Hickie v Zdrilic
[2015] FCCA 1329
•27 May 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HICKIE & ANOR v ZDRILIC & ANOR | [2015] FCCA 1329 |
| Catchwords: BANKRUPTCY – Creditors’ petition filed – notice stating grounds of opposition to petition filed – whether Court should go behind judgment founding creditors’ petition when judgment has been appealed and dismissed, and special leave has been sought and refused in the High Court – allegations of fraud and collusion against creditors – whether creditors’ petition should be adjourned to allow debtors to run appeal against other parties involved in litigation that founded the creditors’ petition when those parties are not parties to the creditors’ petition – consideration when debtors admit they are insolvent – notice stating grounds of opposition to creditors’ petition should be dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40(1)(g), 52(2)(a), 52(2)(b) |
| Corney v Brien (1951) 84 CLR 343 Goyan v Motyka [2009] FCA 776 Hickie v Land Enviro Corp Pty Ltd [2014] FCA 1386 Hickie v Land Enviro Corp Pty Ltd [2014] NSWSC 472 Lahood v Bank of Western Australia Ltd (No.3) [2013] FCA 861 Land Enviro Corp Pty Ltd v Hickie [2014] NSWCA 363 Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 382 Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2013] NSWCA 35 Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2014] NSWCA 34 Miao v Owners Corp SP 31235U [2015] FCA 352 Re Young; Ex parte Smith (1985) 5 FCR 204 Sandell v Porter (1966) 115 CLR 666 Totev v Sfar & Anor (2008) 167 FCR 193 Wenkart v Abignano [1999] FCA 354 Wren v Mahony (1972) 126 CLR 212 Xu v Wan Ze Property Development (Aust.) Pty Ltd (in liq.) (ACN 131 642 147) & Ors (2014) 315 ALR 523 Yarranova Pty Ltd v Shaw (No.2) [2014] FCA 616 Zdrilic & Anor v Hickie & Anor [2014] FCCA 1593 |
| First Applicant: | DAVID HICKIE |
| Second Applicant: | VOCIFA PTY LTD |
| First Respondent: | SAM ZDRILIC |
| Second Respondent: | AMY ZDRILIC |
| File Number: | SYG 2324 of 2014 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing dates: | 20, 23 February 2015 |
| Delivered at: | Sydney |
| Delivered on: | 27 May 2015 |
REPRESENTATION
| Counsel for the Applicants: | Mr F Lever |
| Solicitors for the Applicants: | Bartier Perry |
| The Respondents: | The First Respondent appeared in person on behalf of the Respondents. |
ORDERS
The Notice Stating Grounds of Opposition to the Creditors’ Petition filed on 15 September 2014 be dismissed.
The Creditors’ Petition proceed to hearing before a registrar of the Court forthwith.
Costs be reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2324 of 2014
| DAVID HICKIE |
First Applicant
| VOCIFA PTY LTD |
Second Applicant
And
| SAM ZDRILIC |
First Respondent
| AMY ZDRILIC |
Second Respondent
REASONS FOR JUDGMENT
Introduction
Before the Court is a creditors’ petition filed on 20 August 2014 (the “Petition”) by the applicants, David Hickie and Vocifa Pty Ltd (together, the “Applicants”), seeking the making of sequestration orders against the estates of the respondents, Sam Zdrilic and Amy Zdrilic (together, the “Respondents”), pursuant to s.52 of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”).
Background
Prior to the filing of the Petition, the Court dealt with an application by the Respondents to set aside the bankruptcy notice founding the Petition: Zdrilic & Anor v Hickie & Anor [2014] FCCA 1593 (the “Zdrilic Bankruptcy Notice Judgment”) which was handed down on 24 July 2014. The following orders were made disposing of that application:
1. Pursuant to reg.20.01(2)(a) of the Federal Circuit Court Rules 2001 (Cth), the time for filing the applicants’ application for review filed on 27 March 2014 be extended to 27 March 2014.
2. The application for review filed on 27 March 2014 be dismissed.
3. Any creditor’s petition founded on the basis of a failure to comply with the requirements of Bankruptcy Notice No BN 159,172 of 2013 be referred to the docket of Judge Lloyd-Jones for case management and hearing.
4. The applicants pay the respondents’ costs of and incidental to the application for review filed on 27 March 2014 as agreed or assessed.
In the Zdrilic Bankruptcy Notice Judgment, I set out a detailed background setting out the history and basis upon which those proceedings arose at [15]-[24]. As the Petition is based on the Bankruptcy Notice issued against the Respondents, it is convenient to reproduce that background in the instant matter. I stated therein:
15. There has been significant litigation in recent history involving not only the parties to the current proceedings, but a number of other parties as well. I have had regard to the judgment of the NSW Court of Appeal and it is convenient to address these reasons insofar as they relate to the Review Application.
16. The most recent decision of the NSW Court of Appeal in Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2014] NSWCA 34 was an application by the Applicants (as well as two other parties, being companies related to the Applicants) seeking an extension of time to appeal against what can be described as the substantive judgment of Justice Stevenson in Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 382. It should be noted the Applicants (and the two related companies) brought an application seeking an extension of time to lodge a notice of appeal before Allsop P (as he then was), which his Honour dismissed: Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2013] NSWCA 35.
17. In the judgment of Beazley P, Basten and Leeming JJA in Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2014] NSWCA 34 the headnote provides a convenient background of the events leading up to and including the commencement of litigation and states:
In 1998, Land Enviro Corp Pty Ltd (“LEC”) had contracted to purchase an area of land for $2.5 million from Powercoal Pty Ltd. LEC (then under the control of the second applicant, Mr Zdrilic) was unable to obtain the necessary finance to complete the purchase and the land was eventually purchased by another company, HTT Huntley Heritage Pty Ltd (“HTT”), which had been incorporated by a number of directors of LEC shortly before Powercoal sent a notice to complete to LEC. In 2001, LEC commenced proceedings alleging breaches of duty and improper use of information and opportunities against these directors; HTT was joined as a defendant. In 2003 LEC placed a caveat over the land.
In 2004 the parties agreed to settle the 2001 proceedings and allow the development of the site to go ahead. By this time, a Mr Renshall was directing the operations of HTT. Key features of this agreement included making Mr Zdrilic a director of HTT; the discontinuance of the 2001 proceedings and the removal of the caveat, once HTT had obtained funding to pay off debts incurred by LEC and HTT, to allow the land to be developed.
Mr Zdrilic discontinued the proceedings and the caveat was withdrawn. However, this occurred without the necessary funding being obtained by HTT. Mr Renshall had made representations to Mr Zdrilic that funding was forthcoming. Mr Renshall also informed Mr Zdrilic that a condition of the funding was Mr Zdrilic surrendering his involvement with HTT as agreed to in the settlement. In 2006, when funding did not appear to be forthcoming, LEC lodged a caveat on the title to the land and, in 2007, commenced proceedings to set aside the settlement made in 2004 on the basis that Mr Zdrilic had been misled.
The trial judge dismissed these proceedings on the basis that Mr Zdrilic was aware there was no funding in place when the agreement was concluded and made no complaint. LEC sought to appeal. A notice of appeal should have been filed by 30 July 2012 but was belatedly filed on 8 November 2012. On 21 February 2013 Allsop P dismissed an application for an extension of time and consequentially dismissed the notice of appeal as incompetent. The principal ground for dismissing the application was the lack of any real or significant prospect of success. LEC sought to review that judgment, pursuant to s 46(4) of the Supreme Court Act 1970 (NSW).
18. In the reasons of the Court of Appeal, Basten JA stated in respect of the Respondents (to these proceedings) and the parties more generally at [4]-[7]:
4. The active applicant, both before Allsop P and in the review proceedings, was Mr Sam Zdrilic, the second applicant. He appeared, with leave, for the company, Land Enviro Corp Pty Ltd, for his wife, Amy Zdrilic, and for the fourth applicant, Amy Holdings Pty Ltd There is no need to consider the separate interests of the applicants in this proceeding.
5. It is, however, necessary to consider the separate interests of the respondents. They fell into three groupings, which may be addressed in reverse order of significance for the present application. Thus, Sentel Pty Ltd, the fourth respondent, was properly joined as a party, but took no part in the proceedings. Its role, as a corporate entity in which both applicants and respondents had an interest, was essentially neutral.
