Michalakas v Angas Securities Ltd - [2018] SADC 113

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MICHALAKAS v ANGAS SECURITIES LTD
[2018] SADC 113
Judgment of Her Honour Judge Bochner
12 September 2018
PROCEDURE - INFERIOR COURTS - SOUTH AUSTRALIA - DISTRICT COURT
Appeal from a Master - costs - appeal dismissed
Corporations Act 2001 (Cth); Bankruptcy Act 1966 (Cth); Criminal Law Consolidation Act 1935 (SA), referred to.
Michalakas v Powell [2014] SASCFC 132; Michalakas v Angas Securities Ltd Decision No 8 of 2018; Foots v Southern Cross Mine Management Pty Ltd [2007] 234 CLR 52; Ratten v The Queen (1974) 131 CLR 510; Pradham v Eastside Day Surgery Pty Ltd [1999] SASC 256; McLean v DID Piling Pty Ltd [2010] SASC 33, considered.

MICHALAKAS v ANGAS SECURITIES LTD
[2018] SADC 113

On 13 March 2018, a Master of the District Court delivered reasons on an application for costs filed by the defendant in this matter, in which the defendant sought its costs of and incidental to this proceeding be paid by the plaintiff on an indemnity basis. The Master ordered that the plaintiff pay the defendant’s costs (save in respect of one discrete issue) on a party/party basis up to and including 16 November 2012 and after that date, on an indemnity basis.
The plaintiff has now appealed that decision.
Background
The plaintiff issued proceedings against the defendant in November 2012, in which he alleged breach of contract, misrepresentation and misleading and deceptive conduct against the defendant, as a result of which he suffered loss and damage. Not long after the issue of proceedings, the solicitor for the defendant wrote to the plaintiff and advised him that his proceedings were defective because (inter alia) the causes of action relied on were not those of the plaintiff, but of companies of which he was the sole director. As he did not have leave to issue the proceedings on behalf of the companies, they should be withdrawn. The defendant advised that if the proceedings were not discontinued, it would file an application for summary dismissal of the plaintiff’s claim.
The plaintiff did not discontinue the proceedings. The defendant filed an application for summary judgment in late 2012. The plaintiff was made bankrupt on 21 December 2012.
The defendant’s summary judgment application was listed for directions on 30 January 2013. At that time, Mr Strawbridge of counsel appeared for the plaintiff personally, and Mr Connelly appeared on behalf of the plaintiff’s trustee in bankruptcy. The summary judgment application was listed for hearing on 26 March 2013.
When the application came on for hearing on 26 March 2013, the plaintiff’s solicitor advised the Court that the plaintiff had been made bankrupt in late 2012. In addition, a solicitor appeared on behalf of the plaintiff’s trustee in bankruptcy. He advised the Court that the trustee had elected not to prosecute the action. At that point, the solicitors for both the plaintiff and his trustee in bankruptcy were excused. The Master heard submissions from counsel for the defendant.
On 4 April 2013, the Master delivered reasons in which he granted the defendant’s application for summary judgment and made orders accordingly. There was no appeal from this decision.
Later in 2013, the plaintiff’s wife filed an application in the Supreme Court of South Australia, seeking leave to issue proceedings on behalf of the companies, pursuant to s 236 and 237 of the Corporations Act 2001 (Cth). This action sought to prosecute the same claim as that pleaded by the plaintiff in this matter, against the same defendant. This application was refused by a Master of the Supreme Court, which decision was upheld on appeal.[1]
[1] Michalakas v Powell [2014] SASCFC 132.
In September 2016, further proceedings were issued in the Supreme Court, this time in the name of the companies themselves, in which they made the same allegations against the defendant (and others).
On 28 September 2017, the defendant filed its application seeking costs orders in its favour of and incidental to this proceedings.
The Master’s decision
The Master provided a thorough summary of the background to this matter, and discussed the various arguments of the parties. He noted the submission of the defendant that the two subsequent proceedings issued in the Supreme Court, based on the same subject matter amounted to an implied acknowledgement that this proceeding was misconceived, and that the proceedings needed to be commenced, either by the companies themselves, or pursuant to leave granted under s 236 and 237 of the Corporations Act. The Master found:
In my view, it is clear in these circumstances that at all times the issue of the proceedings in the plaintiff’s own name was never appropriate. This was found in my reasons on the summary judgment application and the involvement of the plaintiff in the Supreme Court proceedings provides an acknowledgement by him of this fact.[2]
[2] Decision No 8 of 2018 at [61].
The Master found that the defendant should have the costs of the proceedings on a party/party basis to 16 November 2012 and thereafter, on an indemnity basis. This is the date on which the defendant warned the plaintiff that it would seek summary judgment if the proceedings was not discontinued.
