Federal Court of Australia Amirbeaggi as trustee of the bankrupt estate of Hanna v Hanna [2021] FCA 988 File number: NSD 1285 of 2020 Judgment of: YATES J Date of judgment: 19 August 2021 Catchwords: BANKRUPTCY AND INSOLVENCY – application for leave to file a cross-claim where time allowed by court orders has already elapsed Legislation: Bankruptcy Act 1966 (Cth) ss 115(1), 120, 121, 122, 139ZQ Evidence Act 1995 (Cth) s 140 Federal Court of Australia Act 1976 (Cth) ss 37N and 37M Federal Court (Bankruptcy) Rules 2016 (Cth) rr 1.04(2), 1.07(5) Federal Court Rules 2011 (Cth) r 16.21 Conveyancing Act 1919 (NSW) s 37A Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 32 Date of hearing: 17 August 2021 Counsel for the First Respondent: Mr D Eardley Solicitors for the First Respondent: Lawpoint Lawyers Counsel for the Second Respondent: Mr D Allen Solicitors for the Second Respondent: SKM Lawyers ORDERS NSD 1285 of 2020 BETWEEN: SHABNAM AMIRBEAGGI AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN MAMDOUH HANNA Applicant AND: ANDREW JOSEPH HANNA First Respondent HEDRA FAYEZ NASHED ABDALLA Second Respondent order made by: YATES J DATE OF ORDER: 19 AUGUST 2021 THE COURT ORDERS THAT: 1. Subject to Order 2, leave be granted to the second respondent to file a cross-claim substantially in the form of the draft cross-claim which is Annexure C to the affidavit of Hedra Fayez Nashed Abdalla made 12 May 2021 (the cross-claim). 2. By 4.00 pm on 31 August 2021, the second respondent file and serve particulars of the agreement referred to in paragraph 19 of the cross-claim. 3. The second respondent pay the first respondent's costs of and incidental to the second respondent's interlocutory application filed on 13 May 2021. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT YATES J: 1 These proceedings arise in the exercise of the Court's bankruptcy jurisdiction. 2 On 14 December 2020, the Court made an order that the second respondent, Mr Abdalla, file and serve any cross-claim by 5 February 2021. On 10 February 2021, the time for compliance with this order was extended to 26 February 2021, by consent. Mr Abdalla did not file a cross-claim. 3 On 5 March 2021, a further order was made, once again by consent, that Mr Abdalla file and serve any cross-claim by 19 March 2021. Once again, Mr Abdalla did not file a cross-claim. 4 When the matter came before the Court for case management on 23 April 2021, an order was made that Mr Abdalla file and serve any application for leave to file a cross-claim by 14 May 2021. Mr Abdalla filed an interlocutory application on 13 May 2021, supported by an affidavit made on 12 May 2021, which annexes his proposed cross-claim against the first respondent in the principal proceeding, Mr Andrew Hanna. This application is now before the Court for determination. 5 The principal proceeding concerns a claim by Shabnam Amirbeaggi, brought in her capacity as the trustee of the bankrupt estate of John Mamdouh Hanna (the bankrupt), in relation to property known as 21/7 Altair Place, Hinchinbrook (Folio Identifier 22/SP93648) (the property). Ms Amirbeaggi alleges that the property was originally owned by the bankrupt and Mr Abdalla as tenants in common in equal shares, and that it was transferred by the bankrupt and Mr Abdalla to Mr Hanna on or about 6 June 2017, prior to the making of the sequestration order which brought about the bankruptcy. Ms Amirbeaggi alleges that the bankruptcy commenced on 6 January 2016 when the bankrupt failed to comply with a bankruptcy notice which was served on him on 16 December 2015: s 115(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). Mr Hanna is the bankrupt's son. 6 Ms Amirbeaggi alleges that the transfer of the property to Mr Hanna was an undervalued transaction; was a transfer to defeat creditors; and was a preference payment: ss 120, 121, and 122 of the Bankruptcy Act; s 37A of the Conveyancing Act 1919 (NSW). For completeness, I note that Ms Amirbeaggi has served a notice on Mr Hanna pursuant to s 139ZQ of the Bankruptcy Act, seeking payment of $295,000, being (on her case) 50% of the appraised market value of the property at the time of its transfer. 7 Mr Hanna has served a cross-claim against Ms Amirbeaggi. In essence, Mr Hanna alleges that, in about March 2013, he advanced $564,912 to the bankrupt for the specific purpose of undertaking a development at Hinchinbrook, of which the property forms part. Mr Hanna alleges that it was a term of this arrangement that the bankrupt's obligation of repayment could be satisfied by the transfer of property to him. According to Mr Hanna, the transfer of the property to him on or about 6 June 2017 was just that—satisfaction of the loan he had made to the bankrupt. 8 Alternatively, Mr Hanna says that the money he advanced was impressed with "a remedial constructive trust" and that, at all relevant times, he had an equitable interest in the property prior to its transfer to him. He alleges that, on transfer to him, he acquired legal title to the property. 9 On either case theory, Mr Hanna alleges that the property does not form part of the bankrupt's estate and that the transfer is not liable to be set aside, as Ms Amirbeaggi alleges. 