exchange between counsel for Mr Nobarani and his Honour, and Mr Nobarani’s subsequent failure to avail himself of the opportunity to seek an order for the sale of the Caringbah land. It was said that, because that avenue of recovery was not pursued, the issuing of the Bankruptcy Notice must have been for some other purpose which was necessarily improper. Otherwise, Ms Mariconte submitted that she was solvent and, apparently, that the notice should be set aside for that reason.

23    It should be observed that before the primary judge the submissions made on Ms Mariconte’s behalf were advanced at a high level of generality and abstraction and were somewhat underdeveloped. On the other hand, it is recognised that her solicitor and counsel were acting pro bono (for which courts are always grateful) and that may provide some explanation.

Decision of the primary judge

24    The primary judge set out at length the unfortunate history of disputation and litigation between Mr Nobarani and Ms Mariconte in relation to the estate of Ms McLaren. In particular, reference was made to the proceedings before Parker J and Mr Nobarani’s omission to avail himself of the opportunity to seek an order that the Caringbah land be sold and to the manner in which Ms Mariconte was served with the Bankruptcy Notice.

25    After setting out the principles relating to abuse of process, the primary judge concluded that the Bankruptcy Notice had been issued for an improper purpose rather than to invoke the Court’s jurisdiction in relation to bankruptcy, and ought to be set aside. The essence of her Honour’s conclusion arose from the circumstances in which Mr Nobarani had obtained the Restitution Judgment but had eschewed seeking to enforce it by the issue of a writ for the levy of property in relation to the Caringbah property. The matters relied upon by the primary judge as supporting the conclusion that the issuing of the notice was an abuse of process were that:

(a)    prior to the issuing of the Bankruptcy Notice, Mr Nobarani did not take any other steps by way of enforcement action or make any demands for payment;

(b)    as Parker J had observed to Mr Nobarani’s counsel on 18 December 2019, the only way in which Mr Nobarani was going to be paid was if funds were raised on the Caringbah property or that property was sold;

(c)    Mr Nobarani provided no explanation as to why he did not take up the opportunity to seek the relief identified by Parker J; and

(d)    the issuing of a Bankruptcy Notice was Mr Nobarani’s preferred method of “enforcement” for his debt claim.

26    From these matters, her Honour concluded (at [71]) that the issuing of the Bankruptcy Notice was designed to pressure Ms Mariconte in the context of the ongoing probate proceedings, including the mediation. The precise nature of that pressure and the result it was to achieve were not stated.

27    Her Honour concluded that Ms Mariconte’s failure to pay or challenge the Restitution Judgment for six weeks was not sufficient justification to issue the Bankruptcy Notice when Mr Nobarani had open to him an alternative method of satisfying her indebtedness. Her Honour also observed that a period of only six weeks had elapsed between the date of the judgment and the issue of the notice, a period during which the Christmas holiday vacation intervened, and that there was also a mediation in relation to the probate proceedings scheduled. In those circumstances, it was not surprising that Ms Mariconte had not taken any steps to realise the Caringbah property.

28    Mr Nobarani had submitted that he was justified in not seeking the sale of the Caringbah property because it was traceable to funds from Ms McLaren’s estate which, so he said, had been wrongfully distributed by Ms Mariconte pending his appeal from the grant of probate. If that were the case, so the submission went, he would be at risk of a Barnes v Addy claim by the administrator of Ms McLaren’s estate in respect of funds received by realising the property. The learned primary judge rejected this as a foundation for issuing the Bankruptcy Notice on the grounds that the proceeds from the sale of the property might be paid into Court pending the determination of the probate proceedings and, if a trustee in bankruptcy was appointed, they would be in the same position of having to wait until probate was granted before selling or dispersing the proceeds of any sale of the property.

29    In this respect, her Honour observed (at [77]):

But these issues simply highlight the complexity of the situation that has arisen and the way in which the course and outcome of the Probate Proceeding will affect future steps. They reinforce the conclusion I have reached that the Bankruptcy Notice was issued for an improper purpose.