6. Secondly, the third respondent (Mr David Hickie), and the sixth respondent (Vocifa Pty Ltd) had common representation and may be identified as the “Hickie interests”. As will be noted below, the primary case for the applicants was that they had suffered loss and damage as a result of misrepresentations for which Mr Renshall (the first respondent) was primarily liable. In the original pleadings, the claim against the Hickie interests was based on Mr Renshall acting as their agent. However, the trial judge found that there was no evidential basis for the agency: at [997]. Nothing was said in the course of the proceedings in this court to cast doubt on that finding. Although part of the relief claimed by the applicants was the setting aside of the settlement of the 2001 proceedings, to which the Hickie interests were party, it was not submitted that they were a necessary party on that basis.
7. In brief submissions to this court, the Hickie interests noted that they had incurred significant costs which it appeared they would be unlikely to recover, even if the application were to be dismissed, and that factor, combined with the absence of any arguable case in respect of their liability, meant that the proceedings for review should be dismissed with respect to them. That submission should be accepted.
I note Basten JA’s views in respect of the Respondents were agreed with by Beazley P and Leeming JA.
19. The Court of Appeal made the following orders in respect of the Respondents on 4 March 2014, amongst others:
4. Dismiss the application in relation to [the Respondents].
5. The applicants to pay [the Respondents’] costs of the review application.
The Court, however, granted the Applicants an extension of time in which to appeal against the first, second, fourth and fifth respondents.
20. The Applicants’ special leave application in the High Court only concerns Order 4 of the Court of Appeal of 4 March 2014. The application for special leave was filed on 25 March 2014 and pleads the following grounds:
1. The applicants apply for special leave to appeal from part of the judgment of the NSW Court of Appeal dated 4 March 2014. The special leave is sough in relation to order 4, which dismisses the application for leave to file out of time in relation to the third and sixth respondents, Mr Hickie and Vocifa Pty Ltd [Hickie Respondents].
2. The special leave is sought under Section 35A because the interests of the administration of justice for this case and, in fact, generally, warrant consideration by the High Court. The dismissal of the application to file out of time, against the Hickie respondents, was unjust and unwarranted and the application against them should not have been treated differently to the application against the first, second and fifth respondents (HTT, Mr Renshall and Devubo Pty Ltd) [HTT Respondents], which was successful because the impact of not granting special leave to appeal in respect of the Hickie respondents will be the deprivation of the Applicants’ ability to prosecute the appeal against the HTT respondents and thereby deprive the Applicants of access to the Court, and thereby financial ruin.
3. The Court erred in not granting an extension of time within which to appeal against the third and sixth respondents, being necessary parties to the appeal, because:
(a) by the appeal, the applicant’s [sic] seek to set aside agreements, including the HOA and the Deed, to which all respondents are a party;
(b) the consequence of the judgment is that the agreements might be set aside against some respondents but left active in relation to others.
4. The Court erred in finding that the [sic] there was no arguable case in respect of the Hickie interests, apparently on the basis that the trial judge found that there was no evidential basis that the Second Respondent was acting as agent for the Hickie interests in engaging in misleading or deceptive conduct which induced the entry into the relevant agreements, notwithstanding that the trial judge found that:
(a) there was a factual basis for the agency in respect of the negotiation of those same agreements; and
(b) the misleading representations were made during the course of negotiations.
5. The Court erred in not applying the findings made in respect of the HTT respondents to the Hickie respondents, those findings being that the applicants have a reasonably arguable case to succeed on appeal, with the delay being short and no material prejudice.
6. The Court made the following erroneous findings which gave rise to its ultimate error:
(a) finding that the Hickie respondents had incurred significant costs in circumstances where those costs were actually met by HTT [Judgment 7];
(b) dividing the respondents erroneously into two groups (Renshall interests) and (Hickie interests) and then delivering a different decision for each group;
(c) finding that HTT (first and main respondent) as being part of “Renshall’s interests” group [Judgment 8];
(d) finding that the misrepresentations were made by Mr Renshall instead of HTT and Mr Renshall [Judgment 6].
21. The decision of his Honour Harrison J in Hickie v Land Enviro Corp Pty Ltd [2014] NSWSC 472 on 29 April 2014, the day after the hearing of the Review Application, is of particular assistance in these proceedings. In that decision his Honour dismissed a notice of motion filed by the Applicants (and their related companies) seeking to extend a stay granted by her Honour McCallum J of the order for costs against the applicants that forms the basis of the Bankruptcy Notice.
22. It is convenient, for a number of reasons, to reproduce significant portions of Harrison J’s judgment. At [1]-[15] therein his Honour stated:
1. By notice of motion filed on 25 March 2014, Land Enviro Corp Pty Ltd, Sam Zdrilic, Amy Zdrilic and Amy Holdings Pty Ltd (the defendants) seek the following orders:
1. That a stay of the costs order in the Supreme Court of New South Wales proceedings under the file number 2013/0078308 be extended until 30 days after the High Court of Australia makes a determination in relation to the application for leave to appeal against order 4 of the judgment of the NSW Court of Appeal dated 4 March 2014, or if that application is successful, 30 days after the High Court‘s determination of the appeal.
2. In the alternative to order 1, that order 4 of the judgment of the NSW Court of Appeal dated 4 March 2014 be stayed until 30 days after the High Court determination of the application for leave to appeal, or if the application is successful, 30 days after the High Court‘s determination of the appeal against order 4 of the NSW Court of Appeal judgment dated 4 March 2014.
2. In order to put these claims in context, it is necessary briefly to trace the not uncomplicated history of the litigation so far.
Background
3. The judgment debt that is the subject of these proceedings was entered on 14 March 2013 and arises out of a costs order made in proceedings commenced on 26 March 2007, which were ultimately heard and determined by Stevenson J. Orders were sought in those proceedings to set aside a consent judgment dated 1 September 2004 dismissing earlier proceedings in the Equity Division in which Land Enviro Corp Pty Ltd was the sole plaintiff. By an amended statement of claim filed on 11 December 2002, Mr Hickie had been joined to those proceedings, but they were dismissed by consent on 1 September 2004. The plaintiff sought to re-litigate those proceedings.
4. Stevenson J heard the matter between 6 February 2012 and 16 March 2012, over more than 25 days of hearing. The case against the plaintiffs alleged that Robert Renshall made actionable representations to the defendants. Stevenson J found that the alleged representations had either not been made or were not actionable if they had been. It was not alleged that Mr Hickie made any of the representations, either on his own behalf or on behalf of Vocifa. His Honour referred at [985] to the fact that the defendants’ counsel had conceded as much. His Honour disposed of the case against the plaintiffs at [987] and [997]–[998] in these terms:
[987] As to particular (c), Mr Jucovic accepted that a representation by Mr Renshall of his asserted authority to negotiate on behalf of Mr Hickie would not be sufficient to establish agency. Any such representation would have to come, expressly or implicitly, from Mr Hickie: Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [36].
...
[997] In those circumstances, I cannot see how Mr Zdrilic could reasonably have inferred that the representations allegedly made to him by Mr Renshall concerning the availability of funds (as opposed to negotiation of the terms of the Heads of Agreement) were made on behalf of Mr Hickie.
[998] For that reason, my opinion is that HTT and Mr Renshall were not acting as Mr Hickie’s agent for relevant purposes, that is to say for the purposes of making the representations as to the availability of funds.
See Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 382.
5. His Honour published his reasons for judgment on 20 April 2012, dismissing the defendants’ claims pleaded in what by then had become their third amended statement of claim. No allegation was made in those proceedings that Mr Hickie or Vocifa Pty Ltd (the plaintiffs) had made any of the pleaded representations. The case against them was based upon allegations that those who made the representations were the plaintiffs’ agents, but that allegation was dismissed.
6. In a separate judgment published by Stevenson J on 7 May 2012, his Honour ordered that the present defendants pay the costs of the present plaintiffs on the ordinary basis up to 1 September 2011 and on an indemnity basis thereafter. The plaintiffs in due course registered a judgment on 14 March 2013 for the assessed costs in the sum of $358,588.89. No challenge to that judgment was ever made.
7. However, on 18 May 2012 the defendants served a notice of intention to appeal against the judgment of Stevenson J. By notice of motion filed on 8 November 2012 in the Court of Appeal, the defendants sought an order pursuant to UCPR 51.9(1)(b) extending the time for filing and serving a notice of appeal.
8. Other than serving the notice of intention to appeal, the defendants did not advise the plaintiffs or otherwise indicate to them that they proposed to make an application for leave to appeal against his Honour‘s judgment out of time until they served their application to extend time to appeal. That application by the defendants was heard by Allsop P on 18 and 19 February 2013, and dismissed by orders made on 21 February 2013. His Honour ordered that the defendants pay the plaintiffs’ costs of the application. On 6 March 2013, the defendants filed an application pursuant to s 46(4) of the Supreme Court Act 1970, seeking to discharge Allsop P‘s orders together with an order extending the time within which to file and serve their notice of appeal.
9. On 12 April 2013, the defendants filed a notice of motion in the Common Law Division seeking an order that the judgment entered on 14 March 2013 be stayed until the proceedings in the Court of Appeal had been determined. On 10 May 2013, McCallum J granted a stay of enforcement of the costs judgment until 3 June 2013, conditional upon the defendants paying the sum of $15,000 into court by way of security for the plaintiffs’ costs of the hearing of the defendants’ s 46(4) application in the Court of Appeal. The defendants paid the sum of $15,000 into court on 28 May 2013.
10. On 3 June 2013, McCallum J extended the stay up to and including 18 September 2013, which was the date upon which the s 46(4) application was due to be heard. On 4 October 2013, the plaintiffs undertook not to take any steps to enforce the costs judgment until the expiration of the period of 21 days after the Court of Appeal delivered judgment on the s 46(4) application. In the course of her judgment published on 6 June 2013, her Honour said this:
[40] In those circumstances, I felt compelled to determine the application for a stay on the premise that it was not possible for me to form a judgment as to the applicants’ prospects of success in varying the order of Allsop P. I accordingly approached the application on the basis that there may well be very limited prospects of success but, conversely, that there may be some respectable point nestling within the complex and extensive material which will be put before the Court of Appeal.
[41] Against those considerations, I concluded that the most important factors in favour of granting a stay were the fact that, if the stay were not granted, that would in all probability stymie the application under s 46(4) of the Supreme Court Act; the fact that that application is ready for hearing and has a hearing date; the relatively narrow scope of that application and the impossibility of excluding the conclusion that the application has reasonable prospects of success.
[42] The most important factors against granting the stay were, in my consideration, the need to acknowledge that Mr Hickie and Vocifa are entitled to the benefit not only of the judgments of Stevenson J but of the costs judgment, which is not the subject of any appeal; the apparent risk that the applicants will not be able to satisfy that judgment and the plain prejudice of allowing further costs to be incurred in that circumstance.
[43] Weighing those competing considerations, I formed the view that there was an appropriate basis for granting a stay that would be fair to all parties if the applicants were able to provide security in a modest sum to meet Mr Hickie’s legal costs of the hearing of the s 46(4) application in the Court of Appeal. For those reasons, I made the orders set out above.
See Hickie v Land Enviro Corp Pty Ltd [2013] NSWSC 706.
11. On 4 March 2014, the Court of Appeal dismissed the defendants’ s 46(4) application insofar as it related to the plaintiffs and ordered the defendants to pay the costs. (In an otherwise comprehensive appeal against the decision of Stevenson J in the Court of Appeal, the defendants had only alleged against the plaintiffs that his Honour had erred in not finding that Mr Renshall or his associates were the plaintiffs’ agents). Basten JA dealt with the disposition of the application insofar as it related to the plaintiffs as follows:
...
See Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2014] NSWCA 34.
12. On 25 March 2014, the defendants filed a notice of motion seeking a further stay of the costs judgment and an application for special leave to appeal from the judgment of the Court of Appeal to the High Court. It is convenient to record the terms of the grounds of appeal that the defendants seek to agitate in that court. They are as follows:
...
13. The defendants have refused to consent to the release to the plaintiffs of the $15,000 paid into court in accordance with the order made by McCallum J on 10 May 2013. The full amount of the costs judgment remains outstanding.
...
15. On 5 April 2013 Sam Zdrilic and Amy Zdrilic were each served with bankruptcy notices. On 17 March 2013 each of them made an application to the Federal Court of Australia to set the notices aside. District Registrar Wall dismissed those applications on 18 March 2014. Sam Zdrilic and Amy Zdrilic filed an application for review of that decision in the Federal Court on 27 March 2014, which is also listed for hearing on 28 April 2014. The time for compliance with the bankruptcy notices has now expired.
23. His Honour then conducted an analysis of the applicable principles in respect of stays at [16]-[20], then the parties’ submissions in respect of the application before his Honour at [21]-[38]. It is not necessary to reproduce his Honour’s reasons for the purposes of this judgment.
24. Harrison J then provides his consideration in respect of the application before him. Notwithstanding the specific circumstances of the matter before his Honour, I am of the view his reasons are also of assistance in the matter before this Court. His Honour stated at [39]-[50]:
Consideration
39. Doing the best I can I am unable to see any basis at all either for a continuation or extension of the stay upon the costs judgment that favours the plaintiffs or for a stay of any of the Court of Appeal‘s recent orders.
40. Mr Zdrilic has argued at length and in detail. He has propounded every conceivable argument in support of his application and then some. He is clearly passionate about what he perceives to have been a fraud practised upon him with devastating financial and emotional consequences. I have no doubt about the sincerity with which he holds to his views concerning what occurred and what he maintains is required to put things right.
41. The difficulty for Mr Zdrilic, however, is that he is unable to convert his dissatisfaction with the decisions of Stevenson J or the Court of Appeal into some suitable argument to support the orders that he seeks. In large measure, Mr Zdrilic does no more than protest that the arguments that were rejected by earlier courts should now carry the day. Even putting aside for the sake of the argument that Mr Zdrilic will have to establish some particular matters to attract a grant of special leave, he has not demonstrated why the Court of Appeal was wrong. Mr Zdrilic has a tendency instead to give emphatic repetition to his salient points as if doing so will give them more force than they have previously received. As understandable as that approach may be, it does not further his cause.
42. Mr Zdrilic also embraces selective portions of the reasoning of the Court of Appeal without coming to terms with the parts that do not favour him. Stevenson J held that Mr Hickie was not a principal responsible for the acts of misrepresenting agents. Basten JA agreed. Despite what Leeming JA said at [68] in the Court of Appeal judgment, Mr Zdrilic appears to ignore that at [69] his Honour also said this:
[69] I agree with what Basten JA has said about the absence of a case against the Hickie interests, and his Honour’s proposed orders as to costs...
43. It will be recalled that Basten JA had earlier agreed with Stevenson J that there was no evidential basis for the agency. That was an unsurprising finding by the trial judge having regard to the quoted concession made by Queen’s Counsel appearing for Mr Zdrilic that a representation by Mr Renshall of his asserted authority to negotiate on behalf of Mr Hickie would not be sufficient to establish agency. Basten JA reiterated that nothing said in the course of the proceedings in the Court of Appeal cast any doubt upon that finding. Leeming JA’s agreement at [69] is directed to reinforcing that proposition. It is wholly inimical to the case Mr Zdrilic continues to propound.
44. Nor does there appear to be any reasonable prospect that the decision of the Court of Appeal would attract attention as a special leave candidate. It seems clearly to be a case that turns wholly upon unexceptionable facts and is concerned with no particular issue of law of wider general interest or importance. Despite the manifold ways in which Mr Zdrilic has attempted to formulate his concerns, they ultimately distil entirely to a single complaint that the findings of no agency are wrong. That factual dispute is wholly unlikely to attract a grant of special leave to appeal to the High Court.
45. Moreover, the balance of convenience now clearly favours the plaintiffs. The corporate defendants are insolvent. There is no relationship between the solvency of any of the defendants and the prospect that the costs judgment will be enforced. The subject matter of the stay is not co-extensive with the subject matter of the proposed appeal to the High Court, so that there is no risk that the appeal will prove to be abortive if the defendants are successful there. The defendants have not identified anything that approaches arguable grounds of appeal, or some matter that would attract a grant of special leave. There is no identified risk that the plaintiffs would dissipate the benefit of the costs judgment so that it was beyond the reach of the defendants in the (highly unlikely) event that it was overturned in due course. The defendants have never challenged the quantum of the costs judgment or the assessment process that generated it.
46. I am not satisfied that the defendants have established or demonstrated any reason at all that warrants the exercise of discretion in their favour.
The plaintiffs’ motion
47. The plaintiffs filed a notice of motion on 3 April 2014 seeking a single substantive order (erroneously suggesting on the title page that the order was sought on behalf of Land Enviro Corp) that the amount of $15,000 paid into court on 28 May 2013 on behalf of the defendants in compliance with the orders of McCallum J be paid to Bartier Perry on behalf of the plaintiffs. That order was made by way of security for the plaintiffs’ costs of the hearing of the defendants’ s 46(4) application in the Court of Appeal.
48. The application is supported by the affidavit of Philip James Brand, the solicitor working in the office of Bartier Perry with the conduct of this matter on behalf of the plaintiffs, which was sworn 1 April 2014. Mr Brand deposed, among other things, to the fact that in his opinion as a solicitor with over 30 years’ experience, the work undertaken by Bartier Perry and counsel retained by that firm for the plaintiffs would have generated party/party costs under the Legal Profession Act 2004 referable to the s 46(4) proceedings in excess of $15,000. Tax invoices from Mr Lever SC and Bartier Perry that are annexed to the affidavit support Mr Brand’s opinions. Mr Brand was not cross-examined. The defendants did not actively oppose the order sought, otherwise than in the context of their principal prayers for relief.
49. There is not in my opinion any demonstrated basis why the order sought by the plaintiffs should not be made.
Conclusions and orders
50. I consider that the following orders should be made:
1. Dismiss the defendants’ notice of motion filed 25 March 2014 with costs.
2. Order that the amount of $15,000 paid into court on 28 May 2013 on behalf of the defendants be paid out to Bartier Perry, solicitors.
3. Order the defendants to pay the plaintiffs’ costs of their motion filed 3 April 2014, limited to the costs of preparation and filing of the notice of motion and the preparation, swearing and filing of the affidavit of Philip James Brand dated 1 April 2014.
Since the handing down of the Zdrilic Bankruptcy Notice Judgment, a number of other occurrences have taken place involving the Applicants and Respondents.
The Respondents to the Petition, on behalf of their former companies, Land Enviro Corporation Pty Ltd (“LEC”), sought leave to appeal from the decision of Harrison J (Hickie v Land Enviro Corp Pty Ltd [2014] NSWSC 472). Their Honours Leeming JA and Sackville AJA dismissed the application for leave on 17 October 2014: Land Enviro Corp Pty Ltd v Hickie [2014] NSWCA 363. Their Honours stated therein at [7]-[13]:
7. It will be seen that the entirety of the relief sought from the primary judge was confined to a limited stay pending the determination of the application for special leave to appeal which had been brought by Land Enviro Corp Pty Ltd and Mr Zdrilic. They had, at the time the motion was heard and determined, applied for special leave to appeal against the dismissal of their application for an extension of time as against Mr Hickie and Vocifa.
8. That is no longer the position. The application for special leave to appeal came before the High Court of Australia, constituted by Bell and Gageler JJ, who dismissed it on 15 August 2014. The High Court stated that “there is no basis for doubting the correctness of the decision of the Court of Appeal“: Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2014] HCASL 146 at [5].
9. It follows immediately that the entirety of the relief as formulated before the primary judge is now moot. That is to say, the stay that was sought pending the determination of the application for special leave to appeal from the decision of this court in March 2014 no longer has any utility, the application for special leave having been refused. That by itself is a sufficient, and indeed compelling, reason not to grant leave to appeal.
10. It also follows that all of the paragraphs, save one, in both the summons for leave and the notice of motion presently before the court are moot. The exception is para (c) which seeks a stay of the order that Land Enviro Corp and Mr Zdrilic pay Mr Hickie and Vocifa until 30 days after the decision of the Court of Appeal in the proceedings against the 1st, 2nd, 4th and 5th respondents. No such application was made to the primary judge. In any event, there is no basis for a stay of orders obtained by successful defendants, whose success has now been confirmed by decisions of the Court of Appeal and the High Court of Australia, even though litigation continues as between the remaining parties to the proceedings.
11. Mr Zdrilic relied upon the decision of Brereton J Re Amy Holdings Pty Ltd; Re Land Enviro Corp Pty Ltd [2014] NSWSC 1176 for the contention that he had an arguable claim against the Hickie respondents and in particular he relied upon what his Honour has said in [29] of that decision. However the final sentences of [29] and [31] are squarely to the contrary. Those sentences refer to the refusal of the application for special leave and say:
Whatever might have been the position until then, there is now no basis for contending that the pendency of the special leave application provides ’some other reason’ for setting aside the demand.
…
However, the special leave application having now failed, I cannot see how that application, even if until then it had some prospect of success, could now have any.
12. Land Enviro Corp and Mr Zdrilic also say that “the applicants cannot pay the costs order until the conclusion of the appeal against the HTT respondents because they are impecunious” (written submissions, para 34). They say, correctly, that part of the appeal is yet to be fully determined. They assert that they have an arguable case to succeed against the HTT respondents, and that if they do so, the recovery of costs and damages will be more than sufficient to pay the outstanding costs order. They say that there is no prejudice to Mr Hickie and Vocifa in waiting for the conclusion of those proceedings, and that Mr Hickie and Vocifa are parties which are interconnected with other parties “in such a way that the only just thing to do is to allow the proceedings against the HTT respondents to be concluded”.
13. Even accepting all the factual matters to which Mr Zdrilic refers, there is no sound basis for staying what amounts to an undisputed order in favour of Mr Hickie and Vocifa that Land Enviro Corp and Mr Zdrilic pay the costs incurred by them in lengthy proceedings commenced by Land Enviro Corp and Mr Zdrilic in 2007 and determined in 2012. That order has now been confirmed by this court and the High Court. It is not capable of any other challenge. It follows that the application for leave to appeal and the motion seeking to vary the orders made by the primary judge, are doomed to fail.
As can be seen above, the Respondents application for special leave filed in the High Court was dismissed on 15 August 2014.
Current Proceedings
The Applicants’ Petition was filed in this Court on 20 August 2014.
On 15 September 2014 the Respondents filed a notice stating grounds of opposition to the Petition (the “Notice of Opposition”). The Petition was opposed on 7 bases, namely:
1. The [Respondents] did not commit the act of bankruptcy on the day the Registrar dismissed the application to set aside the Bankruptcy Notice.
2. If the Court goes behind the judgment on which the Bankruptcy Notice is based, it will find that the judgment debt was based on a conspiracy to defraud the debtors.
3. The Creditors petition was issued for an improper purpose.
4. Issuing the sequestration order is not in the applicant’s interest.
5. The debtors are not impecunious in the true (real) sense.
6. Justice Harrison, in relation to an application for an extension of the stay of the costs order, erred in not granting the extension.
7. There is no public interest in the making of the sequestration order.
Orders were made for the filing of evidence and submissions by the parties, and the Notice of Opposition was set down for hearing on 20 February 2015. The hearing was unable to be completed on that date, and continued and concluded on 23 February 2015.
Evidence
In respect of the Notice of Opposition, the Respondents relied on:
a)The Affidavit of Sam Zdrilic sworn 15 September 2014 and filed on the same day (the “First Zdrilic Affidavit”);
b)The Affidavit of Sam Zdrilic sworn 16 January 2015 and filed on the same day (the “Second Zdrilic Affidavit”);
c)The Affidavit of Sam Zdrilic sworn 10 February 2015 and filed on the same day (the “Third Zdrilic Affidavit”);
d)Exhibit “R1”, being a copy of the Respondents’ further submissions in support of the Notice of Opposition;
e)Exhibit “R2”, being a copy of part of the hearing transcript of a hearing before Brereton J in the Supreme Court of NSW; and
f)Exhibit “R3”, being a copy of the Respondents’ Draft Notice of Appeal in the NSW Court of Appeal.
It should be noted that the Applicants raised numerous objections to parts of the Respondents’ evidence, however, it is not necessary to address any of these objections for the purposes of these reasons.
In respect of the Notice of Opposition, the Applicants relied on Exhibit “A1”, being documents relating to the costs assessment of the order of Stevenson J founding the Bankruptcy Notice and Petition. The Applicants also filed numerous affidavits in support of the making of sequestration orders, however, it is not necessary to consider these for the purposes of these reasons.
Respondents’ Submissions
As the Notice of Opposition was before the Court for hearing, as well as the Petition, it is convenient to address the Respondents’ submissions first.
Mr Zdrilic, in support of the Respondents’ Notice of Opposition, filed two sets of written submissions, on 12 February 2015, then at the outset of the hearing on 20 February 2015. He also made extensive oral submissions at the hearing in support of the Notice of Opposition. For the reasons that follow, it is not convenient or necessary to reproduce in detail these submissions.
I note that Mr Zdrilic is a self-represented litigant in these proceedings who has had no formal legal training. However, he has also been running numerous cases in various courts. The vast majority of both his written and oral submissions seek to re-ventilate claims made in first instance and on appeal by the Respondents (and their related companies) against the Applicants and other parties to previous proceedings, and to express disagreement with findings of various courts in respect of their decisions relating to previous proceedings involving the Respondents (and their related companies).
Ground 1 – No act of bankruptcy committed
The first ground claims the Respondents did not commit an act of bankruptcy. Mr Zdrilic submits that the rules of compliance with bankruptcy notices are confusing and unclear. He was of the view that the parties had come to an arrangement to further extend compliance with the Bankruptcy Notice, but the Court refused that arrangement.
Ground 2 – Going behind the judgment debt
The overwhelming majority of both written and oral submissions made by Mr Zdrilic seek to address this ground. In his view, the original decision of his Honour Stevenson J in Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 382 was affected by error in a number of ways, including in respect of his findings giving rise to the costs order against the Respondents (which is the order founding the Bankruptcy Notice and Petition).
Mr Zdrilic prepared two sets of written submissions and made extensive oral submissions, the majority of which were made in support of this ground.
Mr Zdrilic claims that the judgment founding the Petition was obtained through a conspiracy to defraud by the defendants in those proceedings. This led to Stevenson J making an incorrect decision and miscarrying justice.
These allegations include:
a)That the first applicant on the Petition and another defendant made false statements and lied under oath in the proceedings before Stevenson J;
b)That two solicitors acting for various parties in the proceedings made false statements and lied under oath in the proceedings before Stevenson J; and
c)The directors of HTT Huntley Heritage Pty Ltd (the first defendant in the proceedings before Stevenson J) conspired to defraud the Applicants and their related companies.
Mr Zdrilic, in his first set of written submissions, then seeks to set out in detail his version of events leading up to and including the litigation before Stevenson J. He has also set out his disagreements with Stevenson J’s findings and the reasons for such findings. For reasons set out below, it is not necessary to address these issues in any further detail at present.
The Respondents also filed on the day of the hearing of the Notice of Opposition a set of further written submissions (Exhibit “R1”). These submissions put forward the Respondents’ contention that the other defendants in the proceedings before Stevenson J paid the Applicants’ costs of the proceedings before Stevenson J. A number of documents are then annexed to the back of the further submissions. Again, it is not necessary for these submissions to be reproduced in detail for the reasons set out below.
Ground 3 – Petition issued for an improper purpose
Mr Zdrilic submits the Bankruptcy Notice and Petition have been issued for an improper purpose, namely to prevent the Respondents and their related companies from pursuing various appeals and other legal avenues. He submits the Applicants are aware the Respondents are impecunious, but still continue to pursue the Petition, despite knowing that the only way they will recover the money owed to them is by the Respondents being successful in their Court of Appeal proceedings. This is leading to the incurring of further costs by all parties to the proceedings.
Ground 4 – Making of sequestration orders not in the Applicants’ interests
Mr Zdrilic contends that the making of sequestration orders against the Respondents is not in the interest of the Applicants. The only way of the debt owing to the Applicants being satisfied is by the Respondents, through their related companies, being successful in their Court of Appeal proceedings. The Respondents would then receive, in Mr Zdrilic’s submission, an amount in the vicinity of AUD$40,000,000 and be able to wholly satisfy the debt owed to the Applicants.
Ground 5 – Respondents not impecunious
This ground is based on the same submissions as Ground 4 of the Notice of Opposition.
Ground 6 – Harrison J erred in not granting a further stay
Mr Zdrilic disagrees with Harrison J’s decision not to extend an order staying Stevenson J’s costs order, upon which the Petition is based. Rather, his Honour should have allowed the Respondents to proceed without obstacles against the other parties which would result in them being able to satisfy the debt.
Ground 7 – No public interest in making of sequestration orders
Mr Zdrilic submits there is no public interest in the making of sequestration orders against the Respondents. Further, the Respondents are not insolvent in the real sense.
Adjournment application
The Respondents contend there is no prejudice to the Applicants if the Respondents are allowed to pursue the partly resolved appeal in the Court of Appeal. If they were successful, the Applicants would then be the beneficiaries of that success. Accordingly, the best option for the Applicants would be to allow the Respondents to pursue their appeal.
Applicants’ Submissions
Mr Lever, appearing for the Respondents, gave a detailed opening setting out in detail the events related to and giving rise to the Petition. These events are set out in detail above and, accordingly, do not warrant reproduction.
Ground 1 – No act of bankruptcy committed
In respect of Ground 1 of the Notice of Opposition, the Applicants contend none of the Respondents’ statements are bases for denying that acts of bankruptcy occurred. Further, the Respondents have acknowledged they are not able to pay the debt the subject of the Bankruptcy Notice.
Ground 2 – Going behind the judgment debt
The Applicants submit, in respect of this ground, that the judgment debt founding the Petition resulted from an order of the Supreme Court of NSW, following a lengthy hearing at which the Respondents were represented by counsel throughout. This was followed by a costs determination in accordance with the Legal Profession Act 2004 (NSW) and the entry of that determination as a judgment of the Supreme Court in the amount of AUD$358,588.89. This judgment has since withstood a number of challenges in the NSW Court of Appeal and the High Court of Australia.
The Applicants submit no issue which casts doubt on the existence of the judgment debt so as to warrant going behind the judgment has been raised by the Respondents.
What instead is being asked of the Court is for it to make findings contrary to the findings made by multiple courts. The Court is being asked to accept that the original judgment made by Stevenson J and the various judgments related thereto that have been made since were obtained by fraud, through misleading and deceptive conduct by the defendants in the proceedings before Stevenson J. The Applicants submit this demonstrates a misunderstanding of the authorities in relation to “going behind a judgment”.
Ultimately, the Applicants submit there is nothing before the Court compelling it to go behind the judgment founding the Petition. Again, for the reasons stated below it is not necessary to address this issue in any further detail presently.
Ground 3 – Petition issued for an improper purpose
The Applicants submit there is no evidence of the Petition being issued for an improper purpose. The Applicants obtained judgment in Common Law proceedings on 14 March 2012 and were entitled to have issued the Bankruptcy Notice and present the Petition when they did. The Bankruptcy Notice was issued soon after the decision of Allsop P in Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2013] NSWCA 35 on 21 February 2013 dismissing the Respondents’ application for an extension of time to file and serve a notice of appeal from the proceedings at first instance, in which the costs order in favour of the Applicants had been made almost a year earlier.
Ground 4 – Making of sequestration orders not in the Applicants’ interests
The Applicants submit in respect of this issue that whether the making of sequestration orders is in the Applicants’ interests is not material to the right of the Applicants to present the Petition and seek for sequestration orders to be made.
Ground 5 – Respondents not impecunious
In respect of this ground, the Applicants contend the Respondents have acknowledged they are not able to pay the debt the subject of the Bankruptcy Notice and Petition.
Ground 6 – Harrison J erred in not granting a further stay
The Applicants submit the Respondents sought leave to appeal the decision of Harrison J (Hickie v Land Enviro Corp Pty Ltd [2014] NSWSC 472). That application was dismissed on 17 October 2014 by Leeming JA and Sackville AJA (Land Enviro Corp Pty Ltd v Hickie [2014] NSWCA 363).
Ground 7 – No public interest in making sequestration orders
The Applicants contend there is a public interest in having sequestration orders made against individuals who are not able to pay their debts and who are involved in continuing litigation where they are incurring further costs orders against them. The Respondents and the companies they control, subsequent to the determination of the first instance proceedings by Stevenson J (Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 282), have had costs orders made against them in no less than seven separate court applications. To date, none of these costs orders have been paid, nor is there any reasonable prospect of payment being made
Adjournment application
The Applicants contend the Respondents, in the alternative to having the Petition dismissed, seeks to have the making of any sequestration order adjourned pending the resolution of their appeal in the NSW Court of Appeal against the other defendants in the first instance proceedings before Stevenson J.
There is no appeal in respect of the Applicants on the Petition currently pending. All such avenues of appeal were closed by the Respondents’ unsuccessful application for special leave in the High Court. The adjournment application is solely based on the Respondents’ claimed likelihood of success in the appeal against the other parties to the matter at first instance.
However, no hearing date has yet been set for that appeal, and the current Applicants are not involved in that appeal, in any case. The appeal is unlikely to be heard and determined in the first half of this year (noting it is now May 2015).
The Applicants submit that even if the Respondents’ appeal is successful, the likely consequence would be that the first instance proceedings would have to be run again. This process would be difficult and complex and could take up to a number of years to prepare and determine. In any case, the Court of Appeal would not be able to determine any damages payable resulting from the appeal. There is nothing before the Court that suggests that, even if the Respondents are successful in the appeal proceedings, the Applicants will receive any proceeds of damages to satisfy the debt outstanding.
Such an adjournment would well exceed the period allowable for the life of the Petition pursuant to subsections 52(4) and 52(5) of the Bankruptcy Act (see Re Young; Ex parte Smith (1985) 5 FCR 204) which is intended to carry out the policy of dealing quickly with bankruptcy proceedings. In that regard it should be noted that the proceedings seeking to set aside the Bankruptcy Notice extended over a period of fifteen months.
Cases on adjournment of bankruptcy proceedings express the following well-known principles:
a)Courts may be willing to grant short adjournments for defined periods, but are unwilling to grant lengthy adjournments; and
b)That principle is particularly the case where it is certain the debtors are unable to pay their debts.
The Applicants submit there are no special circumstances in the case before this Court that warrant a lengthy adjournment, and there would be no utility in the granting of a short adjournment.
Consideration
Before the Court is an opposed creditors’ petition. There has been substantial litigation between the parties over a number of years. A background of the events leading to this litigation is contained above at [3] and [5]. It is not necessary to restate these issues as they have been addressed by multiple courts through the course of the inter partes litigation.
Mr Zdrilic has appeared, since the conclusion of the proceedings before Stevenson J, as a self-represented litigant. However, in the proceedings before Stevenson J, he retained a solicitor and had senior and junior counsel appear at the hearing. Since that time, however, he has stated he has not been able to afford legal representation and has represented himself.
Ground 1 – No act of bankruptcy committed
The Respondents contend they did not commit an act of bankruptcy, as alleged in the Petition. However, for the following reasons, this contention is misconceived.
In the Zdrilic Bankruptcy Notice Judgment, I considered an application by the Respondents seeking to set aside the Bankruptcy Notice that had been issued against them. In that matter, the only basis advanced by the Respondents in support of that application was that there were other proceedings on foot and there was no issue taken with any committing of acts of bankruptcy by the Respondents. I declined to extend time for compliance.
Subsection 40(1)(g) of the Bankruptcy Act states:
Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under thisAct and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
…
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
…
Having regard to the statutory provisions noted above and the Respondents’ submissions on this issue, I am satisfied the Respondents did, in fact, commit acts of bankruptcy. Their submissions do not ventilate any sustainable claim as to how they did not commit such acts and only seek to raise disagreements with the alleged conduct of the Applicants and the Registrar who originally heard their application to set aside the Bankruptcy Notice.
It is accepted the Respondents were validly served with the Bankruptcy Notice. On a fair reading of the Bankruptcy Notice itself (Annexure “A” to the Saad Affidavit), there are no errors contained therein. Further, I have already had regard to the Bankruptcy Notice and dismissed the Respondents application to have it set aside or adjourned. The Respondents have committed acts of bankruptcy by failing to comply with requirements of the Bankruptcy Notice.
Accordingly, this ground cannot be sustained.
Ground 2 – Going behind the judgment
In Yarranova Pty Ltd v Shaw (No.2) [2014] FCA 616 her Honour Gordon J (referring to the authority of his Honour Robertson J in Xu v Wan Ze Property Development (Aust.) Pty Ltd (in liq.) (ACN 131 642 147) & Ors (2014) 315 ALR 523) stated at [69] in respect of the Federal Court’s and Federal Circuit Court’s powers to go behind a judgment when dealing with a bankruptcy matter:
69. The principles for going behind a judgment were summarised by Robertson J in Xu v Wan Ze Property Development (Aust) Pty Ltd (in liq) [2014] FCA 61 at [55]ff. The applicable principles may be summarised as follows:
1. The Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien (1951) 84 CLR 343 and Wren v Mahony (1972) 126 CLR 212.
2. An appropriate case may include where a judgment debt that has been obtained by fraud or collusion or where there has been some miscarriage of justice: Corney at 347–348 and 352–353 and Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 588.
3. If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out: Corney at 356.
4. The enquiry involved is a two stage process enquiring (1) as to whether there is sufficient reason to question the existence of a real debt behind the judgment and (2) if there is, determining that issue. These two steps may be determined together or independently: Makhoul v Barnes (1995) 60 FCR 572 at 584 and Wolff v Donovan (1991) 29 FCR 480.
In Goyan v Motyka [2009] FCA 776 his Honour Besanko J stated (referring to the often cited authority of Corney v Brien (1951) 84 CLR 343) at [53]:
53. There is a good deal of law on the circumstances in which the court will inquire into, or examine, a judgment. The circumstances will vary according to the circumstances in which the judgment came to be entered. A court will be far more inclined to inquire into and examine a judgment entered by default or consent, than it will in the case of a judgment entered after a contested trial on the merits followed by an appeal or perhaps even an unsuccessful application to set aside the judgment to the court which entered it. Those are in effect the two ends of the spectrum. It has been said that, in the former case, a bona fide allegation that there was no pre-existing debt will be sufficient for the court to inquire into or examine the judgment (see Corney v Brien (1951) 84 CLR 343 (“Corney v Brien”) at 357–358 per Fullagar J). It has been said that, in the latter case, the court will not inquire into or examine a judgment unless there is evidence of fraud, collusion or a miscarriage of justice: Petrie v Redmond (1942) 13 ABC 44 at 48–49 per Latham CJ (with whom Rich and McTiernan JJ agreed); Corney v Brien at 356–357 per Fullagar J. The principles must be applied in a flexible fashion, having regard to the myriad of circumstances which may arise (see the discussion by J L Goldring in “Going Behind a Judgment” (1973) 47 ALJ 377).
Mr Zdrilic alleges that the Stevenson J’s judgment, the judgment founding the Petition, was obtained by fraud (see [19] above). However, what Mr Zdrilic has failed to do is demonstrate to the Court’s satisfaction that a prima facie case of fraud exists.
As noted above, the Respondents and their related companies were legally represented throughout the proceedings giving rise to the judgment debt upon which the Petition is founded. It cannot be said the judgment was obtained by default or in the absence of the Respondents.
Following Stevenson J’s judgment in Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 382 the Respondents sought leave to appeal the entirety of that decision in the Court of Appeal, where initially Allsop P (as he then was) dismissed the entirety of that application: see Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2013] NSWCA 35.
The Respondents then sought to review Allsop P’s decision and on 4 March 2014 the Court of Appeal (Beazley P, Basten and Leeming JJA) handed down judgment: Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2014] NSWCA 34. Jacobson J, in Hickie v Land Enviro Corp Pty Ltd [2014] FCA 1386, provided a convenient summary of the Court of Appeal’s decision at [32]-[34] where he stated:
32. The Court of Appeal set aside the orders made by Allsop P as between the LEC Plaintiffs and the HTT parties but, importantly, their Honours dismissed the application in relation to the Hickie interests. Notably, their Honours directed that an amended notice of appeal be filed omitting claims for relief against the Hickie interests.
33. In his reasons for judgment at [6] Basten JA observed that the trial judge found that there was no evidential basis for the claim of agency which was the only relevant claim against the Hickie interests. His Honour observed:
Nothing was said in the course of the proceedings in this court to cast doubt on that finding.
34. Basten JA went on to say at [7]:
In brief submissions to this court, the Hickie interests noted that they had incurred significant costs which it appeared they would be unlikely to recover, even if the application were to be dismissed, and that factor, combined with the absence of any arguable case in respect of their liability, meant that the proceedings for review should be dismissed with respect to them. That submission should be accepted.
The Respondents and their related companies then filed a special leave application in the High Court seeking leave to appeal from the Court of Appeal’s decision refusing to extend time for an appeal against the dismissal of the claim against the Applicants (in these proceedings). This came before the High Court on 15 August 2014. Their Honours dismissed that application: Land Enviro Corp v Huntley Heritage Pty Ltd [2014] HCASL 146. At [5] therein, they stated there was no basis for doubting the correctness of the Court of Appeal’s decision below.
The Respondents have exhausted all avenues of appeal from the judgment founding the Petition. What is now being asked of the Court is for it to go behind the original judgment of Stevenson J, which was a fully contested trial, lasting for 25 days and resulting in a judgment of over 1,000 paragraphs. The avenues of appeal in respect of Stevenson J’s decision relating to the Petition, though initially out of time, were pursued to no avail. As noted in Wren v Mahony (1972) 126 CLR 212 caution is to be exercised when the judgment results from “a fully contest between parties” at 224 (see also Wenkart v Abignano [1999] FCA 354).
In his submissions, Mr Zdrilic has raised a number of alleged occurrences of fraud occasioned by the Applicants and the other defendants in the proceedings before Stevenson J that resulted in his Honour erring in his decision (see [19] above). Indeed, he has spent considerable time preparing written submissions and making lengthy oral submissions to support this claim. I have read in detail these submissions and the transcript of the hearing, as well as the various judgments involving the parties, however, I am not satisfied there is any prima facie case of fraud, or any issue that casts enough doubt on Stevenson J’s judgment, to warrant the Court going behind the judgment. There is simply a lack of evidence of any such fraud or collusion, other than unsubstantiated submissions made by Mr Zdrilic. Similar arguments have been put forward by Mr Zdrilic and have not been accepted by superior courts (see [3], [5] and [59] above).
The Applicants correctly submit that this is not an occasion where the Court would be minded to go behind the judgment. Accordingly, this ground cannot be sustained.
Ground 3 – Petition issued for improper purpose
The Respondents contention that the issuing of the Petition was a deliberate step taken to prevent them from pursuing their appeal is not supported by the evidence before the Court.
Rather, the Respondents sought to challenge Stevenson J’s costs order of 14 March 2013 (amongst other orders) in the Court of Appeal. President Allsop (as his Honour then was) refused an application for leave to appeal that order. The Respondents then challenged Allsop P’s decision before the Full Bench of the Court of Appeal and the Respondents application in respect of the two Applicants on the Petition was also dismissed. They then sought special leave to appeal from the Full Bench’s decision in the High Court, which was refused on 15 August 2014.
I further note that, initially, McCallum J had granted a stay of the costs order founding the Petition until 18 September 2013, however, the Respondents’ application to extend the stay was dismissed by Harrison J on 29 April 2014. The Respondents then appealed his Honour’s decision in the Court of Appeal. The Court of Appeal dismissed that appeal on 17 October 2014 (see [5] above).
Accordingly, what presents before the Court is a situation where the Respondents have exhausted their avenues of appeal from the order founding the Petition. That order, accordingly, still stands and it is within the right of the Applicants to seek to pursue payment of such an order through the means which they have.
Mr Zdrilic has made extensive submissions relating to fraud and collusion between the various parties, however, none of these assertions are supported in the admissible evidence before the Court or in the judgments and decisions of courts relating thereto.
Accordingly, as correctly stated by the Respondents, they were entitled to both issue the Bankruptcy Notice and lodge the Petition. This ground cannot be sustained.
Ground 4 – Making of sequestration orders not in Applicants’ interests
This ground, as put forward by the Respondents, is misconceived. It is the right of a judgment creditor to pursue that judgment debt, in this case through the issuing of the Bankruptcy Notice and Petition. It is not for the Respondents to state whether or not that pursuit is in the Applicants’ interests. The Applicants are within their rights to have presented and now seek to have heard the Petition. No authority or statute has been put forward by the Respondents in support of this ground.
Consequently, I am left with no option but to dismiss it.
Ground 5 – Respondents not impecunious
The Respondents press this ground on the basis that if they are successful in the Court of Appeal proceedings they may be the beneficiaries of up to AUD$40,000,000 which would wholly satisfy the debt owed in the Petition.
Again, this ground is misconceived. The onus is on the Respondents to demonstrate to the Court, in support of such a ground, that they are able to pay their debts (see s.52(2)(a) of the Bankruptcy Act). What the Court must do, in determining whether a debtor is solvent (or not impecunious), is assess the capacity of the debtor to pay the relevant debt or debts based on available cash resources or money that can be realised by sale of assets, by mortgage or by pledge of assets within a relatively short time: see Miao v Owners Corp SP 31235U [2015] FCA 352 per Beach J at [74], citing the authority of Sandell v Porter (1966) 115 CLR 666 at 670.
The Respondents have openly accepted they do not have the cash or assets to satisfy the debt stated in the Petition, nor are they able to raise the capital required through re-financing or taking out loans. Rather, they seek to rely on the outcome of Court of Appeal proceedings in which they claim they may receive damages in a far greater amount than the amount claimed in the Petition. However, the Court of Appeal proceedings, on the evidence before the Court, are not yet even set down for hearing. Given the length of time that has already passed, and the length of time that various litigation has been occurring between the parties, it is, in my view, not the case that the Respondents could claim to be solvent for the purposes of s.52(2)(a).
Consequently, this ground must also fail.
Ground 6 – Harrison J erred in not granting a further stay
In respect of this ground, this Court has no jurisdiction to go behind the decision of his Honour Harrison J not to grant the Respondents a further stay of the costs order founding the Petition.
Further, as the Applicants have correctly submitted, the Respondents sought leave to appeal Harrison J’s decision in the Court of Appeal, however, that application was dismissed on 17 October 2014 by Leeming JA and Sackville AJA: see Land Enviro Corp Pty Ltd v Hickie [2014] NSWCA 363.
Consequently, this ground must fail.
Ground 7 – No public interest in making sequestration orders
In Lahood v Bank of Western Australia Ltd (No.3) [2013] FCA 861 her Honour Katzmann J, citing the authority of Totev v Sfar & Anor (2008) 167 FCR 193, stated at [103]:
103. … The federal magistrate had an obligation to dispose of the proceeding expeditiously. Section 42 of the Federal Magistrates Act 1999 (Cth) imposed a duty on the court to try to ensure that the proceedings are not protracted. Rule 1.03 of the Federal Magistrates Court Rules 2001 (Cth) imposed a duty on the parties to avoid undue delay. Moreover, there is a public interest in the speedy determination of alleged insolvencies. In Totev v Sfar (2008) 167 FCR 193 Emmett J remarked at [17] on the importance that bankruptcy matters be dealt with in “a highly expeditious” manner. He said that “[c]ourts exercising bankruptcy jurisdiction must be assiduous in avoiding delay in dealing with any question concerning the making of a sequestration order”. Similarly, in Offshore and Ocean Engineering Pty Ltd (recs & mgrs apptd) (admin apptd) v Greenwich Contractors Pty Ltd [2012] NSWCA 371 at [16] Campbell JA referred to “the general public importance that the court system can provide remedies concerning unpaid debts with speed and certainty”. In Griffiths v Boral Resources (Qld) Pty Ltd (2006) 154 FCR 554 at [31] the Full Court stressed the importance of these matters and stated that courts exercising jurisdiction in insolvency must recognise the policy by giving priority to the hearing and determination of them.
The Bankruptcy Notice was issued in March 2013 and the application to set it aside was dismissed on 24 July 2014. The Petition was filed on 20 August 2014. The bankruptcy proceedings, currently in the form of the Petition, have been on foot for a period of over two years. The avenues for appeal from the order founding the Bankruptcy Notice and Petition have been exhausted unsuccessfully. There is no evidence before the Court to satisfy it that the Court of Appeal proceedings will be resolved expeditiously or in the very near future. Further, it is accepted by the Respondents that there is no other prospect of them being able to satisfy the debt owed in the foreseeable future.
Having regard to the circumstances as they present themselves before the Court, and the authority of Lahood (supra) above, I am of the view this ground cannot be sustained.
Adjournment Application
In the alternative to the dismissal of the Petition, the Respondents seek to have the Petition adjourned pending the outcome of their Court of Appeal proceedings. This is pressed on the basis that the only way in which the Applicants will actually be paid the debt owed to them is through the Respondents’ success in the Court of Appeal proceedings.
In Yarranova Pty Ltd v Shaw (supra), her Honour Gordon J stated at [67]-[68]:
67. The applicable principle in relation to an adjournment of the creditors’ petition is set out in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 as follows:
It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) QBD 49; Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181.
These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.
(Emphasis in bold added, emphasis in italics in original.)
68. Of course, the principle acknowledges the existence of exceptions: Adamopoulos v Olympic Airways SA (1990) 95 ALR 525. In 2006, the principle was explained by Allsop J (as he then was) in Totev v Sfar (2006) 230 ALR 236 at [44] in these terms:
[T]he fact that there has been an act of bankruptcy does not make the claim by the debtor against the petitioning creditor irrelevant. It should be examined to assess whether it can be said that there is sufficient evidence to show that it is a real claim which is likely to succeed. Also relevant is the stage of the litigation, the length of time for its vindication and any other relevant matters. It goes without saying that solvency is a relevant consideration. In some circumstances, it may be difficult to assess the likelihood of success of the debtor’s claim. All the authorities show that central to the showing of “other sufficient cause “for the purposes of s 52(2)(b) is the question of the prospects of success. The case is not tried in the bankruptcy court, but the material is examined for the purpose alluded to by Gibbs J in Re Schmidt. As Olney J identified in Re James, if a likelihood of success can be demonstrated, that may justify a refusal of a sequestration order. Alternatively, the circumstances may reveal a claim of a character and nature in which likelihood of success cannot be predicted with accuracy but in the circumstances the petition should be dismissed or an adjournment of the petition should granted: see the approach of Sundberg J in Ling v Commonwealth (1996) 68 FCR 180 at 195–196 ; 139 ALR 159 at 172, with which Wilcox J and Whitlam J agreed. If the claim is one in which credit of witnesses will be involved, and a debtor sets out the nature and detail of the case and all his or her evidence the debtor may only be able to persuade the bankruptcy court that, if relevant criteria are believed, he or she has good prospects of success. What should be proved, or what is sufficient to be proved, in any given case will depend upon the circumstances. The context in which the issue arises is also important. The discretion involved in s 52(2)(b) is a broad one, and, importantly, it is informed by public interest considerations concerned with the dealing with insolvents.
I have had regard to and agree with the Applicants’ submissions set out at [39]-[45] above. Further, the Court’s reasons in respect of Ground 7 (see [79]-[81] above) are also pertinent in this respect.
The Respondents’ avenues of appeals against the order founding the Bankruptcy Notice and Petition are now closed. Special leave was refused in the High Court on 15 August 2014.
There is no date yet set for the hearing of the Court of Appeal proceedings, nor would those proceedings, if heard, necessarily grant the Respondents relief enabling them to pay the debt owed. I accept the Applicants’ submission in this respect. Though it may be the case that the Respondents are granted relief in the form of Court ordered compensation, there is no evidence before the Court this will occur in the near future, let alone before the expiry of the Petition (even if orders were made extending the Petition’s life for a further 12 months).
The Respondents further accept success in their appeal (and any other proceedings following therefrom) is the only method by which they could possibly hope to satisfy the debt owed to the Applicants.
Further, his Honour Jacobson J in Hickie v Land Enviro Corp Pty Ltd & Anor [2014] FCA 1386, which was an application seeking to wind up the Respondents’ companies, both of which were the subject of the costs order made by Stevenson J (the same order founding the Bankruptcy Notice and the Petition), stated at [77]-[95]:
WHETHER TO EXERCISE THE ADJOURNMENT POWER
77. Mr Zdrilic seeks to bring the present application within the approach stated by Black J in C2C and by Hodgson J in Fire & All Risks. He also relies upon the observations of Brereton J about the exercise of the discretion to adjourn a winding up application where there are reasonable prospects that as a result of an appeal a company will be in a position to pay its debts.
78. The substance of Mr Zdrilic’s submissions is that the Hickie interests caused the insolvency of the LEC Companies and that there are good prospects that as a result of the appeal against the other defendants the LEC Companies will be able to pay the costs order.
79. There are a number of reasons why I cannot accept the submission that it is appropriate to exercise the discretion in this case.
80. First, there is no basis for the submission that the Hickie interests caused the LEC Companies’ insolvency or their inability to pay the judgment debt.
81. That proposition rests upon an unsupportable assertion that Mr Renshall made the impugned representations as agent for the Hickie interests. Stevenson J rejected the agency contention. His Honour’s finding has been affirmed by the Court of Appeal and the High Court.
82. The observations made by Hodgson J in Fire & All Risks at 685 about the activities of Mr Adler have no application in the present case.
83. Second, this is not a case in which an appeal is brought by a judgment debtor against the judgment creditor. Any possibility of such an appeal has been foreclosed by the refusal of special leave.
84. Thus, any possibility of the LEC Companies generating funds to pay out the judgment debt (or meet the debts of other creditors) is entirely dependent upon the outcome of further litigation against other persons.
85. Third, even if the LEC Plaintiffs succeed in an appeal to the Court of Appeal against the orders of Stevenson J that will not produce a monetary judgment. At best, it would result in an order setting aside the dismissal of the 2001Proceedings. The question of the value of the loss of the opportunity to conduct the 2001 Proceedings would have to be determined in further litigation.
86. Moreover, the value of any such litigation, if it were to eventuate, is uncertain and there is no admissible evidence on the question of damages.
87. Fourth, it follows from what I have said that any adjournment of the winding up application would be of uncertain duration. The most that can be said is that it would take some years before a claim for damages could be heard and determined.
88. Cases such as Fire & All Risks, in which an adjournment was granted demonstrate that the discretion to order an adjournment should only be exercised so as to permit a short adjournment. This is consistent with the policy of the statutory scheme embodied in Pt 5.4 of Div 4 of the Act that winding up applications should be determined expeditiously. In that regard, s 459R(1) provides that an application for a company to be wound up in insolvency is to be determined within six months after it is made.
89. Plainly, this is not a case in which a short adjournment may enable the LEC Companies to pay the judgment debt.
90. Fifth, the observations of Basten JA and Leeming JA in the first Court of Appeal Decision do not demonstrate that the LEC Plaintiffs have strong prospects of success.
91. As Basten JA pointed out at [19], all that the court was required to do in an application for an extension of time was to review the arguability of the appeal. Neither Basten JA nor Leeming JA considered the prospects of success of the appeal. In so far as they made any comments about prospects, both of their Honours’ remarks included considerable reservations about the prospects of success.
92. Sixth, the appeal will not be short. Leeming JA considered that it may conclude in two or three days but a lengthier estimate was made by Allsop P The nature of the appeal with heavy emphasis upon factual findings demonstrates the likelihood of a long appeal, and the need for the court to reserve its judgment.
93. Seventh, it is not certain when the appeal will be heard. The admitted insolvency of all of the LEC Plaintiffs suggests that the respondents to the appeal will seek an order for security for costs. That is likely to delay the hearing of the appeal.
94. Eighth, in summary, there are no special circumstances in this case which provide a ground for an adjournment, let alone an adjournment of the length which would be required for there to be any utility to the LEC Companies.
95. The judgment debt is an unsatisfied costs order which was made and entered after a long and expensive trial. The claims made by the LEC Companies were dismissed and all avenues of appeal have been exhausted. It is apparently true that the LEC Companies are not trading but they are continuing to pursue litigation and are thereby incurring further liabilities. An adjournment of the winding up application would merely exacerbate that position.
Noting that the respondents in those proceedings are not the Respondents in respect of the Petition, I am of the view his Honour’s words above are, nonetheless, pertinent.
Accordingly, I am of the view there is no utility in adjourning the Petition for the reasons stated above.
Conclusion
For the reasons above, there are no sustainable grounds for the Petition to be set aside. Further, there is no utility in either a brief or lengthy adjournment of the Petition for the reasons set out above. The Notice of Opposition should be dismissed with costs awarded to the Applicants.
Accordingly, the Petition should proceed to be heard by a Registrar of this Court and, subject to the relevant requirements of the Bankruptcy Act being satisfied, a sequestration order should be made. It is not necessary to make a costs order at this stage on the basis that such an order would normally follow the making of a sequestration order(s).
I certify that the preceding ninety-two (92) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 27 May 2015
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