Ikon Management Pty Ltd v Hladin - [2009] WADC 181

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: IKON MANAGEMENT PTY LTD -v- HLADIN [2009] WADC 181

CORAM: O'BRIEN DCJ

HEARD: 11 NOVEMBER 2009

DELIVERED : 24 NOVEMBER 2009

FILE NO/S: CIVO 51 of 2009

BETWEEN: IKON MANAGEMENT PTY LTD
Applicant
AND
JOHN RICHARD HLADIN
Respondent

Catchwords:

Appeal against Registrar's decision dismissing application for permanent stay of means enquiry - Whether compensation under s 117 of the Sentencing Act 1995 constitutes a provable debt in bankruptcy under s 82 of the Bankruptcy Act 1966 (Cth)

Legislation:

Bankruptcy Act 1966 (Cth)
Sentencing Act 1995

Result:

Appeal dismissed

Representation:

Counsel:

Applicant: Mr R Cywicki
Respondent: Mr B G Grubb

Solicitors:

Applicant: Aherns Lawyers
Respondent: Metaxas & Hager

Case(s) referred to in judgment(s):

Cooper v Sinnathanby [2007] WASCA 32
Corporate Affairs Commission (SA) v Karounos (1984) 9 ACLR 405
Gaffney v Commission of Taxation (1998) 81 FCR 574
Hladin v The State of Western Australia [2005] WASCA 50
Lyford & Anor v Carey & Anor (1985) 3 ACLC 515
Official Trustee in Bankruptcy v CS & GJ Handby Pty Ltd (1989) 87ALR 734

O'BRIEN DCJ: This is an appeal by Mr Hladin against a decision of the Registrar dismissing his application to stay a means enquiry.
On 13 January 2004, Mr Hladin pleaded guilty in the District Court to 50 counts of fraud contrary to s 409(1) of the Criminal Code. A number of those frauds were committed on Ikon.
Mr Hladin did not dispute the statement of material facts which the prosecutor read to the court. The Judge sentenced Mr Hladin to a term of imprisonment and made compensation orders in favour of Ikon and other victims of the offences pursuant to s 117(1) of the Sentencing Act 1995 ("SA").
Ikon sought to enforce the compensation order pursuant to s 119(1) SA by lodging a certified copy of it with the court. Mr Hladin was subsequently served with a means enquiry summons.
Mr Hladin applied to the Registrar for a permanent stay of the means enquiry summons. He submitted that the attempted enforcement of the compensation order was an abuse of process and the obligation in respect of which it was made constituted a provable debt in his bankruptcy within s 82 of the Bankruptcy Act 1966 (Cth) ("the Act"). As such, it is not competent for Ikon to enforce any remedy against Mr Hladin in respect of that claimed provable debt pursuant to s 58(3) BA.

The sentencing proceedings

The prosecutor outlined the circumstances of the relevant offences on 1 January 2004: see sentencing transcript pp 36 ‑ 41 and particularly at pp 39 ‑ 40. Mr Hladin successfully appealed against the length of his prison sentence. It is convenient and sufficient to refer to the circumstances of the offences as outlined by Steytler P in Hladin v The State of Western Australia [2005] WASCA 50 as follows:
"(6) Counts 13, 15, 18, 20, 21, 23, 25, 28, 29, 31 to 33, 37, 38, 41, 42 and 49 relate to cheques written out by a company, WEJ Pty Ltd ('WEJ'), to a second company, Ikon Pty Ltd ('Ikon'). Counts 14, 16, 17, 19, 22, 24, 26, 27, 30, 34 to 36, 39, 40, 43 to 48 and 50 relate to cheques written out by Ikon to WEJ or, in one case, to one of its directors, Mr N A De Pardo, a Perth barrister. These cheques were written out over the period 25 May 2000 to 30 August 2000.
(7)The appellant, Mr De Pardo, and a Mr Clark, a director of Ikon, were known to each other and held a common interest in motor vehicles. The appellant approached the two men and asked them if their companies would be interested in providing short-term loans for the purpose of purchasing second-hand motor vehicles which were to be on-sold for a profit. He offered them a very generous share of the profit which would be derived from doing so. Because Salaberg then had no current motor vehicle dealer's licence, the appellant told Mr De Pardo that Ikon was a licensed motor vehicle dealer and Mr Clark that WEJ was licensed motor vehicle dealer. In fact, neither company, nor any of its directors, held a motor vehicle dealer's licence.
(8)In reliance upon what had been said to them, the two men did as they were asked. They wrote out business cheques, or arranged for the provision of bank cheques, in accordance with the appellant's wishes.
(9)As has been foreshadowed, various cheques were written out by WEJ in favour of Ikon and others were written out by Ikon in favour of WEJ or Mr De Pardo. The appellant also arranged for both companies to direct funds to other entities, for his own advantage. Because each of Ikon and WEJ was receiving what it believed to be a return on its investment by way of the cheques written out by the other, each believed that events were progressing in accordance with the appellant's misrepresentations to them.
(10)Events continued in this way until August 2000 when, by chance, Mr De Pardo and Mr Clark met and discovered the fraud. They confronted the appellant and, ultimately, reported him to the police.
(11)The total amount lost by Ikon and WEJ as a result of loans made by them at the appellant's request was the sum of $384,050, of which $228,050 was lost by WEJ and $156,000 by Ikon. No part of the loss has been repaid to either of those companies. Nor has Redfern been paid any part of the outstanding balance of $146,500 owing to it as a result of loans made by it to the appellant or one of his companies. The appellant was declared bankrupt in April 2001 and it now seems that there is little or no prospect of any restitution being made by him."
Mr Hladin did not appeal against the compensation order. This is unsurprising given that he did not object to it at the sentencing hearing.
In the course of his sentencing remarks the Judge reiterated in summary the statement of material facts read by the prosecutor. After doing so, he said at T 57:
"Towards the end of the schemes involving WEJ and Ikon, you paid cheques to the complainants purportedly to repay them but which were dishonoured on presentment. In some instances, you even drew cheques on an account which had some time previously been closed."
Later, when the prosecutor made application for a compensation order, his Honour said at T 61:
"Whilst the State seeks orders for restitution for each of the complainants, and those orders will be made, they will provide no comfort whatsoever to the complainants. There is very little, if any, prospect that any of them will receive anything. You are an undischarged bankrupt. Even upon your eventual release, your ability to make restitution will be very limited. Nevertheless, I will make the following restitution orders to the complainants in the following amounts … Icon (sic) Management Pty Ltd $156,000."

