Kakavas v Paradise Enterprises Limited
[2010] FMCA 574
•20 July 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KAKAVAS v PARADISE ENTERPRISES LIMITED | [2010] FMCA 574 |
| BANKRUPTCY – Bankruptcy notice – extension of time for compliance – application refused. |
| Bankruptcy Act 1966, ss.41, 306 |
| McCormac; ex parte Taylor [1985] FCA 334; (1985) 10 FCR 162 Byron v Southern Star Group Pty Ltd [1997] FCA 151; (1997) 73 FCR 264 Cook v Tagamalitsky [2001] FMCA 117 Kavakas v Crown Limited & Ors [2010] VSCA 102 Re Nguyen; ex parte Deputy Commissioner of Taxation [1995] FCA 1036; (1995) 30 ATR 63; (1995) 54 FCR 403 |
| Applicant: | HARRY KAKAVAS |
| Respondent: | PARADISE ENTERPRISES LIMITED |
| File Number: | MLG 779 of 2010 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 20 July 2010 |
| Date of Last Submission: | 20 July 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 20 July 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr Kohn |
| Solicitors for the Applicant: | Madgwicks |
| Counsel for the Respondent: | Mr Horgan SC |
| Solicitors for the Respondent: | Kliger Partners |
ORDERS
The time for compliance with bankruptcy notice no. VN 359/2010 be extended until 4.30 p.m. on 27 July 2010.
The application filed on 23 June 2010 be otherwise dismissed.
The applicant pay the respondent’s costs as agreed or, failing that, as assessed on the Federal Court’s scales.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 779 of 2010
| HARRY KAKAVAS |
Applicant
And
| PARADISE ENTERPRISES LIMITED |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This is an application filed 27 May 2010 for a declaration that the bankruptcy notice in this case was not served in accordance with substituted service orders made by the court and, alternatively, that the notice be set aside and in the further alternative, for a stay pending the outcome of the appeal to the Court of Appeal of Victoria with respect to the judgment upon which the bankruptcy notice is founded.
The application was initially dismissed by Registrar Allaway on 21 June 2010. The reasons of the Registrar are not available but are not required for a hearing such as this. The matter comes as a review application, on review de novo, that is, it is to be heard again before me on the materials that are now available, without regard to the Registrar’s decision.
The applicant in this case is a gambler and the respondent, a casino operator. The applicant travelled to the Bahamas in November of 2006 for his honeymoon and there he attended at the casino of the respondent. The respondent provided him with a line of credit of around $US1 million in order to facilitate his gambling at the casino. This was not an unusual feature of the applicant’s life, he had received lines of credit at various casinos around the world. Recorded in the Supreme Court judgment is the proposition that he had received lines of credit from a large number of casinos for large sums elsewhere in the world which appeared on credit searches undertaken by the respondent.
The applicant gambled for a number of days at the casino and ultimately lost all of the money covered by the line of credit. He did not repay the casino and was sued in Victoria by the respondent, the casino operator.
In the Supreme Court of Victoria at the trial there were two significant issues. One was whether or not the casino was guilty of unconscionable conduct as a result of the applicant being a pathological gambler and, secondly, whether or not the gaming debts were enforceable as a result of 18th century legislation from England that was still technically, at least, in force in the Bahamas. These issues were the subject of a lengthy judgment by Davies J handed down on 16 February 2010, giving judgment to the casino operator.
The applicant has lodged an appeal to the Court of Appeal of Victoria. As yet, there is no stay application in this case although, as I note further on, this is one of two cases in which the applicant has been involved. As he failed in his stay application with respect to a case between him and Crown Casino (which is the subject of a special leave application), a further stay application was not brought in this case, as the relevant circumstances in both cases were thought to be the same and the application before me proceeded on the basis that the outcome would be the same if the stay application were brought in this case.
The bankruptcy notice is based upon the judgment debt. It was issued on 24 February 2010. There were difficulties with service. Substituted service orders were made by Registrar Caporale on 6 April 2010 as follows:
1. Personal service of bankruptcy notice number VN 359 of 2010 is dispensed with.
2. The bankruptcy notice be served as follows:
(1)by posting the following documents (collectively, the “Documents”) by ordinary mail addressed to the respondent at 20 Laura Street Caulfield South Victoria 3162 (“the Address”):
(a) a covering letter;
(b) a sealed copy of this order;
(c) the bankruptcy notice; and
(d) a copy of any authorisation of the Official Receiver extending the time for service of the bankruptcy notice; and
(2) by handing the Documents to a person apparently over the age of 16 years apparently residing at the Address or, in the event that no such person is in attendance, by placing the Documents in the letter box at the Address;
(3) by posting the documents by ordinary mail to Andrew Joseph of Strongman & Couch Solicitors 4th Floor Bank House 11 Bank Place Melbourne Victoria 3000.
