De Simone v Bevnol Construction and Developments Pty Ltd

[2010] FMCA 926

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DE SIMONE v BEVNOL CONSTRUCTION & DEVELOPMENTS PTY LTD [2010] FMCA 926

BANKRUPTCY – Bankruptcy notice – s.40(1)(g) – application for a stay.

Bankruptcy Act 1966, s.40(1)(g)
Fair Trading Act 1999 (Vic), ss.21 to 29
High Court Rules, r.41.10
Trade Practices Act 1974

Applicant: GIUSEPEE DE SIMONE

Respondent: BEVNOL CONSTRUCTION & DEVELOPMENTS PTY LTD

File Number: MLG 952 of 2010

Judgment of: Riethmuller FM

Hearing date: 20 October 2010

Date of Last Submission: 20 October 2010

Delivered at: Melbourne

Delivered on: 21 October 2010

REPRESENTATION

Counsel for the Applicant: The Applicant appearing in person

Counsel for the Respondent: Mr Baker

Solicitors for the Respondent: Macpherson + Kelly Lawyers

ORDERS

1. The application be dismissed.

2. The application for a stay with respect to the judgment be refused.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 952 of 2010

GIUSEPEE DE SIMONE

Applicant

And

BEVNOL CONSTRUCTION & DEVELOPMENTS PTY LTD

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)

1. This is an application by the applicant to set aside a bankruptcy notice that has been served upon him.  The notice relies upon a costs judgment from the Court of Appeal of the Supreme Court of Victoria in the sum of $18,232.50.

2. The applicant was running a large building project, through a corporate entity, involving a number of developers and builders.  The respondent is a construction company.  There is, at present, a significant commercial dispute pending in the Victorian Civil and Administrative Tribunal (‘VCAT’), involving Seachange Management Pty Ltd, a company associated with the applicant, and the respondent, Bevnol Construction & Developments Pty Ltd, and various other persons.  There has also been litigation with another company which involved a settlement set out in a complex deed of arrangement between 13 different parties, which has been annexed to the material.

3. I also have the benefit of an affidavit that was filed in the State Magistrates Court.  This affidavit is annexed as an exhibit to the applicant’s affidavit, and addresses some criminal proceedings.  The criminal law proceedings involve a committal proceeding that is currently pending in the State Magistrates Court and appears to have arisen out of the transactions that are the subject of the civil dispute.

4. I am told from the bar table, and have no reason to doubt, that there have been 49 days of committal hearing involving around 17,000 pages of documents;  that the Crown brief involved two and a half thousand pages; and that there are 2000 to 3000 pages of exhibits so far in the committal.  The charge sheets are annexed to the applicant’s material.  However, none of the committal documents have been provided to me as part of the material on this application.

5. The basic issue, not only of the criminal proceedings but also the civil proceedings, was the nature of the arrangements between the parties and the nature of representations, if any, relating to the finance arrangements for a multi-million dollar development,  that were in place.  In substance, the applicant understands that the allegation is that, as a result of alleged representations, there was a belief that over $9 million in finance had been secured when, in fact, only $6 million worth of finance was secured.  For today’s purpose, this appears to be a sufficient summary and there is little in the material to add a great deal of detail to the issues that I must determine.

6. The debt that is the subject of the judgment is a costs order.  It arises out of an application for leave to appeal to the Court of Appeal of the Supreme Court of Victoria from a VCAT decision.  A judge at VCAT decided that the civil proceedings at the Tribunal would not be stayed, pending the investigation of the criminal allegations made against the applicant.  The applicant lost the application seeking leave to appeal.  The bankruptcy notice relies upon the costs order made by the Court of Appeal, which was eventually quantified.

7. The applicant sought a further stay in the VCAT proceedings.  At this stage it has been adjourned until after the committal proceedings.  No doubt this is to review the situation once the state Magistrate’s findings on the committal proceedings are to hand.

