FEDERAL COURT OF AUSTRALIA Salubre v Owners – Strata Plan 10564 [2014] FCA 470 Citation: Salubre v Owners – Strata Plan 10654 [2014] FCA 470 Appeal from: Salubre v Jones (as trustee for the bankrupt estate of Pascual) [2014] FCCA 441 Parties: MARY ROSE SALUBRE and MYLA LONTOK PASCUAL v THE OWNERS - STRATA PLAN 10564 and MICHAEL GREGORY JONES AS TRUSTEE FOR THE BANKRUPT ESTATE OF MYLA LONTOK PASCUAL File number: NSD 318 of 2014 Judge: RARES J Date of judgment: 16 April 2014 Legislation: Bankruptcy Act 1966 (Cth) ss 104, 178 Cases cited: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 referred to Jackamarra v Krakouer (1998) 195 CLR 516 applied R v Secretary of State for the Home Department; Ex parte Mehta [1975] 1 WLR 1087 applied Re Wakim; Ex parte McNally (1999) 198 CLR 511 applied Salubre v Jones (as trustee for the bankrupt estate of Pascual) [2014] FCCA 441 referred to Salubre v Jones [2013] FCCA 1706 referred to Date of hearing: 16 April 2014 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 38 Counsel for the Appellants: Mr D Allen Solicitor for the Appellants Leigh Johnson Solicitors Solicitor for the First Respondent: Bannermans Lawyers Counsel for the Second Respondent: The second respondent did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 318 of 2014 ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA BETWEEN: MARY ROSE SALUBRE First Appellant MYLA LONTOK PASCUAL Second Appellant AND: THE OWNERS - STRATA PLAN 10564 First Respondent MICHAEL GREGORY JONES AS TRUSTEE FOR THE BANKRUPT ESTATE OF MYLA LONTOK PASCUAL Second Respondent JUDGE: RARES J DATE OF ORDER: 16 APRIL 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The time for the applicants to seek leave to appeal be extended to 26 March 2014. 2. Leave to appeal be granted. 3. The appeal be allowed. 4. Orders 2 and 3 made by the Federal Circuit Court on 5 March 2014 be set aside and in lieu thereof it be ordered that: "1. Mila Lomtok Pascual be joined as an applicant. 2. The applicants have leave to file a further amended application and further amended statement of claim in the form attached to the affidavit of Mary Rose Salubre sworn 14 December 2013 with any necessary updating amendments. 3. The applicants pay the respondents' costs of, and occasioned by, the amendments. 4. The costs of the application to amend be otherwise the parties' costs in the proceedings." 5. The first respondent pay the appellants' costs of the application for extension of time and leave to appeal and of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 318 of 2014 ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA BETWEEN: MARY ROSE SALUBRE First Appellant MYLA LONTOK PASCUAL Second Appellant AND: THE OWNERS - STRATA PLAN 10564 First Respondent MICHAEL GREGORY JONES AS TRUSTEE FOR THE BANKRUPT ESTATE OF MYLA LONTOK PASCUAL Second Respondent JUDGE: RARES J DATE: 16 APRIL 2014 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 This is an application for extension of time and leave to appeal brought from a decision of the Federal Circuit Court that restored Michael Jones, the trustee in bankruptcy of Myla Pascual, as a respondent and then dismissed the proceedings against the other respondent, the Owners – SP 10564: Salubre v Jones (as trustee for the bankrupt estate of Pascual) [2014] FCCA 441. These proceedings have an unfortunate, if not tortured, history that has no doubt afflicted the human parties and those behind the corporate one over a long period of time. 2 The application for extension of time was filed in an irregular fashion on 26 March 2014. It identified on its coversheet that it was brought only on behalf of Mary Salubre, the first applicant, by her solicitors. But, at various points in the document the applicant is referred to in the singular as well as the applicants in the plural. Their address for service was given care of their solicitor and both Ms Salubre and Ms Pascual are named as applicants on the last page. By some curiosity that is not explained in any evidence, the application as filed was signed by Ms Salubre as the first applicant and by no one else. Another, but differently formatted and worded, copy of the application for extension of time and leave to appeal with a typewritten, as opposed to handwritten, date of 26 March 2014 bears Ms Pascual's signature and is in evidence. The Owners raised an issue as to whether Ms Pascual was in fact a party to the present application. 3 Ms Salubre and Ms Pascual seek to appeal against the trial judge's orders. They contend that his Honour should have granted their application to amend their pleadings below by joining Ms Pascual as an applicant, so as to seek the annulment of her bankruptcy and damages against the Owners for causing her to be made bankrupt when, as they alleged, she had not been served with any relevant process and was never indebted to the Owners beyond, perhaps, the sum of $48. The Owners had obtained the sequestration order based on Ms Pascual committing an act of bankruptcy by failing to comply with a bankruptcy notice. The notice was founded on a judgment debt for strata levies in respect of a home unit in the Owners' apartment building at Ryde of which Ms Pascual was the registered proprietor. She and Ms Salubre claimed that Ms Pascual held that title on constructive trust for Ms Salubre. Background 4 The proceedings below arose out of an interim application filed on 18 December 2013 by Ms Salubre in which she sought orders that Ms Pascual be joined as the second applicant, and that the applicants have leave to file a further amended application as well as a further amended statement of claim. At some point earlier in the proceedings, the trial judge had granted leave for the proceedings to be discontinued against the trustee for reasons that are not apparent. 