FEDERAL COURT OF AUSTRALIA

Rambaldi (Trustee), in the matter of Atkinson (Bankrupt) v Woodward (No 1) [2012] FCA 1087

IN THE MATTER JOHN EDWARD ATKINSON, BANKRUPT

THE COURT ORDERS THAT:

1.    The relief sought by interlocutory application dated 6 December 2012 be refused.

2.    The applicants pay the respondent’s costs of the interlocutory application.

3.    On or before 4pm, 17 January 2013, the respondent file and serve a defence to the points of claim dated 14 December 2012.

4.    On or before 4pm, 28 January 2013, the parties file and serve an agreed statement of facts.

5.    On or before 4pm, 20 February 2013, the parties exchange a list of objections to evidence with a brief statement of the reasons for same.

6.    On or before 4pm, 1 March 2013, the parties file and serve a list of their outstanding objections to evidence with a brief statement of reasons for same.

7.    The matter be referred for mediation by a Registrar of the Court, such mediation to be concluded by 28 February 2013.

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

REASONS FOR JUDGMENT

INTRODUCTION

1        On 13 December 2012, I made the orders set out above, and gave brief extemporary reasons which are amplified below.

2        The applicants, Gess Rambaldi and Andrew Yeo (as trustees of the property of John Edward Atkinson, a bankrupt) sought leave, by an interlocutory application dated 6 December 2012, to file a further amended application in the form exhibited to the affidavit of Bradley James Parker affirmed on 6 December 2012.

3        In the existing proceeding, the applicants claimed from the respondent, Kim Woodward (the former wife of the bankrupt) up to 50 per cent equitable interest of a property situated at 41 Roseville Avenue, Roseville or the proceeds of sale thereof, based on trust or alternatively, applied for an order under s 139EA of the Bankruptcy Act 1966 (Cth) (“the Act”).

4        The further amended application sought to add an alternative claim under s 120 of the Act as follows:

8    Alternatively, a declaration that the transfers made by the bankrupt set out in Schedule A in respect of mortgage and interest payments for 41 Roseville Avenue are void pursuant to section 120 of the Bankruptcy Act (Void Transfers).

9    Orders that the total amount of the Void Transfers is liable to be repaid to the Applicants by the Respondent.

9    In order to give effect to Orders 8 and 9, a declaration that the Applicants are entitled deduct to [sic] the total amount of Void Transfers (or part thereof) from the amount of the funds held in Controlled Monies.

5        The proposed amendment also entailed extending the relation back period of the bankruptcy by approximately five months.

6        The application was supported by:

1.    The affidavit of Bradley Parker affirmed on 6 December 2012.

2.    Written submissions dated 10 December 2012.

7        The application was opposed by the respondent, who, as a qualified legal practitioner, appeared on her own behalf. Written submissions dated 12 December 2012 were filed in opposition.

THE PROCEEDING

8        The proceeding was commenced by an application dated 21 January 2011, in which the applicants sought:

1.    A declaration that the applicants are entitled to a 50% interest (or such other proportion as the court determines) in a property situated at 41 Roseville Avenue, Roseville, New South Wales.

2.    A declaration that the respondent holds 41 Roseville Avenue on trust for herself and the bankrupt in equal or such shares as the court determines.

3.    A declaration under s 139EA of the Act that:

3.1    During the examinable period, the value of the respondent’s interest in 41 Roseville Avenue increased as a direct or indirect result of financial contributions made by the bankrupt during that period.

3.2    The bankrupt used or derived a direct or indirect benefit from 41 Roseville Avenue at a time or times during the examinable period.

4.    An order directing the Respondent to pay to the Applicants a specified amount not exceeding the amount by which the value of the Respondent’s interest in 41 Roseville Avenue increased as a result of the financial contributions made by the bankrupt.

5.    An order pursuant to section 139DA of the Act vesting in the Applicants the Respondent’s estate in 41 Roseville Avenue to the extent of such an amount as may be determined pursuant to Order 4 above.

6.    An order that the Respondent execute all such instruments and produce all such documents of title and do all such acts and/or things as are necessary in order to give effect to Order 5 above.

9        Mr Rambaldi, by an affidavit sworn on 21 January 2011, deposed that on 27 May 2010 the bankrupt’s estate was sequestrated by order of the Federal Magistrates Court, and Messrs Rambaldi and Yeo were appointed trustees.

10        Mr Rambaldi deposed that the bankrupt verified a statement of affairs on 19 August 2010 and in an interview on 16 June 2010 claimed that he married the respondent in 1990, although they had separated four to five years ago.

11        Mr Rambaldi deposed that, in essence, the respondent was the registered proprietor of a property purchased in April 2004 as a matrimonial home with a $2.32m purchase price, $1.8m of which, at least, was advanced by the Commonwealth Bank of Australia (“CBA”). Mr Rambaldi identified circumstances which indicated to him that substantial repayments were made by the bankrupt, while minimal repayments were made by the respondent.

