Musumeci v Westpac Banking Corporation

[2025] NSWCA 90

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Musumeci v Westpac Banking Corporation [2025] NSWCA 90

Hearing dates:

28 April 2025

Date of orders:

02 May 2025

Decision date:

02 May 2025

Before:

Griffiths AJA

Decision:

(1) Orders 2-4 and 15-17 be stayed pursuant to r 51.44(1) of the Uniform Civil Procedure Rules 2005 (NSW) pending determination of the appeal arising from the notice of appeal filed 11 March 2025 or until further order.

(2) The costs of the notice of motion filed 2 April 2025, be costs in the appeal.

Catchwords:

PROCEDURE — stay pending appeal — whether the applicant has established an arguable case — whether stay should be granted where bankruptcy proceedings have already commenced — prejudice where applicant was not in a fit state to inform cross-examination — stay ordered in relation to the individual applicant but not the corporate applicants

Legislation Cited:

Bankruptcy Act 1966 (Cth) ss 115, 122

Uniform Civil Procedure Rules 2005 (NSW) r 51.44(1)

Cases Cited:

Bolton v WAM Active Ltd [2025] NSWCA 81

House v The King (1936) 55 CLR 499; [1936] HCA 40

Westpac Banking Corporation v Sentox Pty Ltd (No 2) [2024] NSWSC 783

Westpac Banking Corporation v Sentox Pty Ltd (No 3) [2024] NSWSC 1578

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

Kathie Musumeci (First Applicant)
CAO Holdings Pty Ltd (Second Applicant)
Musumeci Property Investments (Receivers and Managers Appointed) Pty Ltd (Third Applicant)
Westpac Banking Corporation (Respondent)

Representation:

Counsel:
M Condon SC and M Kearney (Applicants)
J Foley (Respondent)

Solicitors:
Bridges Lawyers (Applicants)
Gadens Lawyers Sydney (Respondent)

File Number(s):

2024/00478483

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity - Commercial List

Citation:

[2024] NSWSC 1578

Date of Decision:

11 December 2024

Before:

Ball J

File Number(s):

2021/62247

JUDGMENT

1. By notice of motion filed on 2 April 2025, the applicants seek a stay in respect of particular orders made by Ball J on 11 December 2024 (see Westpac Banking Corporation v Sentox Pty Ltd (No 3) [2024] NSWSC 1578 (Relief Judgment)), which orders are consequential on Ball J’s substantive decision in Westpac Banking Corporation v Sentox Pty Ltd (No 2) [2024] NSWSC 783 (Liability Judgment).

2. The applicants on the motion are also the appellants who, on 11 March 2025, filed a notice of appeal which seeks to set aside the orders the subject of the stay application.

3. For the following reasons, I consider that the first applicant (Mrs Kathie Musumeci) should be granted a stay, but different considerations apply to the second and third applicants (i.e. CAO Holdings Pty Ltd and Musumeci Property Investments (Receivers and Managers Appointed) Pty Ltd (MPI), whom I shall refer to collectively as the Corporate Applicants).

Background

4. The respondent (Westpac Banking Corporation) brought successful proceedings against the applicants and others in debt and deceit relating to an invoice discounting facility (IDF) which it provided to Sentox Pty Ltd (in liq). Sentox operated a fruit and vegetable wholesale business from Flemington Markets in Sydney. Mrs Musumeci was previously a director of Sentox and is currently a director of the Corporate Applicants. Westpac claimed damages against Mrs Musumeci for the tort of deceit and in reliance on her guarantee concerning the IDF. Westpac’s claims against the Corporate Applicants related to the knowing receipt of funds.

5. During the course of a mediation prior to the hearing of the proceedings below, Mrs Musumeci collapsed and was admitted to hospital. She was later diagnosed by a forensic psychiatrist, Dr Tanveer Ahmed, as suffering from mixed anxiety and depressive disorder which he described as “a serious and debilitating mental health condition”. In his report dated 26 April 2024, Dr Ahmed opined that Mrs Musumeci “is not currently fit to participate in the court in litigation and to instruct lawyers due to the volatility of her current mental state”. He added that, in his opinion there were reasonable prospects that Mrs Musumeci would be mentally fit to sustain what was then scheduled to be a four-week hearing commencing in May 2024 if it was conducted within a period of three to six months from the date of the report.