8. The applicant alleges that the bankruptcy notice should be struck out on two different bases. First, he claims the bankruptcy notice was for an improper purpose and secondly, that it is not a bankruptcy notice that can issue as a result of s.40(1)(g) of the Bankruptcy Act 1966.  The applicant says that he has a cross‑claim that could not have been set up in the action or proceedings in which the judgment arose.  This is because the applicant’s cross-claim is dependent upon his claim that there will be, ultimately, an action by him against the complainant in the criminal proceedings, that led to the police charges for malicious complaint and/or malicious prosecution.

9. Although the applicant did not argue it, there is also an issue about whether or not, in the exercise of my discretion, I ought to extend the time for compliance with the bankruptcy notice until the end of either the committal proceedings or the civil proceedings at VCAT. 

10. I turn first to the question of whether the bankruptcy notice is for a proper purpose.  The applicant relied upon the state’s Fair Trading Act, referring specifically to ss. 21 to 29, which relate to improper conduct by debt collectors. Those sections do not have application in the case. This is complex commercial litigation from which criminal proceedings have emanated and there were proceedings on appeal. The order is a costs judgment on the appeal. It is not said that the basis for the claim for payment of the costs order can be seriously impugned as it is a judgment of the court. Nor is it alleged that it is part of a course of conduct, that is to place an improper purpose or to further some underlying improper purpose, although the applicant says that the criminal proceedings are a part of an improper purpose.

11. There does not appear to be relevant provisions in the Trade Practices Act 1974 as generally alleged by the applicant.  I note that he did not refer to any specific provision in the Trade Practices Act.  The applicant also raised an allegation that he is solvent.  He produced a Commonwealth Bank account statement for 47 transactions, for an account described as Nominees Trust Account.  The statement showed that the best part of $1 million was in credit on 18 October of 2010, up from slightly more than $450,000 in June of 2010.

12. The statement does not make clear that the applicant does, in fact, have a beneficial entitlement to those funds.  However, beneficial entitlement of itself does not make the bankruptcy notice improper.  There have been decisions of the Federal Court to the effect that proof of solvency alone does not form a proper basis for setting aside a bankruptcy notice.  A bankruptcy notice involves a system whereby notice is given to the applicant of the claim, and a timeframe is given to pay the debt, if he is solvent.  If he does not pay the debt, it creates evidence upon which a creditor can rely to form the basis of a sequestration application.  With such an application, issues about solvency can be more fully explored.

13. It is well understood that, in many cases, an asset may be held.  But in cases where people are involved in complex financial dealings, that of itself does not show solvency.  If a person is indeed insolvent it is important that the relation back date be set by the bankruptcy notice as soon as possible in order to preserve the rights of the creditors.

14. I am not persuaded that the bankruptcy notice is for an improper purpose.

15. The applicant also argues that an improper purpose of the notice is to attempt to bankrupt him in order to stymie his proceedings in VCAT, as he also alleges with respect to the criminal prosecution that has been launched in this case.  This is a case where a costs order has been made.  The applicant has not sought a stay of that costs order in the Court of Appeal.  The applicant says that he has made application for special leave to appeal to the High Court, although as he is an applicant in person he has not served the application (r.41.10 of the High Court Rules 2004 provide for an initial ex parte hearing before service of a special leave application by the litigant in person).

16. However, despite r.41.10 of the High Court Rules, it would not be in any sense improper to have provided a copy of that material to this court, nor to provide it to the other side for the purpose of considering this application. The purpose of r.41.10 is to deal with the High Court’s ever burgeoning problem of a very large number of special leave applications by unrepresented litigants that are clearly doomed to fail and the tremendous expense to litigants, who are represented, caused by being served with those applications. The rule simply provides for a judge of the High Court to consider such applications and determine whether or not there is a point of sufficient significance to warrant another party being drawn into High Court proceedings. This purpose would still be properly achieved even if those documents were provided as part of this proceeding to allow the court to consider the nature of the appeal that has been lodged with the High Court, and determine if it does appear to actually be a bona fide or proper special leave application.