5 The proposed further amended application sought: an order pursuant to either ss 104 or 178 of the Bankruptcy Act 1966 (Cth) that the proof of debt lodged by the Owners be rejected; declarations that, as at the date of the sequestration order, Ms Pascual was not indebted to the Owners and that, as at the date on which the trustee distributed the proceeds of sale of the home unit property in Ms Pascual's name, the Owners did not, in fact, have a debt provable in her bankrupt estate; an order that the Owners repay the sum of $17,617 to Ms Salubre as beneficial owner of the home unit; damages and equitable compensation against the Owners and orders under ss 30 or 153B of the Act vacating, and or, setting aside or annulling the sequestration order and the appointment of the trustee; an order dismissing the creditor's petition that had been filed on 28 November 2011; and an order that the Owners pay the costs of Mr Jones, including the costs of administering Ms Pascual's bankrupt estate. 6 The draft statement of claim pleaded that: the sequestration order ought never to have been made on the basis that Ms Pascual had not been served with the Owners' statement of claim, bankruptcy notice or creditor's petition; no debt, or only $48, had been owed by Ms Pascual to the Owners; and the Court below, in its discretion, would not have made a sequestration order against her in the circumstances; as a result of those factors, the equitable interest of Ms Salubre in the home unit did not vest in Mr Jones as trustee in bankruptcy; Mr Jones became registered proprietor of the home unit on about 11 May 2012; Ms Pascual had become registered proprietor of the home unit in 2007 in circumstances where Ms Salubre had paid or secured the purchase money, mortgage and other payments due in respect of it; Ms Pascual held the legal title as registered proprietor on constructive trust for Ms Salubre; Mr Jones had been told of the above facts in July and September 2012; on 24 September 2013, Mr Jones sold the unit for $330,000, discharged the mortgage to the bank of about $170,000 and paid the Owners the whole of their judgment debt of $17,617.87 including interest as well as other disbursements due in respect of legal costs and rates; Mr Jones had retained on trust for Ms Salubre the balance of $136,274.93 inclusive of the deposit; the home unit had been sold against Ms Salubre's express instructions in breach of trust; the sale had caused loss or damage to both the trust (presumably Ms Salubre as cestui que trust) and Ms Pascual, consisting of the disbursements paid by the trustee on the sale of the home unit to the Owners and the costs of earlier proceedings between Ms Salubre and Mr Jones in the Supreme Court of New South Wales in which Ms Salubre had been unsuccessful, although without any final judgment having been entered against her; the loss was caused by the Owners because they had obtained the sequestration order when they had no right or standing to do so by reason of the matters that had been alleged at the outset, and in the circumstances where the Owners knew and expected that a trustee in the bankruptcy, who would be appointed, would ultimately sell the home unit; the Owners were liable to make good that loss by paying damages and equitable compensation pursuant to s 30 of the Act and to restore the amount of the judgment debt paid to them by Mr Jones; and the Owners had lodged a proof of debt on 15 February 2012 for the sum of $15,844.39 and there were no other debts provable in the bankruptcy. 7 I was informed today, without objection, that the balance of the money held by Mr Jones has now been paid to Ms Salubre. Mr Jones has not appeared in these proceedings and is not adversely affected by the orders sought. The proceedings in the Court below 8 When the interim application for amendment came before his Honour on 5 March 2014, a debate occurred about whether there was evidence that Ms Pascual had consented to be joined as an applicant. In the end, the trial judge decided that he would treat the amendment application as an oral application by her for that purpose. 9 In fact, Ms Salubre had given affidavit evidence that Ms Pascual did consent to her becoming a party. Moreover, the interim application, on its face, stated that she was a party and that lawyers, acting on the instructions of both Ms Pascual and Ms Salubre, filed it. There was no challenge before his Honour to the retainer by Ms Pascual of the lawyers who acted for both applicants. 10 His Honour referred to an earlier decision he had given, Salubre v Jones [2013] FCCA 1706, in which he had noted that Ms Salubre had only made an assertion of the constructive trust after Ms Pascual had become bankrupt. He had said that there had been three proceedings in the Supreme Court involving a caveat placed on the title to the home unit by Ms Salubre, none of which had been finally determined, but that each had been dismissed without a hearing on the merits and Ms Salubre had been ordered to pay costs. He had observed that it hardly was appropriate for someone in Ms Salubre's position to seek an order that the trustee not pay out the balance of the moneys held in his hands pending a determination of her application to have her beneficial interest recognised. His Honour had noted, before rejecting the earlier application, that there were indications that Ms Salubre may have had a claim to part of the home unit. 11 The trial judge said that, on 2 December 2013, he had made consent orders discontinuing the proceedings against Mr Jones with no order as to costs. He referred to his orders on 10 December 2013 that Ms Salubre file, by 18 December 2013, any application seeking leave to amend the application and statement of claim together with affidavits in support and fixed the hearing of any amendment application for 5 March 2014. Those orders led to the interim application the subject of the proceedings below. 