Turner & Zollo v Kostoglou & Anor [2009] FMCA 999 (13 October 2009)

Last Updated: 18 December 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TURNER & ZOLLO v KOSTOGLOU & ANOR

[2009] FMCA 999

BANKRUPTCY – Bankruptcy notices – applicant to set aside – futility of applications – applications refused.

Bankruptcy Act 1966, ss.40(1)(g), 41(6A), 41(7) & 44(1)(c) District Court Rule, r.101.01(7)

Re Neil James John Duckworth ex parte: Alan Kevin Lockett and Elizabeth Evelyn Lockett [1987] FCA 34 (12 February 1987)

Applicant:

PAMELA ANNE TURNER

First Respondent:

MICHAEL KOSTOGLOU

Second Respondent:

ANGELA KOSTOGLOU

File Number:

ADG 174 of 2006

Applicant:

ERNESTO ZOLLO

First Respondent:

MICHAEL KOSTOGLOU

Second Respondent:

ANGELA KOSTOGLOU

File Number:

ADG 189 of 2006

Judgment of:

Simpson FM

Hearing dates:

14 October 2008, 13 November 2008 & 13 February 2009

Date of Last Submission:

13 February 2009

Delivered at:

Adelaide

Delivered on:

13 October 2009

REPRESENTATION

Counsel for the Applicant:

Mr J. Pertl & Mr G. Stathopoulos

Solicitors for the Applicant:

Joseph Pertl Barrister & Solicitor

Counsel for the Respondents:

Mr R. Ross-Smith & Mr Grant

Solicitors for the Respondents:

Georgiadis Lawyers

ORDERS

In action number ADG 174 of 2006

(1) Application by Pamela Anne Turner is dismissed.
(2) The applicant pay the respondent’s costs to be agreed and in the absence of agreement to be taxed in accordance with the Federal Court Rules.

In action number ADG 189 of 2006

(3) Application of Ernesto Zollo is dismissed.
(4) The applicant pay the respondent’s costs to be agreed and in the absence of agreement to be taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE

ADG 174 of 2006

PAMELA ANNE TURNER

Applicant

And

MICHAEL KOSTOGLOU

First Respondent

ANGELA KOSTOGLOU

Second Respondent

ADG 189 of 2006

ERNESTO ZOLLO

Applicant

And

MICHAEL KOSTOGLOU

First Respondent

ANGELA KOSTOGLOU

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. I have before me two related actions that, at the parties’ request, can be conveniently dealt with together. The respondents in both actions are Michael and Angela Kostoglou (“the Kostoglous”). The applicant in action number ADG 174 of 2006 is Pamela Anne Turner (“Turner”). Ernesto Zollo (“Zollo”) is the applicant in action number ADG 189 of 2006. Where appropriate I will refer to Turner and Zollo jointly as “the applicants”.
2. On 26 May 2006 the Kostoglous had bankruptcy notices issued against each of the applicants. Each bankruptcy notice relied on more than one judgment debt. The debts in relation to the Turner bankruptcy notice totalled $19,282.74. The debts in relation to the Zollo bankruptcy notice totalled $7,515.19.
3. On 20 September 2006 Turner paid the Kostoglous $15,863.51, leaving an amount of $3,419.23 owing. On the same day Zollo paid the Kostoglous $3,024.78, leaving a balance owing of $4,490.41. These two balances owing equate to the judgment debts that the Kostoglous obtained against each of the applicants pursuant to costs orders in District Court proceedings.
4. The bankruptcy notices were served on each of Turner and Zollo on 1 and 13 June 2006 respectively. On 19 and 30 June 2006 respectively Turner and Zollo made application to this Court for orders as follows:
   • 1. Striking out the notice of bankruptcy against the applicant issued by the respondents;
   • Or alternatively:
   • 2. Staying the effect and application and enforceability of the said Bankruptcy Notice until final determination of the District Court Action No. 1480 of 2003.
5. When the applications came before Registrar Christie the parties agreed that the applications should be dealt with together and that they should be treated as applications to set aside bankruptcy notices to which s.41(6A) and/or s.41(7) of the Bankruptcy Act 1966 (Cth) (“the Act”) applied. On 4 September 2006 the Registrar decided that both applications should be dismissed whereupon each of the applicants filed Applications for Review of the Registrar’s decisions.
6. The Applications for Review first came before a Federal Magistrate on 26 September 2006 at which time, at the request of the parties, both applications were simply adjourned. Thereafter both applications were regularly adjourned at the request of the parties on the basis that they were awaiting the outcome of proceedings in the District Court of South Australia (“the District Court proceedings”) in which the applicants were plaintiffs and the Kostoglous were defendants. It was said by the parties that they believed that the outcome of the District Court proceedings would result in these proceedings being resolved. As will be seen, that belief was misguided.
7. Although the District Court proceedings were heard in February and March 2007 a decision was not given until 19 June 2008. The applicants were unsuccessful in the District Court proceedings. They then lodged an appeal to the Supreme Court.
8. At the request of the parties these Applications for Review were listed for hearing on 14 October 2008. Final Submissions were put on 13 February 2009.
9. It was submitted inter alia on behalf of the Kostoglous that the applications to set aside the bankruptcy notices should be dismissed as being futile as acts of bankruptcy had occurred in relation to each such notice. It was put that this fact alone was sufficient to dismiss the applications.
10. No submission has been put on behalf of the applicants in relation to this important issue.
11. The submission put on behalf of the Kostoglous is supported by authority. It was said by the then French J in Re Neil James John Duckworth ex parte: Alan Kevin Lockett and Elizabeth Evelyn Lockett[1] that:
    • “... the scheme of the Bankruptcy Act is quite inconsistent with the existence of a power to set aside a bankruptcy notice after the time for compliance with it has expired and no extension has been granted.”