6. On 1 May 2024, Mrs Musumeci filed a notice of motion below seeking to vacate the hearing date on the basis that Mrs Musumeci was not fit to participate in the proceeding or instruct lawyers. Ball J dismissed the motion and instead appointed Mrs Musumeci’s 24-year-old son (Adrian) as her tutor to instruct during the proceeding. The substantive hearing commenced on 8 May 2024.

7. The Liability Judgment and the Relief Judgment were published on 27 June 2024 and 11 December 2024 respectively.

8. On 17 March 2025, Westpac served a bankruptcy notice on Mrs Musumeci. On 7 April 2025 and 24 April 2025 respectively, the time for compliance with the requirements of the bankruptcy notice were extended and then further extended up to and including 15 May 2025.

The parties’ submissions summarised

9. While acknowledging that it was not necessary or appropriate for the Court to engaged in a detailed assessment of the merits of the appeal, the applicants accepted that they needed to demonstrate that they had an arguable case.

10. It is sufficient to focus on grounds 1 and 2 of the notice of appeal because as will emerge, I consider that they do raise an arguable case. Those grounds challenge the primary judge’s findings that it was appropriate for Mrs Musumeci to participate in the final hearing through a tutor rather than vacate the hearing and permit her personally to give instructions and appear as a witness. His Honour said at [11] of the Liability Judgment:

… Shortly before the hearing was due to commence, the solicitors for Mrs Musumeci made an application to vacate the hearing on the basis that Mrs Musumeci was mentally unwell and incapable of giving instructions or evidence. I indicated that I was not willing to vacate the hearing, but that I thought it was appropriate that Mrs Musumeci continue to participate in the hearing through a tutor and that the defendants should be entitled to rely on her affidavit evidence without making her available for cross-examination on the basis that the absence of cross-examination would be relevant to the weight to be given to the evidence Mrs Musumeci gives. That condition was acceptable to the Bank which also agreed that it would not seek a personal costs order against the tutor appointed to represent Mrs Musumeci. As a result, the commencement of the hearing was postponed for two days to permit arrangements to be put in place for the appointment of a tutor. On 3 May 2024, Mrs Musumeci’s son, Mr Adrian Musumeci, filed his consent to acting as Mrs Musumeci’s tutor.

11. The applicants properly acknowledged that the primary judge’s decision not to vacate the hearing and to require the final hearing to proceed with Mrs Musumeci participating through a tutor involved matters of practice and procedure and engaged the principles in House v The King [1936] HCA 40; 55 CLR 499. They submit, however, that the decision was unjust and involved the discretion miscarrying in circumstances where:

1. serious allegations of misconduct were raised against Mrs Musumeci;

2. the case required findings as to Mrs Musumeci’s credit as a witness;

3. Mrs Musumeci’s mental condition at the time of the hearing was “dire”; and

4. it was inadequate for the primary judge to proceed with the hearing merely because the applicants would be entitled to rely on Mrs Musumeci’s affidavit evidence when Westpac agreed that the weight to be given to her evidence would take into account the absence of cross-examination.

12. As to the applicants’ prejudice, they contended that if a stay was refused this would likely force Mrs Musumeci to abandon the appeal, having regard to what was said by their instructing solicitor, Benjamin Dibden, in an affidavit sworn 2 April 2025 at [25]. That paragraph includes a statement on information and belief that Mrs Musumeci would be required to declare bankruptcy as she is unable to pay the judgment debt and that the appellants would not be able to pay for any legal fees and disbursements of the trustee in bankruptcy in pursuing the appeal. Therefore, the appeal would have to be abandoned. That evidence also suggests that Mrs Musumeci would be required to sell her own home as well as the property in which her 92 year old father-in-law presently lives.

13. Mr Dibden provided a second affidavit dated 28 April 2025, to which objection was taken on the basis of its late service. The second affidavit elaborated upon some of the matters summarised above in the first affidavit. I am content to rely upon the first affidavit in finding that Mrs Musumeci has established significant prejudice if a stay is not granted. This is primarily because, absent a stay, Mrs Musumeci could be made bankrupt prior to the appeal concluding, noting that Westpac has already commenced the bankruptcy process.

14. In addition, the applicants rely upon the prejudice that, absent a stay, Mrs Musumeci would be required to sell her home, as well as a second property where her 92 year old father-in-law lives.

15. As to the Corporate Applicants, it was contended that refusal of a stay would open the door for Westpac to serve statutory demands and proceed to winding-up, which would then involve a liquidator who would have to decide whether or not to prosecute the appeals.