3. Service of the bankruptcy notice be deemed to be effected on 7 May 2010 upon condition that the 3 events referred to in paragraph 2 occur by 23 April 2010.
4. The costs of this application be costs incidental to any petition based on non-compliance with the bankruptcy notice.
5. Liberty to apply.
There are no issues raised with respect to compliance with orders 2(1) or 2(2). The issue that is raised with respect to service relates to order 2(3). The respondent sent, under cover of a letter, the relevant documents to Strongman & Crouch and the letter was addressed simply to Strongman & Crouch, not to Mr Joseph at Strongman & Crouch. A receipt was received by email, enclosing a letter on the letterhead of the law practice, Strongman & Crouch, under initials and signed with the word “per” by what appears to be a solicitor in the practice. The letterhead displays Mr Joseph as the only person named in the practice in the place that the principals of a practice would be listed and, at the bottom, describes a corporation as being the legal person owning the trading name, of which Mr Joseph is the sole director and shareholder.
Put simply, this is a legal practice operated through a corporate body, which appears to be the sole practice of Mr Joseph, based upon the letterhead. There is no affidavit by Mr Joseph as to these matters although, clearly, he was acting on behalf of the applicant at a relevant time.
In the circumstances, the facts display a letter sent to Strongman & Crouch, a law practice of which Mr Joseph is the principal and, therefore, in my view, effectively, a letter to Mr Joseph. In the circumstances of this particular case, I am not persuaded that there has been non-compliance with the order of the Registrar. However, given the nature of the case, it’s appropriate for me to also consider if it were the situation that there was technical non-compliance with the order of the Registrar with respect to substituted service, and whether or not this is a defect that can be cured under s.306 of the Bankruptcy Act 1966.
If, in fact, there was technical non-compliance with the order, s.306 is available as a cure for such defects; (see the judgment of Burchett J in Bankruptcy Act: McCormac; ex parte Taylor [1985] FCA 334; (1985) 10 FCR 162 at 164 to 166 as applied in the Federal Magistrates Court in Cook v Tagamalitsky [2001] FMCA 117). There is no evidence before me to indicate that the bankruptcy notice was not brought to the attention of the applicant, as would be expected as a result of the substituted service orders. Even if he was not actually aware by the date referred to in the substituted service orders, he has certainly had more than 21 days where he has obviously been aware of the notice, as a result of these proceedings and the extensions given as a result of the procedural requirements here.
The defect would be entirely technical, in that the letter was addressed to the firm, rather than to Mr Joseph, the principal of the firm. The letter was sent to a law firm and not a company or other trading entity. A law firm is a firm whose business is caring for people’s affairs and conducting their legal affairs on their behalf. It’s not suggested that the applicant was misled and no specific prejudice has been identified. It appears to me that this is an irregularity within the meaning of s.306, by which no substantial injustice was caused.
To the extent that the application seeks to strike down the bankruptcy notice, either for failure to comply with the substituted service orders or otherwise, I therefore am of the view that it should be dismissed.
I must therefore consider whether or not there should be an extension of time within which to comply with the bankruptcy notice. There is a specific power to grant such an extension in s.41 of the Bankruptcy Act.
In this case, there is an appeal to the Court of Appeal of Victoria which is a proceeding to set aside the judgment within the meaning of that section. The court therefore has a discretionary power to extend time to comply with the bankruptcy notice.
Various cases have set out various descriptions of the nature of the power to extend time. It appears to me that the better view is that there is no specific restriction on the nature of the power; that it is a general discretion which should not be fettered and should be exercised based upon the facts and circumstances of the particular cases that come before the court, bearing in mind that there is a particularly wide variety of cases that come before the court, often involving complex and commercial and familial relationships which need to be viewed individually and careful consideration given to specific cases rather than adopting general principles or broad brush approaches. The relevant factors that are usually matters to be considered have been identified in various cases and include whether or not an appeal is being lodged and the time that an appeal may take to hear, whether stay applications have been made and granted, whether or not parties are solvent, the potential impact upon other proceedings and the potential impact upon the parties.
In this case, an appeal has been lodged. There are lengthy and detailed grounds of appeal. There were security for costs orders made by the Court of Appeal of Victoria, which have been complied with by way of the applicant providing a considerable sum by way of security for costs.