He rejected the plaintiff’s application to stay this proceedings, until the finalisation of his Supreme Court proceedings, as the parties were different in each.
Finally, the Master found that, because the costs order was made after the sequestration order, despite relating to events occurring prior to the sequestration order being made, it was not a provable debt in the plaintiff’s bankruptcy, relying on the decision of the High Court of Australia in Foots v Southern Cross Mine Management Pty Ltd (Foots).[3]
[3] [2007] 234 CLR 52.
The appeal
The notice of appeal filed by the plaintiff was very broad ranging in the grounds on which it relied. Ultimately, the submissions made by the plaintiff, bore little relationship to the written grounds. In addition, the plaintiff sought an extension of time within which to appeal, and leave to adduce fresh evidence.
Extension of time
It appears that the notice of appeal was in fact lodged within time. However, there was a delay in the payment of the required filing fee, which led to the late filing of the notice. While this explanation was proffered as evidence from the bar table, rather than by way of affidavit, I am prepared to accept the plaintiff’s explanation for the late filing of the notice of appeal. I note, too, that while the defendant objected to an extension of time, this objection was more a matter of form than substance. It was not able to point to any prejudice as a result of the delay which was, in any event, of short duration.
The plaintiff is granted an extension of time to appeal.
Fresh evidence
I had some difficulty following the submissions of counsel for the plaintiff, Mr O’Dea on this point. Indeed, I had difficulty identifying what exactly he characterised as the fresh evidence which he sought to adduce. The first piece of evidence appears to be evidence of the knowledge of the parties of the plaintiff’s bankruptcy. Mr O’Dea sought to adduce this because he submitted that there was no evidence before the Court that the Master was aware of the fact of the plaintiff’s bankruptcy prior to the delivery of his reasons on 4 April 2013. This is clearly not the case. Firstly, the plaintiff’s trustee in bankruptcy appeared at the directions hearing on 30 January 2013. Further, in his reasons, the Master refers, at [10], to the plaintiff’s trustee in bankruptcy appearing at the hearing on 26 March 2013. There can be no doubt that he was aware of the plaintiff’s bankruptcy prior to and at the hearing of the application for summary judgment.
Mr O’Dea then sought to adduce a series of emails which I understood to go the question of when the trustee made and communicated an election pursuant to s 60(2) of the Bankruptcy Act 1966 (Cth). Sections 60(2) and (3) are in the following terms:
(2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
The point Mr O’Dea seeks to make with these documents is that this action was automatically stayed from 21 December 2012, the date on which the plaintiff was made bankrupt. Further, as a consequence of s 60(3), the action was abandoned on 20 February 2013, as the trustee had notice of the proceedings served on him on 22 January 2013, and appears not to have made an election (or not communicated such an election to the plaintiff or the defendant) within 28 days. Thus, Mr O’Dea says, the argument before the Master on 26 March 2013 should never have been heard, the action having previously been abandoned.
In support of his argument, Mr O’Dea relied on s 353(6) of the Criminal Law Consolidation Act 1935 (SA), and on Ratten v The Queen,[4] and a number of other cases reliant on this authority. Clearly, the Criminal Law Consolidation Act and these authorities are not relevant to this matter.
[4] (1974) 131 CLR 510.
Mr Rowley on behalf of the defendant submitted primarily that the fresh evidence sought to be adduced by the plaintiff should not be allowed as it serves no utility. He says that there is no utility in allowing evidence to be adduced that confirms that all parties were aware of the plaintiff’s bankruptcy. Nor, he says, is there any utility in adducing evidence in relation to when (or whether) the trustee made an election pursuant to s 60(2) of the Bankruptcy Act 1966 (Cth).
Fresh evidence can be adduced on appeal pursuant to Rule 286(3)(a) of the District Court Civil Rules 2006.
The principles to be followed when determining whether fresh evidence should be permitted to be adduced on appeal were set out by the Full Court in Pradham v Eastside Day Surgery Pty Ltd.[5] In discussing the predecessor of Rule 286, Bleby J, with whom Doyle CJ and Prior J agreed, said:
[33] There is no doubt that pursuant to r95.15 this Court may in its discretion receive further evidence upon any question of fact. Whether it does so will depend, among other things, on whether it was available at the time and why it was not led before the Master, and whether, if admitted, it is likely to have a material effect on the result. The primary concern should be the interests of the administration of justice.[6]
[5] [1999] SASC 256.
[6] [1999] SASC 256 at [33].