12        Mr Rambaldi deposed that he understood that prior to April 2004, the bankrupt and the respondent lived at 70 Roseville Avenue, a property which was purchased as a family home and of which they remained registered proprietors in April 2004. Following the purchase of the property at 41 Roseville Avenue as a family home for $2.32 million, the property at 70 Roseville Avenue was no longer used as such.

13        Mr Rambaldi further deposed that:

(a)    On 20 July 2004, the respondent became sole registered proprietor of 41 Roseville Avenue.

(b)    On 14 April 2004, the respondent applied to the CBA for a $1.8 million loan towards the purchase of 41 Roseville Avenue.

(c)    The CBA produced balance sheets for the bankrupt and related entities under s 77C of the Act, but there were no financial statements available for the respondent.

(d)    In the financial year ending 30 June 2003, according to their respective tax returns, the bankrupt’s income was substantially higher than that of the respondent.

(e)    The CBA submission document referred to “John” (the bankrupt) seeking $1.8 million to assist with the purchase of a new family home.

(f)    The $1.8 million was advanced and secured by a mortgage to the CBA and the bankrupt guaranteed the respondent’s obligations to the CBA under the loan facility.

(g)    On or about 26 May 2004, the CBA advanced an additional $56,000 to the respondent but it was unclear whether it was secured over 41 Roseville Avenue.

(h)    Despite the limited success of the applicants’ enquiries about the source of the balance of the purchase price ($520,000), Mr Rambaldi inferred from the relative financial position of the parties that the bankrupt or an entity associated with the bankrupt provided the funds.

(i)    The bankrupt was a chartered accountant, who practised as a sole trader involved in property development with interests in, or control over, a number of companies.

14        Mr Rambaldi exhibited a number of company searches and bank statements. He deposed that the bank statements of the bankrupt’s tax practice account disclosed that:

1.    There were payments of $757,330 from that account to repay the CBA loan account between 3 August 2004 and 30 June 2010.

2.    Total payments of $27,214 were made to a smaller loan account.

15        Mr Rambaldi deposed that the above repayments were from “J E Atkinson & Associates Pty Ltd” of which the respondent was a sole director, as the bankrupt ceased to be co-director on 27 May 2010.

16        The respondent’s account with CBA from January 2004 to 29 October 2010 (apart from several small payments) showed that no repayments were made from that account towards repayment of the CBA home loan.

17        On 28 October 2010, the applicants lodged a caveat against the 41 Roseville Avenue property.

18        The current application was filed in the Federal Court on 21 January 2011 and listed for directions on 11 March 2011. The property at 41 Roseville Avenue was subsequently sold and, pursuant to an order made by consent, half the proceeds of sale were thereafter held in an interest bearing controlled monies account in the names of the parties’ solicitors until further order or the written agreement of the parties.

19        By an amended application dated 16 March 2012, the trustees claimed a relevant percentage of the fund resulting from the sale.

20        On 2 March 2012, I made orders for filing evidence and a statement of agreed facts by 11 May 2012.

21        On 29 May 2012, I extended, by consent, the time for filing evidence and a statement of agreed facts to 8 August 2012 and ordered the applicants to prepare a court book.

22        On 29 August 2012, I extended the time for filing and serving evidence and an agreed statement of facts to 1 November 2012.

23        On 29 May 2012, I made orders for preparation for trial and fixed the matter for trial on 6 March 2013, on a two day estimate.

24        On 28 November 2012, I again extended, by consent, the time for filing evidence and an agreed statement of facts to 7 December 2012 and ordered points of claim to be filed by 23 November 2012.

25        On 6 September 2012, Mr Rambaldi filed a supplementary affidavit sworn on 6 September 2012.

26        On 19 November 2012, the respondent filed and served a number of affidavits, including her own affidavit.

Mr Parker’s affidavit

27        In support of the application to amend, Mr Parker deposed that:

The reason that the Amendment has been sought at this time is that the Applicants have instructed new counsel, Peter Fary, who has advised the Applicants that this amendment should be made to the application.

The proposed Further Amended Application is substantially the same as the form that was emailed to the Respondent on 24 November 2012. However, the amount set out in the Schedule of Payments which is referred to in the proposed Further Amended Application has increased because the Applicants seek to rely on an earlier act of bankruptcy of the bankrupt that occurred on 7 July 2009, which, if allowed by the Court, would allow the relation back period to be extended.

28        Mr Parker deposed that on 24 November 2012, he sent a proposed amended application and schedule of payments to the respondent, who did not consent to the amendment.

The applicants’ submissions

29        The applicants’ written submissions stated:

4    The Proposed Application is substantially in the form that was previously provided to the Respondent on 24 November 2012 (see page 5 of the Parker affidavit).

