Collins v Ixia Pty Ltd - [2002] FMCA 312

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COLLINS v IXIA PTY LTD & ANOR

[2002] FMCA 312

BANKRUPTCY – Application to expunge proof of debt – applicant asking through agent holding Power of Attorney – whether security for costs should be ordered – whether necessity for costs should be ordered against agent – terms of security and consequential orders – reference to mediation.

Bankruptcy Act 1966 (Cth), ss.99(1), 149(4)
Federal Court of Australia Act 1976, s.56

Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972
Campbell v Pye (1954) 54 SR NSW 308

Applicant:

ROBERT WAYNE COLLINS

First Respondent:

IXIA PTY LTD
(ACN 007 891 519)

Second Respondent:

ALAN GEOFFREY SCOTT

File No:

AZ 227 of 2002

Delivered on:

10 December 2002

Delivered at:

Sydney

Hearing Date:

11 October 2002

Judgment of:

Raphael FM

REPRESENTATION

For the Applicant:

Applicant in person

Solicitor for the First Respondent:

Mr J White of Thomson Playford

Solicitor for the Second Respondent:

Mr J Neate of Lynch Meyer

ORDERS

Proceedings be reconstituted in the name of Andrew Michael Szumylo by his attorney Robert Wayne Collins as applicant.
The applicant give security for the costs of the first respondent in the sum of $10,000.00, the said sum to be paid to the District Registrar of this court in Adelaide to be held in such account as is designated by the Federal Court of Australia for such purposes until further order.
These proceedings be stayed until payment of such security has been made in cleared funds.
In the event that payment of the security has not been made within ninety days of the date these orders are entered, the first respondent shall have leave to apply to the court to strike out or dismiss the proceedings.
In the event that the security is provided and the proceedings continue, the proceedings shall be referred to a mediator to be agreed between the parties or in default of agreement to the District Registrar of this court in Adelaide, pursuant to Part 27 Rule 27 of the Federal Magistrates Court Rules. The court will expect the mediator to give directions to the parties concerning the establishment and rebuttal of claims to be made in the dispute between the parties. Any fees payable in respect of the mediation will be due by both the applicant and the first respondent in equal shares. In the event that any fees are not paid as ordered by the mediator, the mediator shall be at liberty to terminate the mediation and to refer the matter back to this court for consideration of ending the proceedings pursuant to Part 13 Rule 13.03 of the Federal Magistrates Court Rules.
The first respondent has liberty to apply for further security.
The applicant to pay the respondent’s costs of the notice of motion assessed in the sum of $1,500.00 within twenty-eight days of these orders being entered.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

AZ 227 of 2002

ROBERT WAYNE COLLINS

Applicant

And

IXIA PTY LTD

(ACN 007 891 519)