17. The expiry of the period set out in the bankruptcy notice simply provides evidence of insolvency.  It does not, of itself, put the applicant into bankruptcy, which is the next step undertaken through the sequestration application.  The court has a discretion as to whether or not to proceed forthwith to a sequestration order, to dismiss the sequestration application, or to adjourn it.  Questions of the impact that it may have upon other proceedings can be considered at that time.  The benefit of considering those questions at the time of the sequestration application, rather than at the bankruptcy notice stage, is that the relation back date is preserved if the bankruptcy notice stage is not delayed.  It also means that if there are other creditors, unrelated to this litigation, who wish to proceed against the applicant, they can rely upon the bankruptcy notice and the failure to comply with it.

18. The applicant’s argument that he can prove he has enough money to pay the debt, but staunchly refuses to do so, is effectively a conscientious objection to paying the Court of Appeal’s costs order.  This is not a case where an ordinary person, who has only one debt, is suddenly facing a bankruptcy notice before they can arrange their affairs for payment.  This is a case that arises out of a large and complex business transaction involving people who have been engaged in business for a number of years.

19. For a business person to simply say that they will, effectively, refuse to comply with the Court of Appeal’s costs order and then oppose a bankruptcy application as being improper does not appear to be appropriate.  There is no way for the respondents to know what other debts and complex affairs the applicant has.  Clearly, the respondents do not want to be left in a position where it is later said that they have received a preferential payment.  In these circumstances, I am not persuaded that there is a basis for concluding that this bankruptcy notice is for an improper purpose.

20. The alternative objection to the bankruptcy notice relies upon s.40(1)(g). This turns upon whether or not the applicant can show that he has a cross-claim that could not be set up in the action or proceedings. The applicant initially took a technical point that the appeal to the Court of Appeal was a separate proceeding to the VCAT proceedings, from which the appeal emanated. The term ‘action or proceedings’, as used in the Bankruptcy Act, should be read as wide enough to include the appeals that arise out of the primary action that has been brought.

21. The more significant argument, that the applicant identifies, is that it is not proper for him to commence civil claims for malicious complaint or malicious prosecution, at least until such time as the criminal matter has been dealt with.  The applicant has reached this position, largely as a result of statements by police that they would consider charging him with harassing witnesses or other offences if he did so.  Whether or not that is proper is not a matter for me.  However, on the general law, a court would ordinarily stay any civil proceedings of that type if they are brought before the outcome of the criminal proceedings is known.

22. Therefore, it is a situation where the applicant cannot properly have brought the malicious complaint or malicious prosecution proceedings, at this time, as part of a cross‑claim in the currently pending VCAT proceedings, at the very least, until the criminal proceedings have ended. Whilst it might be theoretically open to him, it seems that the proper course is not to attempt to bring such a claim until after the criminal proceedings are finished. Therefore a claim of this type would appear to be within the ambit of s.40(1)(g). The question then arises as to whether or not the applicant has demonstrated an arguable case, in this regard, sufficient to engage the operation of s.40(1)(g).

23. Cases for malicious complaint or malicious prosecution are not commonly brought before the courts.  No doubt this is for a number of structural reasons about the way that the law currently operates.  Firstly, there are a few, if any, private prosecutions in the modern legal world.  Therefore, complaints are usually properly vetted and considered by the police prosecution and Director of Prosecution authorities, before being brought to court.  This is to ensure that there is a proper factual foundation upon which to bring such proceedings.  Secondly, the elements of the tort of malicious claim or malicious prosecution place a very heavy burden upon the applicant, in the sense that the applicant has the onus of proof and the elements are difficult to prove.  Of course, it does not mean that malicious claims and malicious prosecution cases are not, from time to time, successfully prosecuted. One could easily conceive of circumstances where entirely false and malicious complaints could be made to the police (without the police being aware they are false complaints) and they are ultimately proved in the civil courts, in order to sound in damages for a malicious complaint.