5    The Applicants also seek to rely on an earlier act of bankruptcy of the bankrupt that has been identified.

6    Extracts of bank statements recording each Commonwealth Bank of Australia mortgage payment are set out at Exhibit BJP-5 (pages 28 to 164 of the Parker affidavit).

Factors supporting leave to amend being granted

7    The matter is set down for trial on 6 March 2013 with an estimated duration of two days.

8    It is unlikely that the amendments will delay the trial date because the Respondent has sufficient time to respond to them.

9    The amendments do not add any new party to the proceeding, nor do they raise any substantial evidentiary matters that are not already addressed in the evidence before the court.

10    The Applicants have sought to assist the Respondent and the court in understanding the claim (together with amendments) by preparing points of claim.

11    The Applicants are conducting this litigation for the benefit of creditors as trustees of the bankrupt estate of the Respondent’s estranged husband.

30        In oral submissions, counsel for the applicants submitted that when retained, he identified the proposed new claim as logically applicable to the issues arising in the case.

The respondent’s submissions

31        The respondent submitted that leave should be refused principally because the amendment, if allowed would require preparation which she could not reasonably complete prior to the scheduled trial date, which, in consequence, would be lost.

32        The respondent submitted that taking account of the impending legal vacation, the trial date was less than six sitting weeks away. Further, the current hearing estimate of two days was based on the matters raised in the existing claim, and may be exceeded if the amendment were allowed.

33        The respondent submitted that the applicants had on numerous occasions failed to comply with orders and deadlines and failed to file points of claim as ordered. In contrast to the hitherto slow pace of the matter, if the amendment was allowed, the respondent would have to take many steps within a very tight timeframe, including drawing a defence to the amended application, considering the ramifications of the new claim and preparing evidence in response. The respondent submitted that if the amendment were allowed, she would dispute the alleged payments, which was unnecessary on the basis of the applicants’ existing claims (as the respondent contended that the value of the property had not been enhanced). Further, the respondent submitted that defence of the new claim would require her to examine voluminous accounts and records in order to establish that she gave consideration and address additional matters due to the expansion of the temporal ambit of the applicants’ claims.

34        The respondent submitted that she required more than five weeks for the above, as, although a qualified legal practitioner, she was not a specialist in insolvency law, was employed full time and was responsible for the care of her four children.

35        In written submissions, the respondent stated that:

15.    The Applicants are experienced trustees specialising in this area of law and they have been legally represented throughout these proceedings and had the benefit of the advice of several Counsel who have acted in these and related proceedings.

16.    The Proposed Application has not arisen, either in whole or in part, out of facts or matters that have occurred or arisen since the start of the proceedings. The Applicants could reasonably have been expected to have sought leave to amend the Application at a much earlier point in these proceedings. No cogent reason for their failure to do so has been raised.

…

20.    If leave is granted in relation to the proposed amendment, it is almost inevitable that the determination of the proceedings will be delayed and that the cost of the determination of the proceedings will escalate. It is envisaged that the Respondent will make an application to vacate the hearing date of 6 March 2013 if leave to further amend the Amended Application is granted.

DISCUSSION

36        The principles relevant to amendment, were discussed by the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 (“AON”), were uncontroversial. In AON, the High Court recognised that there was no automatic entitlement to raise an arguable issue by amendment subject to the payment of costs. The plurality expressly accepted that the payment of costs, even on an indemnity basis, may not compensate for the adverse effects of the delay, including the strain imposed by pendant litigation on litigants (particularly personal litigants) and on court lists (at [100]-[101]).

37        The proceeding was commenced in January 2011 and thus had been on foot for approximately two years. The trial date had been fixed for seven months. The proceeding has a history of considerable delay, repeated non-compliance with orders and extension of time for preparation. Points of claim, which the applicants were ordered, by consent, to file by 23 November 2012 were provided to the respondent and filed only at the hearing of the application and the agreed statement of facts has not yet been filed.

38        While the applicants submitted that the proposed new claim of transfer at an undervalue under s 120 of the Act would largely depend on the evidence already filed in relation to the existing claims, the respondent contended, reasonably in my view, that it would widen the issues in dispute and entail substantial additional preparation and evidence on her part.

39        The application to amend was filed very close to the commencement of the legal vacation, excluding which, there was little more than one month until the trial was due to commence. Further, the respondent, who was not expert in insolvency law, had employment obligations and significant family responsibilities. I considered that the maintenance of the existing trial date would deprive the respondent of a reasonable time to complete the steps and further preparation which the amendment would entail, particularly when combined with discharging her employment and parental responsibilities.

40        If amendment were allowed, adherence to the trial date would unfairly compromise the respondent’s ability to prepare. The amendment would also potentially increase the time required for trial which could independently jeopardise the existing trial date. Accordingly, leave to amend would, in the circumstances, almost certainly lead to vacation of the trial date, thereby prolonging litigation which has already been on foot for some time.

CONCLUSION

41        In such circumstances, I concluded that leave to amend be refused.

Associate:

Dated:    30 January 2013