16. In all these circumstances, the applicants contended that if the stay is not granted and the appeal succeeds, the appeal would be rendered inutile as Mrs Musumeci would have been declared bankrupt and the Corporate Applicants would be in liquidation, together with the other personal prejudice relating to the two residential homes.

17. Significantly, the applicants also emphasised that the appeal proceedings are listed for a two-day hearing due to commence relatively soon, on 1 July 2025. Senior counsel for the applicants, Mr Condon, confirmed that preparation for the hearing was “on track”. Hence, the period of any stay would not be lengthy. The applicants also point to the indisputable fact that Westpac is a well-financed litigant and has the benefit and protection of the existing freezing orders made in the proceedings below in relation to each of the applicants.

18. In opposing the stay application, Westpac contended that there is no reasonable prospect that the appeal will result in orders 2A, 3 or 4 being set aside. It added that a stay of order 2A would delay the commencement of bankruptcy proceedings and be against the public interest, as well as prejudicing Mrs Musumeci’s creditors, including Westpac. As to orders 2 and 15-17, Westpac contended that the declarations made therein should not be stayed because there was no prejudice to Mrs Musumeci. In further support of its contention that there was no arguable appeal against orders 2A-4, Westpac contended that it was unsurprising that the primary judge did not accept Mrs Musumeci’s untested evidence that she was pressured by multiple bank officers on multiple separate occasions to execute multiple guarantee instruments, nor accept her evidence that she didn’t understand that she was giving a guarantee. This is because Westpac contended that her evidence was “implausible in the extreme” and no appeal ground was specifically directed to the relevant findings.

19. On the issue of prejudice to Mrs Musumeci, Westpac contended that there was no real prospect that Mrs Musumeci would disturb the money judgment against her, thus there was no reason to delay the bankruptcy proceedings. In addition, Westpac contended that any delay in progressing the bankruptcy proceedings could affect the relation-back day and affect transactions which might be investigated and set aside by any trustee in bankruptcy, referring to ss 115 and 122 of the Bankruptcy Act 1966 (Cth).

20. As to the stay sought by the Corporate Applicants, Westpac emphasised that no appeal had been brought against the money judgments and costs orders concerning either of the Corporate Applicants (i.e. orders 9-12).

21. In addition, Westpac contended that those orders were “unimpeachable” because:

1. it was not disputed below that Mr Andrew Musumeci (Mrs Musumeci’s husband) had perpetrated the fraud;

2. there was no dispute below that he was a controlling mind of both the Corporate Applicants; and

3. there was no dispute below that funds flowing from the fraud were received by the Corporate Applicants in the amounts ultimately ordered.

Disposition

22. The relevant legal principles are well settled. They were recently restated and affirmed by Leeming JA in Bolton v WAM Active Ltd [2025] NSWCA 81.

23. For the following reasons, I am persuaded that Mrs Musumeci should be granted a stay. As noted above, it is sufficient to focus on grounds 1 and 2 of the notice of appeal which I consider are sufficiently arguable for the purposes of this application.

24. Both of those grounds focus on the primary judge’s decision not to vacate the hearing in light of Mrs Musumeci’s health issues, and rather to proceed with Mrs Musumeci participating through a tutor. This necessarily meant that Mrs Musumeci would not be available for cross-examination. I accept that these grounds are at least arguable in circumstances where:

1. having regard to Dr Ahmed’s report, it was evident that Mrs Musumeci was in no fit state to participate in the proceeding in any meaningful way whether personally or to provide relevant information to her tutor;

2. the events which gave rise to the litigation date back to 2014 when the tutor (Mrs Musemici’s son) was approximately 14 years of age and had no personal involvement in the relevant events; and

3. the unfairness to Mrs Musumeci’s case created by the hearing proceeding at a time when she was in no fit state to give instructions to counsel (or presumably assist her tutor in giving him instructions) relating to the conduct of the case and, in particular, cross-examining the Bank’s witnesses.