In my view, the evidence sought to be adduced by the plaintiff as fresh evidence should not be received for the purpose of this appeal. In the first instance, there is no reason why it could not have been adduced before the Master. By 30 January 2013, at the very least, all parties and the Master were aware that the plaintiff was made bankrupt. While the question of trustee’s election could have been raised with him via counsel, at the hearing on 30 January 2013, it appears that it was not. At the hearing on 26 March 2013, the trustee’s solicitor advised the Court that the trustee had elected not to prosecute this action. More to the point, the application on costs was heard by the Master in March 2018, some five years after the events in question. There is no explanation why this affidavit material was not before him, given that it could have been obtained by the plaintiff at any time between the summary dismissal of the claim in 2013, and the costs application in 2018.
Nor do I consider that the affidavit material would have any material effect on the result of this appeal. I do not consider that it adds any, or at least any significant factual matter to that already before me. In the absence of this material, the facts of the plaintiff’s bankruptcy and the election of the trustee are still before the Court, and thus it remains open to the plaintiff to make the submission that he seeks to make as to the need for the hearing in March 2013.
The interests of justice are in no way served by the introduction of this affidavit material. The plaintiff’s application to introduce it is refused.
The grounds of appeal
As previously mentioned, there is significant disconnect between the grounds set out in the plaintiff’s notice of appeal, and the plaintiff’s oral and written submissions.
There appears to be two broad bases for the plaintiff’s appeal. The first is that the defendant should not be entitled to costs because the argument before the Master, on 26 March 2014, should never have proceeded. By 26 March 2013, the proceedings had, by virtue of the operation of s 60(2) and (3) of the Bankruptcy Act, been abandoned. There had been no election by the trustee. Thus, the argument served no useful purpose, and only caused an increase in costs. The defendant should have been aware of this, and so not pursued the argument; thus any cost occasioned by it should be borne by the defendant.
The plaintiff says that, in any event, the defendant was precluded from agitating this matter any further, without the leave of the Court, by virtue of s 58(3) of the Bankruptcy Act, which provided:
(3)Except as provided by this Act, after a debtor has become a 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
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
Continuing with the application for summary judgment amounted to a fresh step, which is prohibited by the Bankruptcy Act.
The second basis for the plaintiff’s appeal is his contention that the conduct of the defendant in applying for costs amounts to an abuse of process. He says that by applying for costs shortly after the companies controlled by the plaintiff brought fresh proceedings against the defendant, the defendant is seeking to threaten or intimidate the plaintiff.
Finally, the plaintiff contended that the Master erred in his application of Foots, in determining that the costs order was not a debt provable in the plaintiff’s bankruptcy. The plaintiff said that the decision in Foots should have been distinguished on the basis that the argument to which the costs related had been heard prior to the sequestration order being made. In this matter, no substantive argument occurred until after the sequestration order had been made.
A number of grounds of appeal were not addressed by the plaintiff in either his oral or written submissions. He confirmed at the close of this oral submissions that he was not pressing these matters.
The defendant contended that this appeal should be dismissed on the following grounds:
·Some of the plaintiff’s submissions are more appropriately characterised as appeals from the Master’s 2013 decision. This decision has not been appealed, and it is not appropriate to attempt to impugn it in this proceeding.
·Many of the matters that the plaintiff says the defendant should have brought the attention of the Master were matters related to the plaintiff’s own claim and within the plaintiff’s own knowledge. There is no obligation on the defendant to bring to the Master’s attention matters relating to the plaintiff’s bankruptcy, or the fact that the plaintiff had guaranteed loans made by the defendant where the plaintiff had not himself pleaded the guarantee.
·There is no evidence to support the plaintiff’s contention that the defendant’s conduct amounts to an abuse of process. The defendant was within his rights to seek a costs order against the plaintiff.
·The Master correctly applied Foots.
·Abandonment does not bring the proceedings to an end. A procedural step was required by one of the parties to finalise the proceedings. The defendant cannot be criticised for taking that step.
Consideration
The basis for an appeal from a District Court Master is set out in Rule 286 of the District Court Civil Rules 2006.
As the appeal is by way of rehearing, I must undertake a “real review of the decision and of the Master’s reasons”.[7] However, as the decision of the Master was a discretionary one, the plaintiff must establish an error of the House v The King[8] type.
[7] McLean v DID Piling Pty Ltd [2010] SASC 33 at [18].
[8] (1936) 55 CLR 499 at 504-505.
Thus, for the plaintiff to succeed on this appeal, he must demonstrate that the Master made an error of principle, took into account extraneous or irrelevant matters, or failed to take into consideration relevant matters, made a mistake of fact or that the Master’s decision is unreasonable or plainly unjust.
In my view, this appeal must be dismissed. Many, if not all of the arguments raised by the plaintiff are in effect related to the correctness or otherwise of the decision made by the Master in 2013.