Mr Hladin's case

The relevant offences were committed between June and August 2000.
Mr Hladin was declared bankrupt on 17 April 2001. He was charged with the offences on 7 August 2002. He pleaded guilty to the charges on 1 January 2004 and was sentenced on 3 March 2004. Mr Hladin was discharged from bankruptcy on 18 April 2004.
The relevant provisions of the Act are as follows pursuant to s 58(3) of the Act:
"… after a debtor has become bankrupt, it is not competent for a creditor;
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
except with the leave of the court and on such terms as the court thinks fit, to commence any legal proceedings in respect of a provable debt or to take any fresh step in such a proceeding."
Section 82(1) provides:
" .... all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy."
There are two limbs to Mr Hladin's submission.
First, it is said that Mr Hladin attempted to repay Ikon towards the end of the fraudulent scheme involving Ikon but his cheques were dishonoured. He therefore owed a debt to Ikon. It was a debt which was a present debt at the date of his bankruptcy and therefore a provable debt: s 82(1). Therefore, pursuant to s 58(3), Ikon is not competent to enforce it.
Ikon submits that Mr Hladin has not proved on the balance of probabilities that he tried to repay Ikon with cheques which were dishonoured but agrees with the interpretation if the attempted repayment is proved.
Alternatively, Mr Hladin's submission is that the obligation to pay the amount ordered under the compensation order is a provable debt in Mr Hladin's bankruptcy, it being a contingent debt to which Mr Hladin was subject at the date of his bankruptcy pursuant to s 82(1) of the Act. The submission is that the obligation was contingent on the making of the compensation order after conviction.

Factual issue: has Mr Hladin proved on the balance of probabilities that he had a present debt at the date of his bankruptcy occasioned by the attempt to repay Ikon with cheques which were dishonoured?

Mr Hladin relies solely on the comments of the sentencing Judge outlined above at T 57. In his affidavit sworn on 1 July 2009, he deposed at par 8:
"I verily believe I incurred the obligation to pay the alleged debt to the judgment debtor, prior to the date of my bankruptcy on 17 April 2001, and as between 7 June to 30 August 2000. The grounds for my belief are the facts as stated in the sentencing remarks of Justice Groves at pages 25, 31, 32 and 37 of Attachment 'JRH2' deposed herein."
Mr Hladin's belief that he had a provable debt is irrelevant to my determination of the issue. His counsel submits that his statement in his affidavit is his sworn testimony adopting the comment of the sentencing Judge about the attempt to repay Ikon. However, Mr Hladin does not in terms specifically adopt those comments. Further, in providing the foundation for his belief that he had a provable debt, he specifically refers to pages from the transcript but does not mention p 57 where the sentencing Judge made the comment. (Mr Hladin's page references are to the page numbers in his affidavit).
I am far from satisfied that Mr Hladin has positively sworn that he attempted to repay Ikon with cheques which were dishonoured on the basis of his affidavit.
Mr Hladin's counsel also relies in any event on the comment of the sentencing Judge as establishing on the balance of probabilities the attempt to repay with worthless cheques.
It is accepted that the claimed attempt to repay did not constitute part of the statement of material facts relating to the offences. Mr Hladin did not specially admit that part of the Judge's comments. However, he did not dispute it and nor did the prosecutor. Presumably if the prosecutor disputed the comment he should have and would have told the sentencing Judge. However, he may not have had any instructions on the issue. I therefore cannot draw any inference that the prosecution adopted, endorsed or did not dispute the Judge's comments from the prosecutor's silence about that comment which was made in the course of passing sentence and did not appear to have any significance in the determination of the sentence.
Mr Hladin's counsel was not able to inform me of the source of the Judge's comments about attempted repayment. He could not tell me if there was any relevant material in the prosecution brief. I was not provided with the indictment (this was put to Mr Hladin in short form), prosecution brief or copies of any written material which was before the sentencing Judge.
There is absolutely no evidence of the source of that information. For all I know, the comment may have been based on hearsay material in a pre‑sentence report.
The matter was squarely raised before the Registrar. It is not to the point that Ikon has not denied such an attempt in an answering affidavit. The burden of proof is on Mr Hladin. It would have been a simple matter for Mr Hladin to swear positively that he attempted to repay Ikon. He did not do so notwithstanding that, according to his counsel, this argument was the stronger of the two submissions put on his behalf.
In order to establish a debt owing as a result of the dishonoured cheques, a creditor would have to establish that the cheques were personally drawn on an account which the alleged debtor was authorised to access, that the cheques were presented to the bank and that on presentation, the account had insufficient funds to meet the cheques.
There is no evidence of the number of cheques drawn, when they were drawn, to whom they were made payable or the amounts of the cheques. This is information which must have been within the knowledge of Mr Hladin.
Further, the sentencing Judge's comment about attempted repayment refers to complainants generally. The offences committed by Mr Hladin involved several complainant companies, including Ikon.
For the reason outlined, I am not satisfied on the balance of probabilities that Mr Hladin made an attempt to repay Ikon with worthless cheques thereby creating a provable debt at the time of his bankruptcy.

Is the debt created by Mr Hladin's fraud a contingent debt or liability within the meaning of s 82(1) of the Act?

It is submitted that Mr Hladin's obligation to pay Ikon $156,000 arose in 2000 and prior to his bankruptcy. It is therefore a contingent debt and a provable debt in bankruptcy. The contingency is said to be the compensation order.
Ikon's submissions are that the liability to pay the compensation order arose at the date the compensation order was made on 3 March 2004. As that liability was incurred during Mr Hladin's bankruptcy, it is therefore no different from any other debt incurred personally by a judgment debtor during his bankruptcy.

The nature of a compensation order

Section 117 of the Sentencing Act provides as follows:
"(1) A court sentencing an offender may make a compensation order in favour of a victim of the offence.
(2)Such a compensation order is an order that the offender must pay an amount of money set by the court to the victim as compensation for —
(a)the loss of, or damage to, the victim's property; and
(b)any expense reasonably incurred by the victim,
as a direct or indirect result of the commission of the offence.
(2a)..."
In deciding matters in connection with the making of a reparation order (which includes a compensation order), the standard of proof is proof on the balance of probabilities (SA, s 114).
A reparation order is in addition to and not part of the sentence imposed on an offender: SA, s 110(1). The making of a reparation order is a discretionary matter for the sentencing Judge. SA, s 112 and s 113 set out the factors relevant to making an order.
The effect of those sections is that once the Judge is satisfied on the balance of probabilities that a victim of an offence as incurred loss of property and after considering the relevant factors in s 112 and s 113 as the case may be, the Judge may make a compensation order.
The making of a compensation order does not preclude civil proceedings being taken against an offender for any injury, loss or damage suffered or an application under the Criminal Injuries Compensation Act: SA, s 115. Any court assessing damages or compensation for the loss of property is to make the assessment without regard to the compensation set under a compensation order but the person entitled to the award may only recover an amount equal to the amount, if any, by which the award exceeds the compensation order paid: SA, s 115(2).
The purpose of a compensation order is to benefit the victim rather than to provide additional punishment for the offender. The provisions provide a victim of crime with a summary procedure in the nature of civil proceedings for the recovery of compensation for their loss without being put to the additional trouble and expense of independent proceedings: Cooper v Sinnathanby [2007] WASCA 32 at [24]. A compensation order may be made even though an offender has no means to pay it.
A court cannot make a compensation order to a victim of an offence unless the perpetrator has been convicted of the offence either on a plea of guilty or after trial.
A compensation order operates from the day it was imposed. A compensation order does not take the place of civil proceedings. Civil proceedings may be instituted notwithstanding a compensation order has been made. Before making a compensation order, the court does not make any formal determination that the victim has a valid civil claim against the offender.
A compensation order is enforceable pursuant to s 119 of the Sentencing Act which provides:
"(1)If the amount payable under a compensation order is not paid within 28 days after the date of the order, the person in whose favour the order is made may enforce it by lodging a certified copy of it, and an affidavit stating to what extent it has not been complied with, with a court of competent jurisdiction.
(2)When lodged, the order is to be taken to be a judgment of the court and may be enforced accordingly.
(3)…."
In summary, before a compensation order can be made the following must occur: the perpetrator must be charged, prosecuted and convicted of an offence and a Judge must be satisfied on the balance of probabilities that a victim has suffered loss as a direct or indirect result of the commission of the offence. The making of a compensation order is discretionary. The Judge may decide not to make the order after considering the material outlined in s 112 or the victim's behaviour as outlined in s 113. Quite frequently, prosecutors do not make application for a compensation order for reasons not usually communicated to the court. As I understand the practice of the Office of the Director of Public Prosecutions, applications for compensation orders are not made unless the victim requests it. In this case, the prosecutor told the Court that he applied for the order "on instructions" from Ikon.
As can be seen, a compensation order does not automatically follow the conviction of an offender.
I turn now to consider the submission that the obligation to pay Ikon the $156,000 arose out of the fraudulent conduct. Mr Hladin's counsel submits that this is a contingent debt, the contingency being the compensation order. In other words, Mr Hladin's case is that the debt (or "obligation") would crystallise on the happening of a future event, the future event being the compensation order. It was not argued before me or the Registrar that the fraudulent conduct constituted a "present debt" under s 82(1) of the Act.
The future event must occur during bankruptcy or there must at least be a realistic possibility of the future event occurring for the debt to be provable: Official Trustee in Bankruptcy v CS & GJ Handby Pty Ltd (1989) 87ALR 734.
In Lyford & Anor v Carey & Anor (1985) 3 ACLC 515 at 518, Franklyn J held that the meaning of contingent liabilities for the purposes of s 82 is as follows:
"… that expression for the purposes thereof imports the necessity that there be in existence at the date of the bankruptcy, an obligation (which may itself as well as its performance be suspended by the condition of the contingency), out of which a liability to pay money will arise on the happening of the contingency. That is to say there must be an obligation upon which the contingency can operate. For the purposes of s 82 that obligation (suspended or not) must exist at the date of the bankruptcy."
In the context of whether the making of a reparation order pursuant to s 374d of the Companies Act 1962 (SA) (now repealed), in Corporate Affairs Commission (SA) v Karounos (1984) 9ACLR 405 at 407 the court held:
"An order made under s 374d certainly gives rise to a liability, but it is not a liability to which the bankrupt was subject at the date of bankruptcy. The offences occurred before the date of bankruptcy but the liability resulting from any order I make is contingent upon the conviction … My order and the conviction are both after the date of bankruptcy. Nor is the debt or liability to which he may become subject before his discharge 'by reason of an obligation incurred before the date of bankruptcy'. The obligation is not incurred until after conviction and the order now sought. Thus, even if these proceedings were proceedings by a creditor, they are not with respect to any provable debts. The orders sought is not a debt provable in the current bankruptcy ..."

In Gaffney v Commission of Taxation (1998) 81 FCR 574 at 578 ‑ 9, Mansfield J held:
"The critical issue, in my view, is whether the reparation order arose or was made in 'by reason of an obligation incurred' by the applicant to the respondent prior to his bankruptcy. If so, then the debt or liability created by it would fall within s 82 as a contingent debt or liability, even though its enforcement may have required certain further procedural steps under s 21B of the Crimes Act."
Further, at 581 he said:
"Whatever the expression 'obligation' might encompass, I do not think it can properly be used to describe what was no more than a vulnerability to a criminal prosecution which in turn might give rise to a reparation order. The need for critical decisions to be made both to prosecute the applicant, and to convict him (I do not see that the outcome would be different depending upon whether the conviction was by plea or after a trial), and then to make a reparation order, in my view all remove the circumstance at the bankruptcy of the application from constituting at that time an obligation by the application to the respondent in respect of a liability which the bankruptcy notice now seeks to recover."
The contingency of the compensation order, could not be made unless and until an "obligation" triggering its operation existed. That "obligation" did not exist until Mr Hladin was convicted. At the time of the fraudulent conduct, Mr Hladin only had a "vulnerability" to a criminal prosecution, and upon prosecution, a further vulnerability to conviction.
Given the contingencies of prosecution, conviction and the discretionary nature of a compensation order, it is my view that the fraudulent conduct with the claimed contingency of the making of a compensation order does not constitute a provable debt within s 82 of the Bankruptcy Act.
I would dismiss the appeal.