24. The respondent says that there is nothing in the material to show that the damages that may flow from a claim of this type would equal or exceed the amount of the costs order of $18,232.  There is some difficulty with that, even in the absence of any detailed material to base an assessment of damages upon.  In the context of a civil claim for malicious prosecution or malicious complaint, the sum of $18,000 is likely to be a modest amount when one turns to consider damages, particularly for a business person whose honesty is seriously impugned by the criminal proceedings.

25. The respondent raised a further technical point in this proceeding: Mr Lane’s complaint and that these proceedings involve Bevnol Construction & Developments Pty Ltd (‘Bevnol Construction’).  However, it is clear that Mr Lane is a director, who is significantly involved in Bevnol Construction’s undertaking and that it was Bevnol Construction that was affected by the conduct alleged against the applicant.  To the extent necessary, it appears that there is enough material to link Bevnol Construction and Mr Lane to the complaint concerned, at least for the purpose of what I must consider today.

26. There are a number of elements to a civil action of this type.  First, the defendant must be actively instrumental in instituting or continuing the proceedings.  To this extent, there is at least an arguable case that the proposed defendant, the respondent in these proceedings, was actively instrumental.  The next element is that the proceedings were terminated or capable of termination in favour of the applicant.  At this stage, they have not been terminated in his favour.  He is hopeful that he will achieve that at the end of the committal proceedings.  However, at this stage he has not reached that point. 

27. I then turn to consider whether there is material before me, upon which I could conclude that he has an arguable case, of weight sufficient for these proceedings, to show that the criminal proceedings are capable of termination in his favour.  I do not have any of the committal documents.  I have the charge sheets.  I am told that there has been an enormous number of days of hearing and an exceedingly large number of pages of documents and an incredible number of exhibits.  On its face this does not lead to a logical conclusion that the applicant has an arguable case that this is a prosecution which should not have been brought or was brought maliciously.

28. The fact that there is such a very large amount of material does not, to my mind, demonstrate that the prosecution case is a very weak one.  It is also difficult to conclude that it shows a strong prosecution case.  We have all seen cases where there is a large amount of material and ultimately the case collapses in the end.  But it certainly does not smack of a case that, one would jump to conclude, had no reasonable basis or is likely to be terminated in the applicant’s favour.

29. The next element is that the proceedings are brought without reasonable and probable cause.  Again, the very large number of documents is indicative that there is likely to have been some cause, as is the police conduct, for pursuing such a case.  It is the applicant’s application that Mr Lane was a former police officer and has, in some way, improperly used his connections with Victorian police officers to entice them into bringing the prosecution.  However, aside from the bare allegations, there is no real evidence that supports this proposition.  There is certainly no evidence before me upon which I could conclude that he has an arguable case, that all of this was brought without reasonable and probable cause.

30. The next element is whether or not the defendant was motivated by malice.  This will, no doubt, have to be proved from the facts and circumstances.  It is a difficult element to prove in a civil proceeding and, again, in the absence of the large amount of material involved in the committal proceedings, it is difficult for me to conclude that there is an arguable case of malice.  The fact that somebody is involved in a civil dispute, is deeply upset that they believe they have been misled as to arrangements for finance that involves millions of dollars, and subsequently make a complaint to the police, does not of itself appear to demonstrate malice.  In many civil cases one sees, it is surprising that complaints are not made to police, given the nature of the transactions that occur.  In this case, I simply do not have material upon which I could conclude that there is an arguable case for malice.

31. The final element is damage, which I have dealt with above.

32. Looking at the matter as a whole, it appears that the respondent could reasonably complain that I have been overly generous with respect to the elements of whether or not the respondent was actively instrumental in the complaint, and the question of damage. However, I have endeavoured to take a reasonably generous attitude to the applicant’s case, given the nature of the bankruptcy proceedings and the difficulty in putting appropriate material before the court. However, despite attempting to adopt such a course, I remain unconvinced that he has demonstrated a sufficient case to engage s.40(1)(g), with respect to the other crucial elements of a tortious case for malicious complaint or malicious prosecution.