In particular, the plaintiff’s argument that the hearing on 26 March 2013 was otiose should have been raised on either 30 January 2013 or 26 March 2013. On both of these occasions, the plaintiff was represented in his personal capacity by Mr Strawbridge. On both of these occasions, his trustee in bankruptcy appeared by way of his solicitor. On neither occasion did Mr Strawbridge or his trustee submit that the application for summary judgment should not be listed for hearing. Whether the action was stayed pursuant to s 60(2) of the Bankruptcy Act or abandoned pursuant to s 60(3) of that Act, are matters that should have been argued and raised by either Mr Strawbridge or the trustee on either of these occasions. I reach the same conclusion about the plaintiff’s argument based on s 58(3) of the Bankruptcy Act.
The effect of the plaintiff’s arguments, although he did not put it in these terms, is that he is challenging the jurisdiction of the Master to make the decision that he made in 2013. That, however, is not the decision under appeal. If he wished to challenge the jurisdiction of the Master to hear the summary judgment argument, he should have done so prior to the argument being heard, or at the very least, appealed that decision. He cannot now seek to impugn the decision made in 2013, through the avenue of an appeal of a costs order in 2018.
As to the abuse of process argument, I am of the view that the plaintiff has not demonstrated any error on the part of the Master. As the Master noted:
In my reasons for judgment and in my orders [in 2013] I gave the defendant liberty to apply if there was application for costs.[9]
[9] Decision No. 8 of 2018 at [63].
The mere fact that the defendant applied for costs shortly after fresh proceedings were issued against it on the basis of the same subject matter is not sufficient to make a finding of abuse of process. The Master was correct not to do so.
Nor did the Master err in refusing to stay this proceeding until the extant Supreme Court proceedings were finalised. He was correct that there was no risk of conflicting judgments. This is so, not only because the parties are different, but because, more importantly, there will never be a decision on the substantive issues raised in this matter. There cannot be, because summary judgment was awarded in favour of the defendant.
Nor do I consider that the Master erred in his interpretation and application of Foots. In Foots, the trial to which the question of costs related, was heard prior to Mr Foots’ bankruptcy. Mr Foots entered bankruptcy after judgment was awarded against him, but before an adverse costs order was made. He sought to argue that the costs order was a debt provable in his bankruptcy, on the basis that it was a debt or obligation arising out of an obligation incurred before his bankruptcy. Having analysed the Bankruptcy Act and its antecedent legislation, the High Court found:
If the distraction of British Gold Fields is resisted when construing the text of the Bankruptcy Act, and the nature of a costs order is appreciated, several difficulties lie in the path of the admission to proof of the costs order made against Mr Foots. First, the order made falls outside s 82(1) because it was made after bankruptcy, and was thus not a liability “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” (emphasis added). Secondly, as explained earlier in these reasons, Mr Foots was under no antecedent obligation to pay costs until the order was made against him. Thirdly, there is no scope in the text or structure of the Bankruptcy Act for the notion of an obligation or liability “incidental” to a provable debt. The necessary corollary of the appellant’s argument is the admission that such an obligation is not itself a provable debt, but is only “incidental” to one. If such an obligation is not a provable debt, when then should it be admitted to proof? Dressing the notion in the language of “incidence” does not alter matters: rather, it is apt to disguise the text of the Bankruptcy Act.[10]
[10] [2007] 234 CLR 52 at [65].

Thus, because no liability to pay costs arose until the order was made, and that order was made after the date of Mr Foots’ bankruptcy, the costs order was not a debt provable in his bankruptcy.
The plaintiff’s submission, that the Master should have distinguished Foots on the basis that the plaintiff’s obligation was substantially incurred before bankruptcy misunderstands the reasoning applied by the High Court. While the conduct to which the cost order relates occurred substantially prior to bankruptcy, the obligation to pay costs did not arise until the costs order was made. Thus, the liability arose after the commencement of the plaintiff’s bankruptcy. The facts of this matter are clearly indistinguishable. The plaintiff had no liability to pay costs until the costs order was made, well after he had been made bankrupt.
For completeness, I note the following:
·Paragraphs 3.1-3.3 and 3.5 in the plaintiff’s notice of appeal deal with matters raised in the 2013 decision and are not subject to appeal in this natter, save for paragraph 3.4. I do not understand the relevance of this paragraph.
·Grounds 4.1 and 4.2 fall into the same category.
·Grounds 5.1-5.3 are not issues raised by the Master’s decision on costs.
·I have dealt with grounds 1 and 6 in my finding that the Master did not err in his conclusion that the defendant’s costs application was not an abuse of process.
·Grounds 7.1 and 7.2 are not relevant to the Master’s decision on costs.
·I have dealt with grounds 8.1-8.3 in my finding that the Master did not err in his application of Foots.
The appeal is dismissed. I will hear the parties on the question of costs.