12 His Honour referred to the claims that the applicant sought to raise in the draft further amended application and further amended statement of claim. He observed that these invited the Court to go behind the judgment that founded the bankruptcy notice and the sequestration order, and that the applicants also sought an annulment under s 153B of the Act. The trial judge said that an annulment application ought to be brought by the bankrupt and not by a third party who claimed an interest in property of which the bankrupt was the legal owner. He said that the two proposed actions the subject of the amended pleadings were so disparate that he was not prepared to grant the oral application of Ms Pascual to be made a party to the proceedings. He said that, if she wished to go behind the judgment of the Supreme Court of New South Wales and dispute the affidavits of service of the bankruptcy notice and petition, then she needed to do so in her own name in separate proceedings. He did not consider that the prayers for relief seeking annulment and the like were appropriate. 13 His Honour then considered the next amendments, which he characterised as "rehearsing" the actions of the trustee who was not, at that time, a party to the proceedings because of the consent order that he cease to be so. He noted that a number of the proposed amendments deleted allegations against the trustee and he granted leave to make those amendments. He then discussed the pleaded claim that the loss allegedly sustained by the applicants was caused by the Owners obtaining the sequestration order when they had no right or standing to do so by reason of the matters being alleged in the pleading. His Honour rejected that claim (pleaded in par 17A of the further amended statement of claim) saying: "This takes up the problem of the inclusion of the owners of the strata plan as second respondent to the proceedings. It is true that if the owners of the strata plan had not sued the bankrupt for its strata levies none of the events which later occurred namely, the sale of the property and the "outing" of Ms Salubre as the beneficial owner of the property, would have occurred. But it was not the strata plan who sold the property, it was the trustee. The proper respondent to these proceedings so far as the court is concerned, would be the trustee. This is the argument put by Mr Fini on behalf of the strata plan. It cannot be said that the loss that Ms Pascual alleges was caused by the second respondent. The debt was not hers. It was the debt of the legal owner of the property, the bankrupt. Paragraph 17A will not be permitted." (emphasis added) 14 His Honour noted that the pleading sought only that the Owners be made liable to make good the applicants' claimed loss by paying damages and equitable compensation pursuant to an order under s 30 of the Act. He stated that the trustee: "is not a respondent at all at the moment although he is probably the only proper respondent to the proceeding. The second respondent is the [Owners] and, as I have said, in my view, it is not a proper party to these proceedings." 15 In the end, the trial judge rejected the amendment application. He suggested that the amendments be redrafted so as to make Mr Jones liable for the damages and the related relief that the applicants wanted to claim only against the Owners. He then asserted at [13]: "The court has no problem with these amendments if it is believed that they are proper to promote the case against the trustee." 16 He said that, as presently framed, the proposed amendments did not appear to be appropriately drafted. I would interpolate that, no doubt, that was because the applicants were seeking to claim damages against the Owners and not against the trustee. 17 His Honour then said at [14]: "Although the court has said that the proper respondent to the claim by Ms Salubre is the trustee, it is sensible of the fact that a consent order was made releasing the trustee from the proceedings. To the extent that the court believes that an order should be made restoring the respondent to the proceedings it is made on the basis only of allowing Mr Jones, as respondent, to make such application as he may deem necessary or fit to argue that he is not an appropriate party given what has previously occurred. The trustee was not represented today and he, therefore, did not have an opportunity to make those points to me. I believe that this is the fairest way of dealing with the issues that have been raised as a result of the applicant's wish to continue to proceed with her claim that she is the beneficial owner of the property. This is a rather confused scenario but then the whole proceedings have been confused by what I believe is an attempt to bring in one proceeding two really unrelated matters on behalf of two different applicants." (emphasis added) 18 His Honour then made orders that, first, Mr Jones be restored as a respondent to the proceedings, secondly, the proceedings against the Owners be entirely dismissed with costs, and, thirdly, Ms Salubre alone have leave to file a further amended application and