First Respondent

ALAN GEOFFREY SCOTT

Second Respondent

REASONS FOR JUDGMENT

The matter before me is the latest skirmish in a long running war between Michael Szumylo and his former employer Ixia Pty Ltd. These matters have occupied the attention of courts in South Australia since Mr Szumylo was accused of defrauding Ixia in about 1996. According to the evidence of Stephen John White in an affidavit dated 22 October 2002 Mr Szumylo pleaded guilty to fifty eight counts of fraudulent conversion involving a total amount of $418,406.86 and asked the sentencing court to take into account additional defalcations of at least $27,362.00. Ixia did not accept that this was the total amount of money lost as a result of the actions of Mr Szumylo and commissioned a report from an investigating accountant who came to the conclusion that the company’s total losses for the period from December 1993 to 31 July 2000 were less than $2,721,638.00.
Mr Szumylo was sentenced to imprisonment. He was also made bankrupt and Alan Geoffrey Scott, a partner in the firm of Sims Lockwood, was appointed the trustee of his bankrupt estate. Mr Scott has deposed in an affidavit dated 22 January 2002 in Federal Court Action SG 3033 of 1997, that there were no funds in the estate either to distribute to creditors or to fund investigations.
Mr Szumylo’s bankruptcy came to an end on 13 September 2002 by virtue of s 149(4) of the Bankruptcy Act. At that time he had filed a statement of affairs and Ixia had submitted a proof of debt in the sum of $1,562,729.00.
Whilst in prison Mr Szumylo met Robert Wayne Collins and utilised him as an adviser in connection with several proceedings which he brought in the Supreme Court of South Australia, the Federal Court and this court. Mr Collins is the donee of a power of attorney from Mr Szumylo dated 2 September 2002, which power of attorney is exhibited to an affidavit prepared by Mr Collins and sworn 2 November 2002. On that day Mr Collins commenced proceedings in this court in his own name under the authority of the power of attorney pursuant to s 99 of the Bankruptcy Act. He sought:
“1That the proof of the debt of Ixia Pty Ltd be expunged or reduced with respect to the matters deposed in the accompanying affidavit.”
At that time the second respondent was named as Sims Lockwood (Reg). That error has since been rectified so that the current second respondent is Mr Scott, the trustee in bankruptcy.
Mr Szumylo, either by himself or through Mr Collins, has longed claimed that the calculation of his alleged indebtedness to his former employers was inaccurate. He claims, inter alia, that it includes expenditure incurred by Mr Szumylo on behalf of the company but claimed to have been incurred on his own account. These allegations are not new, they have been considered by the company and its claims against Mr Szumylo have been adjusted. Mr Szumylo is also claiming certain employment benefits, which he says were not credited to him. The issue between the parties in these proceedings is whether the proof of debt filed by the first respondent accurately reflects the proper adjustments and credits that Mr Szumylo says he is entitled to. Section 99 of the Bankruptcy Act is in the following form:
“99(1) Where a creditor or the bankrupt considers that, by virtue of a decision of the trustee under sub-s 102(1), (3) or (4), a proof of debt has been wrongly admitted, he or she may apply to the court for an order that the proof be expunged or that the amount of the admitted debt be reduced, and the court may make an order accordingly.”
The power of attorney given by Mr Szumylo to Mr Collins includes the power found in paragraph 2:
“2 To commence and prosecute actions. For all and any of the purposes above mentioned to commence, institute, carry on and prosecute all actions, suits and proceedings at law in equity or otherwise when and as my attorney shall think fit and to pursue them to judgment decree and execution or to discontinue become non suit in or abandon them when and as my attorney shall think fit.”
I am satisfied that Mr Collins has the power to bring these proceedings.
On or about 23 October 2002 there was filed in the court a notice of motion dated 4 October 2002 issued by the first respondent seeking orders as follows:
“1    The originating application be struck out.
2      Alternatively,
2.1 The originating application be stayed; and
2.2 The applicant gives security for costs.
3    In the further alternative:
3.1
Andrew Michael Szumylo be substituted or joined as an

applicant;
3.2 The application be stayed;
3.3
Andrew Michael Szumylo and/or the originating applicant