25. Directions were made on 14 April 2023, directing the defendants to serve any further evidence by 11 July 2023. Mrs Musumeci did not file any further affidavits. That omission is relevant, as Mrs Musumeci had an opportunity to file affidavit evidence in reply to Westpac's witnesses. I consider, however, that there is considerable force in Mr Condon’s submission that the presentation of Mrs Musumeci’s defence could have been prejudiced by the decision to proceed with the hearing on the basis outlined above. As Mr Condon pointed out, having regard to Dr Ahmed’s evidence concerning Mrs Musumeci’s incapacity to participate in litigation and instruct her lawyers, it is difficult to see how counsel representing her at the trial could have obtained meaningful instructions from her (or her tutor) which would guide the nature and scope of his cross-examination of Westpac’s witnesses. It is doubtful that this practical unfairness could be overcome by the involvement of her tutor who had no personal involvement in the relevant matters and was placed in a difficult position of obtaining instructions from his mother who was suffering serious mental health issues. Moreover, as noted above, the Bank’s case involved serious allegations of fraud and deceit against Mrs Musemici and it is arguable that fairness required her to be given a meaningful opportunity to test those allegations, particularly by an informed cross-examination.

26. For these reasons, I consider that there is at least an arguable case that the conduct of the trial below was unfair to Mrs Musumeci. I also consider that insofar as the balance of convenience is concerned that her prejudice, as outlined above, significantly outweighs that of Westpac. I consider that Westpac’s contentions regarding the relation-back day are relevant but warrant little weight as part of the comparative exercise. As matters stand at present, the time for complying with the bankruptcy notice has been extended to 15 May 2025 and it remains to be seen whether there might be a further extension. In any event, I believe that there is force in Mr Condon’s submission that Westpac’s argument has a theoretical air about it. This is highlighted by the fact that there is no allegation, for example, that Mrs Musumeci has engaged in conduct inconsistent with the existing asset preservation order, which conduct could highlight the need for an early relation-back period. In the circumstances, I consider that any prejudice in this regard to Westpac and other creditors is outweighed by the prejudice to Mrs Musumeci, as outlined above.

27. Finally, and importantly, I am conscious of the fact that the stay will operate for only a relatively short period of time, given the imminent date for the hearing of the appeal and allowing appropriate time for judgment to be delivered.

28. On the basis of the existing evidence, however, I consider that the Corporate Applicants are in a different position. They are undoubtedly affected by orders 9-12, but it is notable that none of those orders are challenged in the notice of appeal filed 11 March 2025. Those orders provide judgment for Westpac against both the Corporate Applicants in the amount of $5,131,043.57 and $1,120,367.76 respectively. The Corporate Applicants were also ordered to pay Westpac’s costs on the ordinary basis.

29. Order 18 made on 11 December 2024, which is one of the orders challenged in the notice of appeal, involves a declaration that Westpac has an equitable charge over various properties in the Northern Territory owned by MPI to secure the repayment of the relevant judgment debt, plus interest in relation to MPI. This order, together with order 9 which gave judgment to Westpac against MPI in the amount of $5,131,043.57 affect MPI. They are consequential upon the primary judge’s finding that money lent by the bank under the IDF could be traced to assets held by MPI. Although the primary judge found at [6] of the Liability Judgment that MPI was controlled by Mrs Musumeci, I do not understand this finding to be challenged in the notice of appeal nor is there any ground in the notice of appeal which challenges the primary judge’s statement at [9] of the Liability Judgment. I am not persuaded that the Corporate Applicants have demonstrated an arguable case in relation to order 18.

30. In opposing the stay sought by the Corporate Applicants, Westpac described the essence of the application as being that, notwithstanding that the Corporate Applicants had not paid the amounts they had been ordered to pay nor appealed against those orders, the orders should be stayed to ensure that the Corporate Applicants can prosecute an appeal on a legal point with respect to some assets of MPI without the risk of either company being wound-up. Westpac also pointed out that there was no dispute below that funds flowing from the fraud perpetrated by Mr Andrew Musumeci were received by the Corporate Applicants as found by the primary judge.

31. Mr Foley, of counsel, who appeared for Westpac, submitted that although freezing orders were in place against the Corporate Applicants, those orders did not give Westpac or, indeed, other creditors the same protection as would flow from the companies being placed in liquidation.

32. I accept Westpac’s submissions relating to the Corporate Applicants.

33. For these reasons, I am not persuaded that the Corporate Applicants should have a stay.

Conclusion

34. For all those reasons, I propose to order that:

1. Orders 2-4 and 15-17, (all of which affect Mrs Musumeci) be stayed pursuant to r 51.44(1) of the Uniform Civil Procedure Rules 2005 (NSW) pending determination of the appeal arising from the notice of appeal filed 11 March 2025 or until further order.

2. The costs of the notice of motion filed 2 April 2025, be costs in the appeal.

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Decision last updated: 02 May 2025