It is not for me to conduct a review of a judgment of the Supreme Court of Victoria, nor appropriate for me to form a view as to the likely outcome of the appeal. It is appropriate for me to review the judgment and appeal papers in order to determine whether or not the appeal is a bona fide appeal. Having looked through the judgment and had considerable discussion at the bar table and considered the notice of appeal, I am persuaded that this is a bona fide appeal and that, to the extent that I need to consider whether or not an appeal is pending, that is sufficient consideration of this issue.
The appeal is not likely to be heard until late this year or, potentially, early next year. A date has not yet been fixed. There were no submissions to the effect that expedition was sought in this matter and I note that expedition was refused with respect to the applicant’s appeal in the similar case against Crown Casino, and likely to be the outcome of an application for expeditious hearing in this case. Importantly, however, I note that various directions have been made by the Appeal Court and that both the parties are complying with those directions in order to ensure that the appeal does come on, on the first available date and, notably, that neither party is causing any delay in the hearing and determination of the appeal.
A stay application has not been brought in this particular case. A stay application was brought in the Crown Casino case and refused. It was agreed at the hearing of this matter that the relevant issues on a stay application were largely the same in the case in the Supreme Court with respect to this judgment as in the Crown case. The refusal of the stay in the Crown case would be the likely outcome of a stay application in the Supreme Court in this case for the same reasons. The refusal in the Crown case is now the subject of a special leave application to the High Court. Relevant parts of the judgment of Warren CJ and Bongiorno J on the stay judgment in the Crown case are contained in paragraphs 9 to 11 and 13 to 14, which are in the following terms:
[9] Mr Myers QC for the appellant drew attention to Mr Kakavas’ frank concessions as to his impecuniosity. In his affidavit of 22 February 2010, Mr Kakavas deposed to his not having the funds to meet Crown’s judgment debt. In his second affidavit of 31 March he went further and specified his debts in some detail. He said that he was by profession a consultant to the real estate industry and had been involved in real estate development, marketing and sales, specialising in residential and commercial real estate. He operated through a company called Elite Property Investment Group Pty Ltd and said that he was very successful. Elite’s sole asset was an office building situated at 16 Queensland Avenue, Broadbeach in Queensland which was mortgaged to the extent of $15.7M and which someone at least had said was worth $5.2M. Whether that was right or not is a matter of some contention but they are the figures.
[10] As well as suing Crown, Mr Kakavas was sued by Paradise Enterprises Ltd, a company which operated in the Bahamas in the casino business. It sued him for something just over $US1M. That case was tried by Davies J in this Court, who gave judgment on 16 February 2010, that judgment being for $AUD1.28M, with interest of $152,999, against Mr Kakavas. Mr Kakavas in his affidavit deposed to enquiries which he says the solicitors for Paradise had made concerning him for the purposes of serving a bankruptcy notice and I might interpolate that Mr Young informed the Court Paradise now has an order for substituted service of that bankruptcy notice.
[11] Mr Kakavas went on to describe other financial problems that he had: something known as the ‘McCracken litigation’, which was litigation in the Supreme Court of New South Wales before Schmidt J, which resulted in judgment against Mr Kakavas for $1.25M. He referred to a claim by the Australian Taxation Office for $4.342M, of which he was disputing $1.56M, leaving something just under $3M undisputed, presumably. He referred to debts which he owed to United States casinos totalling some $US5M and then deposed to a debt of approximately $25M, plus or minus 20 percent, which he said he owed to family and friends and which he lost in gambling between 2000 and 2006. He said that these debts were not documented in any way and that was why he could not be more certain about their extent. He said that at the time he swore that affidavit at the end of March, no bankruptcy notice had been served upon him. He said that some of his legal costs were being paid by third parties, who ‘consider I have been exploited by the gambling industry.’
…
[13] Mr Young QC for the respondents conceded that the case on appeal is not hopeless and for present purposes it is sufficient for me to say that on a ‘rough and ready assessment’ the appellant has some chance of success, although it seems clear that, contrary to Mr Myers’ submissions, that chance will only produce fruit if a successful attack can be made on a number, perhaps a very large number, of the trial judge’s findings of fact – a task not easily accomplished. Mr Myers said that the special or exceptional circumstances which can be shown to merit a stay arise out of the appellant’s impecuniosity and the possibility of him going bankrupt, thus suffering not only the financial consequences of that event but also damage to his business reputation. However, just what business reputation a self-confessed addicted gambler of Mr Kakavas’ accomplishments – who has been to gaol for theft, has admitted largely unsecured debts, including gambling debts of almost $50M, and who has not worked for three or more years – has, Mr Myers did not specify.