10 In his proposed cross-claim, Mr Abdalla says that he was a registered proprietor of the property with the bankrupt as tenants in common in equal shares. He alleges that the transfer to Mr Hanna was not pursuant to a contract for sale and that he did not execute the dealing through which Mr Hanna purportedly acquired his legal title. Further, Mr Abdalla alleges that, at the date of the purported transfer, the property had a market value of $650,000. He alleges that he did not receive any consideration for the transfer. 11 Mr Abdalla claims alternatively that Mr Hanna holds his (Mr Abdalla's) half interest in the property on trust; that the property is charged with payment of an amount representing the value of Mr Abdalla's half interest as at June 2017 (plus interest); and that Mr Hanna is bound by an obligation to pay Mr Abdalla the amount of that half interest. 12 Further, Mr Abdalla alleges that, if the transfer is binding as against him, then Mr Hanna agreed to acquire the property for $650,000 and that Mr Hanna owes him $325,000 by way of debt or damages. 13 Further, Mr Abdalla says that Mr Hanna acquired his title to the property by fraud. The allegation of fraud is supported by the following further allegations: (a) Mr Hanna knew that the property was being transferred to him without a contract for sale: no contract exists; (b) Mr Hanna knew that Mr Abdalla had not executed the dealing pursuant to which Mr Hanna acquired his legal title: Mr Hanna did not see Mr Abdalla execute the transfer; Mr Hanna knew that no solicitor or conveyancer was acting for Mr Abdalla at the time; Mr Hanna left it to the bankrupt to procure the transfer and that, in so doing, the bankrupt was acting as Mr Hanna's agent; in acting as Mr Hanna's agent, the bankrupt's knowledge is imputed to Mr Hanna; and a reasonable and honest man in Mr Hanna's circumstances would have been aware that the transfer had not been executed by Mr Abdalla; (c) Mr Hanna knew that the property was being transferred without consideration being paid to Mr Abdalla, and Mr Hanna did not intend that any consideration would, in fact, be paid: no consideration was paid; Mr Hanna did not have the means of paying for the property; Mr Hanna did not apply for any financial assistance to pay for the property; and (d) the transfer of the property occurred by agreement between Mr Hanna and the bankrupt so as to divest the bankrupt of his interest in the property, which would not be available to pay the bankrupt's creditors. 14 Mr Abdalla alleges that Mr Hanna knew of the fraud, that he participated in the fraud, and that he procured the fraud. Alternatively, Mr Abdalla alleges that if Mr Hanna acquired the property in good conscience, not knowing of or participating in the fraud, he is nevertheless bound to pay Mr Abdalla $325,000 plus interest. 15 Mr Hanna opposes Mr Abdalla's application for leave. His opposition is based on a number of grounds. 16 First, Mr Hanna correctly points out that, despite the orders made on 14 December 2020, 10 February 2021, and 5 March 2021, Mr Abdalla did not file a cross-claim. In his written submissions, Mr Hanna submits that Mr Abdalla has, thereby, breached the Court's orders. This is not correct. The Court did not order Mr Abdalla to file a cross-claim. The Court did order that, if a cross-claim were to be filed, then Mr Abdalla was required to do so within the period of time stipulated in the orders. Even so, the substantive point raised by Mr Hanna remains: Mr Abdalla did not file his cross-claim when the opportunity to do so was given to him. Therefore, why should he have a further opportunity to do so, especially when he has not given an explanation for his previous failures to do so? 17 In this connection, Mr Hanna submits that Mr Abdalla's conduct has not been consistent with the overarching purpose of conducting proceedings quickly, inexpensively, and efficiently as possible: ss 37N and 37M of the Federal Court of Australia Act 1976 (Cth). 18 Secondly, Mr Hanna submits that the proposed cross-claim is deficient as a pleading, such that, if challenged under r 16.21 of the Federal Court Rules 2011 (Cth) (the Rules), it would be struck out. 19 Thirdly, Mr Hanna submits that, if leave were to be granted, he would suffer prejudice. He has already filed his affidavit evidence in relation to the principal proceeding, and Mr Abdalla has had the advantage of reviewing that evidence before seeking leave to file the proposed cross-claim. 20 Fourthly, Mr Hanna submits that the Court would not grant leave to file the proposed cross-claim because Mr Abdalla has "failed to cross the Rubicon in terms of discharging the burden of proof as required by s. 140 Evidence Act 1995 (Cth)". 21 I am not persuaded that the last two submissions are reasons not to grant the leave that is sought. 22 If Mr Abdalla had filed the proposed cross-claim within the time originally ordered, Mr Hanna would have faced the prospect of answering it. If leave is granted, nothing will change in that regard, save for the fact that some delay in the proceedings will have been caused. I am not persuaded that this delay is sufficient to refuse leave, particularly in circumstances where Mr Hanna accepts that the allegations in the proposed cross-claim are closely connected to the other allegations already made in the proceedings. 23 Further, I do not accept that, on the material before me, Mr Hanna will suffer prejudice because he has filed his affidavit evidence in answer to Ms Amirbeaggi's statement of claim and in support of his own cross-claim. If the proposed cross-claim raises new allegations not already addressed by Mr Hanna as a matter of substance, he will have the opportunity to address those allegations. 