statement of claim limited to "her claim against the trustee" arising out of her allegations of a constructive trust. The present application 19 Ms Salubre's affidavit in support of the application for an extension of time and leave to appeal said that she was of the view that she did not require leave to appeal because the proceedings against her had been dismissed. She said that she had been disabused of that view when, on 21 March 2014, she had sought to file the notice of appeal that had been prepared by her lawyers on behalf of both herself and Ms Pascual. She said that between 5 and 17 March 2014 she had accessed the online registry of the Federal Circuit Court regularly and had tried to print his Honour's judgment but had been confronted by a computer error on the AustLII site that prevented her from having access to it. She made another attempt on 18 March 2014 at the Court's registry to obtain the right judgment but was, unfortunately, apparently handed the wrong one. The application for an extension of time was therefore filed about one week late. The strata manager for the Owners gave evidence that he had received an email from his solicitors on 11 March 2014 attaching a copy of the reasons of his Honour that had been certified by his associate on 7 March 2014. 20 The Owners argued that they had criticised, in their written submissions filed on 11 April 2014, the form of the application for an extension of time and leave to appeal and suggested that it appeared to have been only brought on behalf of Ms Salubre. They submitted that only in his address in reply did counsel for the applicants produce a version of the present application that had been signed by Ms Pascual. 21 It was unsatisfactory for the solicitors acting for the applicants, following their receipt of the Owners' written submissions, not to have clarified the obvious problem with the form of the present application and those solicitors' error in not having signed that application themselves. They should also have explained, as counsel for the applicants did in reply, that there was evidence that Ms Pascual was bringing the present application. Consideration 22 The principles on which the Court proceeds in considering whether to grant an extension of time in which to file a notice of appeal are well settled. In Jackamarra v Krakouer (1998) 195 CLR 516 and 519-520 [3]-[4], Brennan CJ and McHugh J (with whom Kirby J gave concurring reasons on this point: see at 540-541 [66(4)]) discussed the way in which the Court assesses whether to grant an extension of time in which to file a notice of appeal. They approved what Lord Denning MR had said in R v Secretary of State for the Home Department; Ex parte Mehta [1975] 1 WLR 1087 at 1091, namely: "We often like to know the outline of the case. If it appears to be a case which is strong on the merits and which ought to be heard, in fairness to the parties, we may think it is proper that the case should be allowed to proceed, and we extend the time accordingly. If it appears to be a flimsy case and weak on the merits, we may not extend the time. We never go into much detail on the merits, but we do like to know something about the case before deciding whether or not to extend the time." 23 Brennan CJ and McHugh J commented that his Lordship's remarks were made in the context of an application for an extension of time to lodge an appeal. In that class of case, they said, the respondent to the application had a vested right to retain the judgment the subject of the appeal, adding that: "To grant the application for an extension of time is to put at risk a vested right of the respondent." 24 Here, the parties by consent treated the application for an extension of time and leave to appeal as a full argument on any appeal should the application for leave be granted. For the reasons that follow, the application for an extension of time and leave to appeal should be granted and the appeal allowed. There were unsatisfactory features about the way in which the present application was filed, as I have mentioned. However, the justice of the case requires that what I consider to be substantive errors by the trial judge be corrected on appeal and the case the appellants now seek to propound be allowed to go to trial. 25 Nothing that I say in these reasons amounts to a finding of fact that the allegations made by Ms Pascual and Ms Salubre in their pleading are true or correct. But, in order to determine whether their claim is justiciable and whether it ought to be allowed to go ahead, it is necessary to consider the pleadings on their face to determine if they evince an arguable case. 26 His Honour's order dismissing the proceedings against the Owners in their entirety was made because he found that the only proper respondent was the trustee. In my opinion, that was not a conclusion capable of being found on a summary application of the nature with which his Honour was dealing. It has no apparent foundation in principle. 27 The Owners were a proper and necessary party to any application that challenged the existence of a basis on which they could have obtained the judgment debt that underpinned the bankruptcy notice and was the foundation of the sequestration order. The challenge that Ms Pascual wished to bring in the draft amended pleadings was clearly interrelated with Ms Salubre's claim to have suffered loss and damage as a beneficiary of a trust of which Ms Pascual was the trustee. Both were proper and necessary parties to any such application, as were the judgment creditors, the Owners. The only person against whom each of Ms Salubre and Ms Pascual sought damages were the Owners. 