30    The primary judge then considered Ms Mariconte’s submission that the Bankruptcy Notice should be set aside because she was solvent and Mr Nobarani’s converse submission that, regardless of his purpose in issuing the notice, it was not an abuse of process because Ms Mariconte was insolvent in any event. After examining the evidence her Honour was unable to reach a conclusion as to Ms Mariconte’s solvency or otherwise. This conclusion was largely a result of her Honour’s determination that, on the available material, it was not possible to ascertain the length of time required to realise the Caringbah property.

The appeal

31    Before this Court, the essence of Mr Nobarani’s appeal was that the case advanced on behalf of Ms Mariconte to the primary judge and relied upon by her Honour was not one identified in the application or accompanying affidavits, not established by the evidence, and nor was it one put to Mr Nobarani in cross-examination. It was submitted that as the matter progressed Ms Mariconte developed the new ground involving some ill-defined improper purpose which existed because Mr Nobarani did not take up Parker J’s invitation to seek an order for the sale of the Caringbah property and, from that, the Court required Mr Nobarani to justify the issuing of the Bankruptcy Notice. He submitted that this resulted in an impermissible reversal of the onus, there being no obligation upon him to explain why he chose to issue the notice rather than seek an order for the sale of the Caringbah property in circumstances where it cannot be said that it was objectively apparent that Ms Mariconte was solvent.

32    It was not in dispute that, on the application to set aside the Bankruptcy Notice, Ms Mariconte bore the onus of establishing the purpose with which it was issued and that it was improper: Cavoli v Etl [2007] FCA 1191 at [17] (Cavoli v Etl); Royal v Nazloomian, in the matter of Royal [2019] FCA 555 at [31] (Royal v Nazloomian); Alhalek v Quintiliani trading as Kells Lawyers [2020] FCA 1272 at [67] (Alhalek v Quintiliani). The present weight of authority favours the view that the allegation of an abuse of process is a serious one which cannot be made without a sufficient factual foundation and the party alleging it bears a “heavy onus” in establishing its existence: Williams v Spautz [1992] HCA 34; 174 CLR 509 at 529; Prentice v Fewin Pty Ltd, in the matter of Prentice [2017] FCA 490 at [48]–[49] (Prentice v Fewin Pty Ltd); Royal v Nazloomian at [37].

33    It is also not in doubt that the time at which to ascertain whether a bankruptcy notice is an abuse of process is the time when it is issued: Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 at [13] (Killoran v Duncan); Royal v Nazloomian at [30].

The absence of any suggestion that Ms Mariconte was solvent

34    It was not contended on behalf of Ms Mariconte that the primary judge should have found that Mr Nobarani ought to have perceived her to have been solvent when the Bankruptcy Notice was issued. That was the basis of the abuse of process ground raised in the supporting affidavits before the primary judge and, although Ms Mariconte had attempted to establish that she was solvent, she was not able to do so. Her inability to establish that fact effectively removed the foundation on which the application had been brought. If she was not able to establish her solvency to the Court as at the date of the application, there was no reason to believe that Mr Nobarani ought to have been better informed when the notice was issued.

35    There was also no challenge to the primary judge’s determination that Ms Mariconte’s solvency had not been demonstrated. On the material before the Court, her Honour’s conclusion is unassailable. As matters stood as at the date of the application, Ms Mariconte owed a substantial judgment debt of approximately $141,000 to Mr Nobarani, along with various lesser debts to other persons. Mr Nobarani was also the beneficiary of a number of unassessed costs orders which he claimed would entitle him to payments in excess of $420,000. As best as could be ascertained, Ms Mariconte’s only substantive asset consisted of whatever interest she held in the Caringbah property, the value of which was likely somewhere between $620,000 and $650,000. The primary judge concluded it was not possible to identify the length of time required to realise the property and, it followed, not possible to ascertain Ms Mariconte’s solvency or otherwise: Sandell v Porter [1966] HCA 28; 115 CLR 666 at 670–671; Reaper v Baycorp Collections PDL (Australia) Pty Ltd [2014] FCA 13 at [11]; Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWSC 222 at [39].