24 Further, Mr Hanna's submission based on s 140 of the Evidence Act 1995 (Cth) is misconceived. The only question before the Court is whether leave should be granted to file the proposed cross-claim. The stage has not been reached where the Court is called upon to make findings of fact on the allegations it makes or to make final determinations on liability. 25 As to the pleading of the proposed cross-claim, I think that the deficiencies identified in Mr Hanna's written submissions are overstated, save for the allegation in paragraph 19 of the pleading. In that paragraph, Mr Abdalla pleads that the other matters on which he relies to establish fraud occurred because of an agreement between Mr Hanna and the bankrupt to transfer the property so as to defeat the interests of the bankrupt's creditors. 26 Mr Abdalla submits that this allegation is substantively the same as the allegation made by Ms Amirbeaggi in paragraph 46 of the statement of claim. This is not correct. The allegation made by Ms Amirbeaggi is that the bankrupt's main purpose in making the transfer to Mr Hanna was to prevent the property becoming divisible among his creditors, or to hinder or delay the process of making property available for division among his creditors. Ms Amirbeaggi does not allege that this purpose was bound up with an agreement between Mr Hanna and the bankrupt to achieve that purpose. 27 Further, the agreement pleaded in paragraph 19 of the proposed cross-claim is not particularised. Mr Abdalla submits that the agreement arises as a matter of inference. If that is the case that Mr Abdalla wishes to bring then, as a matter of pleading, he should specify the facts on which he relies for the inference. The fact that he has not done so in the proposed cross-claim is easily remedied by requiring Mr Abdalla to provide the requisite particulars as a condition of granting leave to rely on the allegation pleaded in that paragraph. 28 Mr Hanna also submits that leave should not be granted to file the proposed cross-claim because it is lacking in merit and the claims it makes have no reasonable prospects of success. I am not persuaded that this is the case. Mr Abdalla has deposed to the fact that he did not execute the dealing through which Mr Hanna acquired his title to the property; that he did not authorise any person to execute the dealing on his behalf; and that he did not receive any consideration for the transfer. Further, he has deposed that he did not know that title to the property had been transferred to Mr Hanna until about January 2018. For the purposes of the present application, I have no reason to go behind those statements. 29 The essence of Mr Abdalla's proposed cross-claim is that the transfer of the property to Mr Hanna was a fraudulent disposition. As I have said, his claim is that Mr Hanna holds his (Mr Abdalla's) half interest in the property on trust; or that the property is charged with payment of an amount representing the value of Mr Abdalla's half interest as at June 2017 (plus interest); or that Mr Hanna is bound by an obligation to pay Mr Abdalla the amount of that half interest. The allegations that Mr Abdalla makes, and the basis for his claims, are sufficiently clear to warrant leave being granted on the basis of the proposed cross-claim. In saying this, I accept that the allegation pleaded in paragraph 12 (failure to pay agreed consideration) sits somewhat uncomfortably with the balance of the pleading, but I do not propose to pull the pleading apart simply to address what seems to be a very subsidiary aspect of it. 30 The only matter of substance that stands in the way of leave being granted is Mr Abdalla's failure to explain why he did not file his cross-claim within the time periods previously ordered. This is an important discretionary consideration. However, I do not think that the appropriate case management decision is to refuse leave for this reason alone, especially when the circumstances in which Mr Hanna acquired the property lie at the heart of the case that is reflected in the pleadings that have already been filed. The efficient and expeditious course is to deal with all the claims of the parties, arising out of the transfer of the property, in the one proceeding. 31 Nevertheless, Mr Abdalla's unsatisfactory conduct in this regard should be reflected in the costs to be awarded in respect of this application. The appropriate order is that Mr Abdalla pay Mr Hanna's costs of and incidental to the application for leave, even though Mr Hanna has been largely unsuccessful in his opposition. Mr Abdalla's application would not have been necessary had he conformed to the time limits which the Court had ordered. Mr Hanna should not bear the cost of Mr Abdalla's indolence. 32 As a final matter, I note that, as a matter of form, the draft of the proposed cross-claim is not in accordance with the requirements of Pt 15 Div 15.1 of the Rules: see rr 1.04(2) and 1.07(5) of the Federal Court (Bankruptcy) Rules 2016 (Cth). It also uses various, inappropriate designations for the parties. A notice of cross-claim and statement of cross-claim are required: rr 15.02 and 15.06 of the Rules. They must be engrossed, filed, and served in accordance with the Rules. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. Associate: Dated: 19 August 2021