I accept this as a correct statement of the law.

12. An examination of the material shows that the extension of time for compliance with the bankruptcy notices granted by the Registrar pursuant to sub-s.41(6A) of the Act and the deemed extension pursuant to sub-s.41(7) both expired at the time the Registrar made orders dismissing the applications on 4 September 2006. No application for an extension of time was then made by the applicants nor was such an order then made. It follows that acts of bankruptcy occurred at this time.
13. I note that orders extending time for compliance were made on 26 September 2006 and 16 March 2007 but these extensions, if effective, expired on 20 November 2006 and 12 June 2007 respectively. I do not consider that these orders had any effect on the legal status of the acts of bankruptcy previously referred to. There were no further orders made extending time for compliance.
14. It follows that these Applications for Review should be dismissed on this ground alone.
15. It also follows from my earlier findings concerning the acts of bankruptcy that the time within which the Kostoglous had to present their creditor’s petitions against each of the applicants expired on 4 March 2007[2]. If I am wrong about the date of the acts of bankruptcy, the acts of bankruptcy occurred no later than 12 June 2007 when the last of the extensions of time lapsed. For this reason also these proceedings are futile.
16. The costs associated with these proceedings would appear therefore to be the only reason why a decision is needed. I therefore propose to only briefly address the other arguments presented.
17. The applicants submit that their applications should be allowed as the balance of monies allegedly owing were pursuant to interim costs orders in the District Court proceedings which, pursuant to District Court Rule 101.01(7), were not payable until the conclusion of the litigation. They criticise the fact that the Kostoglous taxed these costs before the District Court proceedings were concluded and relied on those sums for their bankruptcy notices.
18. I express no view about whether the judgment sums were correctly obtained in the District Court. Until such time as steps have been successfully taken to have them discharged this Court is entitled to proceed on the basis that apparently validly sealed allocaturs from other courts have been correctly obtained. The applicants have had ample time to make such applications but have taken no steps to do so.
19. This submission from the applicants provides no proper basis to allow these Applications for Review.
20. Whilst before the Registrar the applicants also submitted that they each had a claim in the District Court that should satisfy the provisions of s.40(1)(g) of the Act which should therefore result in the Court setting aside the bankruptcy notices. At the time of this review hearing the District Court proceedings had been decided adversely to the applicants. Whilst an appeal in relation to that decision has been instituted by the applicants, no serious argument was advanced by the applicants at the hearing before this Court that their applications should succeed on this basis. I do not therefore propose to give detailed reason in relation to this potential argument except to say that, on the material before me, I would have come to the same ultimate conclusion as the Registrar on this topic, namely, that each of the applicants have failed to satisfy the Court that they have a counter-claim, set-off or cross-demand equal to or exceeding the amount of the unpaid portion of the judgment debt that could not have been set up in the action or proceeding in which the judgment or order was made.
21. For the above reasons, the Applications for Review are dismissed with costs. I make the orders to be found at the beginning of these reasons.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Simpson FM

Associate: J. Semler

Date: 12 October 2009

---

[1] Unreported, [1987] FCA 34 (12 February 1987) at para.55.
[2] Section 44(1)(c) of the Act.