36    As the High Court had set aside the grant of probate, Ms Mariconte might also be required to reinstate the estate with respect to the assets which she had distributed. Of the approximately $1.8 million derived from the estate, she had dispersed approximately $1.3 million in a manner which Parker J described as suggestive of her being “profligate to the point of recklessness”: Re McLaren (No 2) at [36] (being the reasons in support of the Restitution Judgment). On the other hand, as a practical matter, whether Ms Mariconte will be required to reinstate the estate of Ms McLaren was dependent upon the outcome of the probate proceedings and whether an earlier Will or the December 2013 Will is admitted to probate. Therefore, whilst Ms Mariconte was the owner of the Caringbah property, there exists a contingency that whoever is appointed as the administrator of Ms McLaren’s estate may take proceedings against her which will require her to restore the estate in respect of the property which was distributed. This substantially adds to the difficulty in reaching any conclusion that she was solvent at the time of either the issuing of the Bankruptcy Notice or of the hearing of the application before the primary judge.

37    In these circumstances, the application to set aside the Bankruptcy Notice could not have succeeded on the basis on which it was originally advanced; namely that the notice was issued knowing that Ms Mariconte was solvent.

The availability of other remedies

38    In Ms Mariconte’s written submissions to the primary judge, she advanced a second ground as to why the issuing of the Bankruptcy Notice was an abuse of process. It was put in the following Delphic terms:

the respondent has engaged in an abuse of process by issuing the bankruptcy notice, having regard to the matters that transpired before Parker J in the Supreme Court of NSW, being proceedings where the judgment, upon which the bankruptcy notice is based, issued.

39    Those written submissions alleged that Mr Nobarani was afforded an opportunity to obtain an order for the judicial sale of the Caringbah property but rejected it and, instead, issued the Bankruptcy Notice. The written submissions continued (at [17]):

The applicant respectfully submits that it is relatively plain from the foregoing exchange between Parker J and counsel for the respondent, that the respondent’s intention has always been to use, impermissibly, the bankruptcy legislation as a debt collection mechanism, in order to recover the restitution amount from the applicant, by forcing her to sell her Caringbah property.

40    That submission encounters some not insignificant difficulty. Had Mr Nobarani obtained an order for judicial sale, the property would have been sold more quickly and more directly than if the bankruptcy process had been invoked. On one view, if the object of the exercise was to enforce payment, it may well have been preferable to obtain a court order for the sale of the property rather than to issue the Bankruptcy Notice. Perhaps the submission was intended to be only that there was no need to issue the notice when recourse could have been had to the property by a more direct means and satisfaction of the debt could have been obtained in that manner. As it was, the primary judge did not accept that the issuing of the notice was for an improper purpose for this reason.

41    It may have been that the submission was intended to convey the proposition that Mr Nobarani had issued the Bankruptcy Notice to use the threat of the disruption associated with bankruptcy proceedings or the threat of their consequences to pressure Ms Mariconte into paying the debt. In relation to this, Ms Hall for Mr Nobarani submitted that the issuing of a bankruptcy notice to secure the payment of a debt is legitimate if the creditor intends to pursue the bankruptcy process if the debt is not paid. In support, she relied upon the decision of Heerey J in Cavoli v Etl. There it had been found by a Federal Magistrate that the issuing of a bankruptcy notice was an abuse of process because it had been issued solely for the purpose of securing the payment of a debt. That conclusion had been supported by the fact that the creditor had not taken other appropriate action to recover the debt nor even made demand for its payment. The debt on which the creditor had based the notice had been assigned from a third party. The debtor claimed that the notice had been issued by the creditor who knew that he was solvent, and that it had only been issued to cause him stress and vexation and, further, to use the processes of the court as a debt collection mechanism where there were alternative avenues by which recovery might be made. Heerey J found that there was no evidence to support a finding that the sole purpose for the issuing of the bankruptcy notice was securing payment of the debt. The magistrate’s rejection of the creditor’s evidence to the contrary could not found a positive conclusion as to the existence of some other purpose: Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; 200 CLR 121 at 143 [53]; King v Collins [2007] NSWCA 122 at [42]. As to the submission that an improper purpose could be discerned from the creditor’s failure to make an earlier demand, his Honour said (at [18]):