28 Ms Salubre and Ms Pascual sought no damages or other relief in the nature of compensation against Mr Jones. Indeed, had they sought to proceed against him, his position would have been very difficult to assail, having regard to s 154 of the Act. That section deems valid all sales and dispositions of property, payments duly made and all acts done by the trustee or any person acting under the trustee's authority or of the Court before an annulment. 29 Each of Ms Pascual, both in her capacities as the bankrupt and as the legal owner with whatever beneficial rights she may have had (cf: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246-247 [48]-[51] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ), and Ms Salubre, her cestui que trust, was entitled to assert a claim for damages caused by what they alleged was, first, the wrongful conduct of the Owners in obtaining judgment without notice against Ms Pascual and, secondly, proving an act of bankruptcy and the service of the petition in circumstances where, so they claimed, Ms Pascual had not been served with any of those processes. 30 I am unable to comprehend how his Honour said that the only proper party to those proceedings that the applicants wished to bring was the trustee. The Owners had to be a party to those proceedings. Clearly those proceedings ought to be heard together with the application for annulment given the overlap of the substantive factual bases of both claims. Moreover, Ms Pascual had a strong basis for seeking an annulment on the basis that all of the debts proved in her bankruptcy had been paid in full. Both the trustee and the Owners, as petitioning creditor, were proper and necessary parties to any annulment application. But, if Ms Pascual could prove that the bankruptcy should never have occurred, Ms Pascual could use that finding to establish the factual foundation for the applicants' claims for damages against the Owners. 31 In my opinion, the proposed amendments the subject of the interim application before his Honour clearly evinced an arguable case that should have been allowed to go to trial. 32 The Owners argued that his Honour was correct to have found that only the trustee could be sued. However, that argument cannot be accepted. The Owners were a proper and necessary party to any application to challenge the admission of their proof of debt, the circumstances in which the bankruptcy occurred and the annulment application. And, the appellants claimed damages against the Owners for the consequences of those actions by them. One thing the appellants did not do was make any claim for damages against Mr Jones. Yet, that is what the trial judge decided was the only application that the appellants could bring. 33 Next, the Owners argued that it was unclear from the amended pleadings which of Ms Salubre or Ms Pascual was seeking to apply under s 104 for a review of the trustee's decision to admit the Owners' proof of debt and how either of them brought themselves within either that section or s 178. 34 In my opinion, Ms Pascual had the status of the bankrupt conferred by s 104(1) and so was unquestionably entitled to apply to the Court below for a review of the decision of her trustee to admit the Owners' proof of debt. The Owners correctly submitted that Ms Salubre was not a creditor of the bankrupt at the time of her bankruptcy, although she may have had other claims, and therefore did not appear to have had standing to bring any application under s 104. It is not necessary to decide that question because Ms Pascual did have that standing. Accordingly, the proposed amendments raised a justiciable claim. 35 If a bankrupt, a creditor or "any other person is affected by an act, omission or decision of a trustee", he or she has a right to apply to the Court, and the Court can make such orders in the matter in respect of that act, omission or decision as it thinks just and equitable, pursuant to s 178(1), provided that the application is made not later than 60 days after the date on which the person became aware of the trustee's act, omission or decision. Moreover, the 60 day time limit under s 178(2) may or may not be amenable to extension pursuant to s 33(1)(c) of the Act. Ms Salubre had an arguable case that she was affected by an act or decision of the trustee in deciding both to sell the property and pay the Owners the amount of their proof of debt together with interest. Whether there are defences to those matters is a matter for pleadings and, if appropriate, trial. 36 The Owners did not identify any defence that rendered any of the allegations raised in the draft pleadings unarguable. 37 I am unable to agree with the trial judge's reasoning that the claims made in the proceedings were disparate, let alone so disparate that any application to join Ms Pascual ought not to have been granted. In my opinion, the proceedings involved substantive issues as to whether, first, the Owners were in fact a creditor of Ms Pascual, secondly, the sequestration order ought ever to have been made and, thirdly, Ms Salubre had any interest in the home unit entitling her to complain of the acts of both the Owners and trustee in respect of the subject matter of the proposed amendments. All of the issues raised in the draft amended pleadings constituted one matter: Re Wakim; Ex parte McNally (1999) 198 CLR 511. Conclusion 38 For these reasons, I am of opinion that the appeal must be allowed with costs and the relief sought in the interim application should be granted. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 14 May 2014