1. I turn to consider whether or not I ought to exercise a general discretion to extend the bankruptcy notice, at least until such time as the currently pending criminal and civil proceedings have run their course.  I do not have specific estimates as to when the proceedings will be completed.  However, given the large number of judgments that have been entered, the fact that there has been at least one attempt to appeal, a special leave application, and that the VCAT proceedings are currently adjourned pending committal proceedings, it does not appear that the commercial proceedings are likely to end in the near future.

2. The applicant has not sought to obtain a stay of the Court of Appeal’s costs order.  The applicant, from the bar table, claims he has sought a special leave application in the High Court. However, I have not had the opportunity to see the basis upon which he seeks special leave, in order to form a view as to whether or not it is bona fide.  I recognise that it is notoriously difficult to determine what matters may obtain special leave in the High Court, due to the exceedingly large number of special leave applications and the real limits upon the work that the High Court can do in any given year.  However, it is certainly possible to look at a special leave application and identify whether or not there appears to be a point of some legal interest or public importance that might, at least, be a bona fide basis for bringing a special leave application.  Unfortunately there are many special leave applications that are brought which are clearly without any prospect of obtaining the leave of that court.

3. Solvency per se does not defeat a bankruptcy notice, although obvious insolvency would make a stronger case against staying a bankruptcy notice.  In this case, there is at least some evidence of alleged solvency, although it is not good evidence nor weighty evidence.  The complex commercial transactions, the fact that there is lengthy litigation pending, and committal proceedings pending, lead to concerns that one would not know exactly what is the current state of the applicant’s affairs.  On this basis, there would be real concerns to ensure that the bankruptcy notice date was as early as possible, should it be ultimately correct that he will become insolvent, or is insolvent, so as to preserve the creditors’ position and minimise the prospects of claims for preferential payments or more difficult claims by the trustee, in order to recover assets for the creditors’ benefits.

4. There is nothing to show that this notice will necessarily, if it is not complied with, cause other difficulties for the applicant.  In this sense, I recall some cases where there are contractual terms, often in finance documents, which are squarely put before the court to show that a person's financial position will be forced to collapse if the bankruptcy notice is not stayed.  This is not squarely put before me in this case.

5. When I consider the matter as a whole, I am not persuaded that the bankruptcy notice ought to be extended to any given date.  If the applicant is in a position where he is solvent, and able to pay the debt, then he ought to do so, to avoid any prima facie evidence that he is insolvent.  If he is not solvent, then he will suffer the evidentiary effects of a bankruptcy notice and, to the extent that sequestration is a real issue, it will come before the court in due course, no doubt, on different material to that which is before the Court today.

6. In the circumstances, I therefore dismiss the application.

Stay of the bankruptcy notice

1. The applicant in this case, having been unsuccessful, now seeks a stay of the bankruptcy notice, for a further seven days.  The purpose of this application is to return to the Court of Appeal in order to seek a stay of the costs order made in April.  The proceedings before me have been pending since July and no stay application has been made to that court.

2. There has been more than adequate time for a stay application to occur.  This ought to have been done well before today.  It is unlikely that the matter is going to be before the Court of Appeal within a short time, in any event.  Accordingly, if a brief stay was ordered it seems inevitable that the matter would return to me in a few days’ time with an application filed in the Supreme Court, seeking a further and lengthy stay until such time as the Supreme Court could then list and hear this application.  The effect of that is to greatly increase the amount of time that the bankruptcy notice is effectively stayed, because of a failure by the applicant to take the stay proceedings in the Supreme Court in a timely fashion: namely, shortly after judgment and certainly some time within the last six months.

3. In this context, ultimately, the appropriate course must be to refuse the stay application with respect to the judgment today.  I therefore refuse that oral application.

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Riethmuller FM

Date:  1 December 2010