To the extent that the finding was based on an alleged failure to take “appropriate” action or “even make demand”, the notice of assignment to the Debtor demanded payment to then [sic] Creditor, as did the bankruptcy notice itself. In any event, a prior demand is not a statutory precondition for the issue of a valid bankruptcy notice. Before a bankruptcy notice is issued there must be a judgment of a court in favour of a creditor, which is sufficient to put the debtor on notice that he or she is legally obliged to pay the debt claimed.

42    In the course of his reasons, Heerey J accepted that it was not an improper purpose to issue a bankruptcy notice for the purpose of having a debt paid, so long as the creditor intends to invoke the Court’s bankruptcy jurisdiction if it is not: Maxwell-Smith v S & E Hall Pty Ltd [2006] FCA 825 at [43]. His Honour concluded that there was no evidence before him to suggest that the creditor’s purpose in issuing the bankruptcy notice was other than for invoking the bankruptcy jurisdiction if the debt owing were not paid. In those circumstances, there was no basis on which to set the notice aside.

43    There is, with respect, no doubt about the correctness of Heerey J’s observations in Cavoli v Etl. It is not a precondition to the issuing of a bankruptcy notice that a demand for payment be made or that other avenues of recovering the debt are exhausted. Whilst it is common practice and, indeed, it may be prudent practice, to make some form of prior demand, it is not a precondition and nor is the absence of a demand, on its own, a basis for inferring the existence of some improper motive. A precondition for the issuing of a bankruptcy notice is the existence of judgment debt and the obtaining of such a judgment is nearly always sufficient to put the debtor on notice. In the present case, Ms Mariconte had enforced an order for costs against Mr Nobarani for about $121,000 and the High Court later overturned the decisions of the Supreme Court of New South Wales and of the Court of Appeal on the basis of which that costs order had been made. There can be little doubt that she was aware of her liability to Mr Nobarani from the time the Restitution Judgment was made on 18 December 2019. That was some six weeks prior to the issuing of the Bankruptcy Notice.

44    None of this is to deny that, in appropriate circumstances, a failure to make a prior demand or to seek to enforce a debt by some other means may contribute to a finding that a bankruptcy notice was issued without any intention of invoking the bankruptcy process if the debt was not paid, such that a conclusion might be reached that it was issued for an improper purpose: see, for example, the discussions in Royal v Nazloomian and Alhalek v Quintiliani. However, such failures by themselves are not sufficient to support that conclusion and that is especially so where the indebtedness is undisputed and unpaid, and it is not shown that it was objectively apparent to the creditor that the debtor is solvent. Again, it may be prudent in some circumstances for a creditor to probe the solvency of a debtor by making demands or taking other enforcement action. If it transpires at the hearing of any subsequent petition for a sequestration order that the debtor is solvent, then the petition may well be set aside and the creditor may be obliged to meet a substantial costs order: Bankruptcy Act 1966 (Cth) (the Act), s 52(2). However, it is not compulsory for the creditor to make a prior demand or otherwise seek to enforce their debt before having a bankruptcy notice issued or later presenting a petition for a sequestration order. Were it otherwise, it would require the creditor to expend money in the pursuit of a debtor which may be wholly unrecoverable if a sequestration order is made.

45    To the extent to which Ms Mariconte relied upon the ground that a purpose of Mr Nobarani in issuing the Bankruptcy Notice was to be paid his debt, her challenge could not succeed. As an unpaid creditor, Mr Nobarani was entitled to issue the notice in the hope of securing payment of his debt, and there is nothing to suggest that he did not intend to rely upon her failure to comply with it as constituting an act of bankruptcy under s 40(1)(g) of the Act on which he might then base a petition under s 44. The debtor carries the onus of establishing to the contrary.

46    Here, not only was there no evidence to support a conclusion that Mr Nobarani issued the Bankruptcy Notice without any intention to invoke the bankruptcy process if the debt was not paid, no such allegation was put to him in cross-examination. Whilst it is true that Ms Harvey’s assertion that he issued the notice knowing that Ms Mariconte was solvent might hint at such a suggestion, it was far from explicit and, if the notice was to be set aside on that ground, it ought to have been put directly to him.

47    In any event, the primary judge did not conclude that the issuing of the Bankruptcy Notice was an abuse of process because Mr Nobarani had the purpose of seeking to enforce the payment of the debt.

Any other improper purpose?

48    Where it cannot be said of Mr Nobarani that he issued the Bankruptcy Notice believing Ms Mariconte to be solvent nor that he did not intend to proceed to present a petition for a sequestration order if the notice was not complied with, the circumstances in which the issuing of the notice might amount to an abuse of process are necessarily limited. So much is clear from the observations of Gyles J in Killoran v Duncan where his Honour said (at [12]–[13]):

[12]     Whilst there is no debate about the jurisdiction of the Court to set aside a bankruptcy notice as an abuse of process where it can be concluded that it was simply to put pressure on the debtor rather than to genuinely invoke the Court’s jurisdiction, I am not satisfied that that is the position here. There is nothing to indicate that the respondent creditor does not genuinely intend to pursue the matter if there is default in complying with the notice. In my opinion, there is nothing special about abuse of process in this field, and, if a person wishes to resort to the jurisdiction of the Court for appropriate orders, then it will be an unusual case in which that will be prevented.

[13]     There is no evidence here of any collateral purpose or of any undue pressure being applied. It is correct, I think, that the time to judge abuse of process is the time that the bankruptcy notice is issued and that subsequent events have relatively slight relevance. They may be relevant insofar as they throw light upon circumstances which might have been appreciated and foreseen at the time of the issue of the notice.

(Original emphasis).

49    Where, as here, it cannot be said that the creditor issued the bankruptcy notice without an intention to file a petition if the notice is not complied with nor that he believed the debtor was solvent, there is possibly some inconsistency in seeking to ascertain whether there existed some collateral motive. In the circumstances, it must be assumed that there was some degree of regularity in the creditor resorting to the bankruptcy process such that it would be a most unusual case in which the Court will conclude that there existed an improper purpose. Where a party has regularly invoked the Court’s bankruptcy jurisdiction for the purpose for which it is intended, it might be assumed that exceptional circumstances need to be shown to deprive them of their entitlement to enforce their rights. In Slack v Bottoms English Solicitors [2002] FCA 1445 at [21], Spender J regarded it as being unarguable that the issuing of a bankruptcy notice might be an abuse of process once an intention existed to utilise the bankruptcy process if the relevant debt was not paid. See also Young v Cooke [2017] FCA 26 at [105]; cf Royal v Nazloomian at [67]; Prentice v Fewin Pty Ltd at [54].

50    There is no need to attempt to resolve this issue on this appeal. It suffices to observe that the assertion that Mr Nobarani’s motive in issuing the Bankruptcy Notice was to put pressure on Ms Mariconte in some way rather than to genuinely invoke the jurisdiction of the Court was neither a basis on which the application was made nor one which was put to him in the course of the application. The rather opaque nature of the application as initially advanced has been identified above and, although the applicant’s submissions below contained references to alleged improper purposes, they were far from precise in identifying the nature of that purpose. No improper purpose of the kind relied upon by the primary judge to set aside the notice was identified in the application, the affidavits in support, or the written submissions. Moreover, there was no cross-examination of Mr Nobarani and it was not put to him that his motive or purpose in issuing the notice involved the application of pressure on Ms Mariconte as opposed to the recovery of the $142,892.75 claimed, or the part of that amount which might be recovered following a sequestration order. Although Mr Martin for Ms Mariconte submitted to this Court that Mr Nobarani did not positively depose that his sole motive in issuing the notice was the recovery of his debt or, failing that, the invocation of the bankruptcy processes, he was not obliged to do so in the absence of any allegation to the contrary. The only ground raised in the affidavits in support of the application was that Mr Nobarani knew Ms Mariconte was solvent and he responded by setting out in his affidavit the reasons why he believed that she was not.

51    As Ms Hall for Mr Nobarani submitted, the nature of the alleged pressure which was said to be brought against Ms Mariconte by the issuing of the Bankruptcy Notice was not identified, although it seemed to relate to the ongoing probate proceedings. The reasons of the primary judge suggest that the issuing of the notice prior to the mediation may have been an attempt to compel Ms Mariconte to settle those proceedings under threat of the imposition of a sequestration order if she refused. If that were the nature of the alleged pressure, the insurmountable difficulty is that it was a case not put to Mr Nobarani. Although the primary judge indicated that the service of the notice may have occurred so as to affect the mediation, it is not clear how that might have occurred and, again, it was not a case put to Mr Nobarani.

52    Ms Hall also identified that the primary judge referred (at [70]) to the possibility of the appointment of a trustee in bankruptcy to Ms Mariconte’s estate as somehow assisting Mr Nobarani with his application to be appointed as the administrator pendente lite although, by the date of the issuing of the Bankruptcy Notice, there was no such application on foot, the earlier one having been abandoned. There was also no suggestion that he intended to make a further application in the future. Additionally, it was also not put to Mr Nobarani that this was one of the purposes behind the issuing of the notice and not an allegation to which he was required to respond.

53    The primary judge also supported her conclusion by reference to Mr Nobarani’s omission to seek to enforce his judgment debt by direct enforcement rather than by the invocation of the bankruptcy process. That has been considered above and, in the light of Ms Mariconte not being in the position of being able to establish her solvency and it following that Mr Nobarani could not be at all confident of that, there was no basis for concluding that some impropriety arose in seeking to utilise the bankruptcy process for this reason. There was nothing improper in him preferring to follow that process rather than causing the property to be sold with the necessary attendant risks as well as the risk of any amount recovered being clawed back by any subsequently appointed trustee in bankruptcy.

54    The necessary consequence of the foregoing is that there was no basis on which it could have been concluded that Mr Nobarani issued the Bankruptcy Notice for an improper purpose, being to apply pressure to Ms Mariconte in relation to the probate proceedings. It should be repeated that the application was advanced to the primary judge in an overly generalised manner and it is apparent that the primary judge attempted to ascertain from the somewhat opaque material the real nature of the case being advanced. Unfortunately, the ground relied upon by the primary judge for setting aside the notice was not available in the circumstances.

Conclusion

55    It follows that the appeal should be allowed. The orders made by the learned primary judge should be set aside and the application to set aside the Bankruptcy Notice should be dismissed. Ms Mariconte should pay Mr Nobarani’s costs of the application before the primary judge as well as his costs of this appeal.

56    Ms Mariconte sought an extension of time in which to comply with the Bankruptcy Notice if her application was not successful and that was not opposed. There is no reason why such an order should not be made in the circumstances of this matter and the time for compliance with the notice should be extended to 5 July 2021, being 28 days from the date of judgment.

Associate:

Dated:    7 June 2021