[14] I am not satisfied that Mr Kakavas’ impecuniosity can be totally attributed to his losses on the tables at Crown. Although they must have contributed to his debts, on his own affidavit his other debts far outweigh his Crown losses. Mr Kakavas has not demonstrated any special or exceptional circumstance which would warrant a stay of execution on Crown’s judgment debt. There is no need to examine Mr Young’s contention that a stay should not be granted to enable Mr Kakavas’ creditors to take bankruptcy proceedings, thus permitting a trustee to determine whether to proceed with the appeal, and in any event allow a just distribution of any proceeds to be made to all his creditors. Mr Kakavas has failed to establish the fundamental requirement for a stay.
The special leave application to the High Court, again, appears to be a bona fide application based upon the question of whether or not special or exceptional circumstances was the appropriate test to be applied by the Court of Appeal of Victoria in determining whether or not to stay the judgment. Whether or not that special leave application will be successful is not a matter that is appropriate for me to speculate upon, other than to conclude that it does not appear to me to have been an application that was not bona fide. The special leave application does not yet have a date. It is hoped that it will be heard some time later this month, but the business of the High Court is of a heavy workload, with many matters and a large criminal law workload, so it is difficult to speculate as to precisely when a special leave application with respect to an interlocutory issue may get listed or may be heard and determined by the High Court.
The matter before me does not appear to be one that will have effects upon other proceedings, other than the fact that it would be a step towards a potential application for a sequestration order. It is possible that a stay of the bankruptcy notice could have an impact upon future proceedings under the Bankruptcy Act 1966 if the applicant is ultimately made bankrupt and the trustee seeks to bring proceedings under the various provisions of that Act. I do not have before me evidence of any specific transactions or events that would be likely to fall within that category, but I also note that, at this stage in proceedings, there is not likely to be within the respondent’s knowledge sufficient information to be able to put forward specific claims in this regard.
I note that the applicant maintains that there is nothing which falls within a timeframe that would potentially cause an issue to arise in this regard. There do not appear to be any other protections in place, for example, in one of the reported authorities, there were injunctions in place. In this case, there do not appear to be any assets that are not the subject of security to other creditors that are available to protect, nor injunctions or undertakings that could usefully be made or given to provide any level of protection to the creditor. It seems that, if the judgments stand, the applicant is insolvent and, indeed, likely to be insolvent even if the judgments do not stand, although it is put by the applicant that the other creditors are not actively pursuing him at present.
There does not appear to me to have been any delay in the proceedings in this case.
I have considered whether or not there is specific prejudice to the applicant. Paragraph 13 of the stay application in the Crown case indicates that it is clear that the applicant has run cases on the basis that he is a pathological gambler, that he appears to be insolvent, having significant debts and that he has a less than perfect past. There is no specific prejudice that can be pointed to, for example, other business arrangements or agreements or credit arrangements that would be terminated as a result of an act of bankruptcy, nor any ongoing transactions or undertakings which may be affected by this course of events. It is difficult to see that this would be of any significant impact upon the reputation of the applicant in this particular case.
The potential prejudice to the creditor in this case is the question of the later start date for the bankruptcy. On this issue, no specific prejudice can be pointed to. However, it is a real consideration as I see discussed in cases such as Re Nguyen; ex parte Deputy Commissioner of Taxation [1995] FCA 1036; (1995) 30 ATR 63; (1995) 54 FCR 403 by Heerey J and by Lehane J in Byron v Southern Star Group Pty Ltd [1997] FCA 151; (1997) 73 FCR 264. This is not a case of a simple consumer transaction of a person that would be likely to have simple affairs. The estate in this case is likely to be complex: there is said to be potentially $50 million in debts, including some $25 million in family debts.
In these circumstances, the potential of prejudice as a result of a later start to the bankruptcy must be seen as, at least, a consideration to take into account.
There do not appear to be any other significant factors in the context of this particular case.
Considering the matter as a whole, I am not persuaded that orders should be made extending the time for compliance with the bankruptcy notice. I note, however, that I am delivering judgment after 4.30 and that my previous order extended time to the date of judgment. So as to ensure that there is no further argument about the effect of that order and precisely when the extension of time will cease, it appears to me to be appropriate that I make an order about that matter and, given that this is the end of the business day and there is always the possibility that the applicant may wish to satisfy the notice, it’s appropriate, it seems to me, to formally extend the time to 4.30 pm tomorrow to allow him one last clear business day.
In those circumstances, I formally extend the time for compliance to 4.30 pm tomorrow and otherwise dismiss the application.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
Date: 27 July 2010
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