Robert Wayne Collins give security for costs.
4    In any alternative, the costs of the first respondent be fixed and paid forthwith by Robert Wayne Collins and Andrew Szumylo.
5    Such further or other orders for directions as the court deems fit”.
At a directions hearing held on 11 October 2002 I made directions for the filing of evidence and submissions in respect of this notice of motion and these have now been complied with.
The first submissions by Ixia Pty Ltd made a direct attack upon the admissibility of the evidence filed by Mr Collins. The penultimate paragraph of the first respondent’s submissions dated 22 October 2002 says:
“There is no reason why this application should remain on foot. If Szumylo thinks he can establish a meaningful claim, he should start again. These proceedings should be struck out.”
After Mr Collins had made further submissions the first respondent on 5 November 2002 responded:
“It is difficult to understand Collins’ submissions but it seems he effectively seeks to have the proof of debt reduced by $194,097.88 (i.e. from $1,562,759.21 to $1,368,697.33) – submission page 2 bold paragraph 1, Exhibit RWC-5 to Collins’ second affidavit.”
11In addition, he wishes to negotiate a reduction of the rest of the proof of debt, but does not apparently seek an order in this respect – Submissions page 2, bold paragraph 2.
12The evidence Collins puts forward is, at best, either unqualified opinions of Collins, or digests of assertions by Szumylo. None of it is admissible for the purpose of reassessing the proof of debt or capable of leading to the orders Collins seeks, and the originating application must fail. Accordingly, Ixia’s Notice of Motion should be granted.”
It is not difficult to be sympathetic to Ixia’s position. By any measure it has lost a considerable sum of money as a result of the actions of Mr Szumylo. Mr Szumylo is a former bankrupt with no assets. It is unlikely that any money whatsoever will be paid from his estate by way of dividend to creditors. Notwithstanding this, Mr Szumylo and Mr Collins on his behalf have brought proceedings against Ixia in a number of courts, which have involved that company in considerable further expenditure in legal costs. The current application appears to them to be an exercise in futility because its prospects of recovery from the estate would not change whoever was successful in the proceedings.
On the other hand Mr Collins has raised some arguable issues (albeit in a manner of dubious admissibility) which may, on proper investigation, require adjustment to be made to the proof of debt. Ixia have in the past made adjustments to their claims against Mr Szumylo as a result of representations made by him and Mr Collins, whether more are needed is the issue between the parties.
I am not disposed to strike out the application but I am equally not minded to see the second respondent put through any further proceedings without protection for its costs.
Security for costs may be ordered under Part 21 Rule 21.01(1) of the Federal Magistrates Court Rules. The general principles of law applicable to such an order will apply. The six factors relevant to the power provided to the Federal Court of Australia in s 56 of the Federal Court of Australia Act 1976 were referred to in Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972. These are:
i)Chances of success;
ii)Would an order for security shut the applicant out from pursuing its claim?;
iii)Does the impecuniosity arise out of the breaches alleged against the respondent?;
iv)The public interest;
v)Discretionary matters peculiar to the relevant case;
vi)The quantum of risk that the applicant cannot satisfy an order for costs.
I am satisfied that the applicant is impecunious and that this impecuniosity did not arise out of the actions of the respondent. Whilst it is possible that the order for security may shut the applicant out of pursuing his claim it is to be borne in mind that there is little utility in the application itself given the status of the applicant’s finances from the time he became bankrupt until the time he was discharged. Given the debtor’s persistence in pursuing unsuccessful claims against the respondent and the known costs to which the respondent has been subject I believe it is in the public interests to make an order for security. Whilst it is difficult for me to assess the prospects of success of the applicant I believe that the reasons in favour of an order adumbrated above outweigh any possible disincentive arising from a favourable view of those prospects.
A power of attorney is no more than a sophisticated agency agreement. The authorities are clear than an attorney cannot sue on behalf of his principal in his own name Campbell v Pye (1954) 54 SR NSW 308.

I am satisfied that the heading of this action which clearly indicates that Mr Collins is suing under the power does not infringe that principle of law. It would have been happier (and I shall so order) if the proceedings were renamed to indicate that the applicant is Mr Szumylo acting through his attorney Mr Collins. Mr Collins can therefore not be held responsible for the costs of any proceedings nor can he be asked to put up any security for costs. The principle “Qui facit per alium per se” applies. Mr White in his affidavit of

22 October 2002 deposes that a fair estimate of the respondent’s likely costs to defend the proceedings is between $11,000.00 and $12,000.00 if the present defects in the proceedings are cured and they proceed to argument on affidavits. In Exhibit “SJW6” to that affidavit he provides more particulars of that calculation. I am satisfied that these particulars are, if anything underestimates, as the proceedings could become a lengthy accounting exercise.
In an attempt to save costs I propose to make orders requiring the parties to submit to mediation by the District Registrar of this court in Adelaide. I shall also make orders giving the first respondent the right to make further application for security at a later date. The order for security, which will be in the sum of $10,000.00, will create a stay on the proceedings until such amount is paid into court. I propose to add an additional order permitting the first respondent to make application to strike out the proceedings in the event that the security is not provided within ninety days. I order that the applicant pay the first respondent’s costs of this notice of motion within thirty days of the entry of the orders assessed in the sum of $1,500.00 pursuant to Part 21 Rule 21.02(2)(a) of the Federal Magistrates Court Rules.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: