Re La Rosa, F.C. & L.R. v Ex parte Norgard & Ors, R.S

[1989] FCA 508

3UDGMENT No. 50 .%..$..X.??-

C A T C H W O R D S

BANKRUTPCY - application for avoidance of settlement - defence and cross-claim against major creditor - pending criminal prosecution

- common issues - stay application - application refused in

relation to discovery - otherwise premature - liberty to apply.

PRACTICE AND PROCEDURE - stay application - application to avoid voluntary settlement - pending criminal prosecution - common issues - application refused in relation to discovery - premature otherwise.

Bankruptcy Act 1966 s.121

McMahon v Gould (1982) 1 ACLC 98
Cameron's Unit Services Pty Ltd v Kevin R. Whelpton Associates
(Australia) Pty Ltd (1984) 4 FCR 428

RE: FRANCESCO CANDELORO LA ROSA and LINDA ROBYN LA ROSA EX PARTE: ROSS STEWART NORGARD as Trustee in Bankruptcy of the Estate of Francesco Candeloro La Rosa and Linda Robyn La Rosa and RODPAT NOMINEES PTY LTD

_.

RODPAT NOMINEES PTY LTD and THE RURAL AND INDUSTRIES BANK OF
WESTERN AUSTRALIA

No. 616 of 1988

FRENCH J .

PERTH

14 AUGUST 1989

-5SEP1989
FEDERAL COURT OF

AUSTRALIA

PHINCIPN t3EGISTRY

IN THE FEDERAL COURT	)
OF AUSTRALIA	)
GENERAL DIVISION	1
BANKRUPTCY DISTRICT	1
OF THE STATE OF	1
WESTERN AUSTRALIA	1 No. 616 of 1988

RE: FRANCESCO CANDELORO LA ROSA

and LINDA ROBYN LA ROSA

Bankrupts

EX PARTE: ROSS STEWART NORGARD as
Trustee in Bankruptcy of the Estate
of Francesco Candeloro La Rosa and

Linda Robyn La Rosa

Applicant

and

RODPAT NOMINEES PTY LTD

Respondent

and

RODPAT NOMINEES PTY LTD

Cross-Claimant

and

THE RURAL AND INDUSTRIES BANK OF

WESTERN AUSTRALIA

Cross-Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:	FRENCH J.
DATE OF ORDER:	14 AUGUST 1989
WHERE MADE:	PERTH
THE COURT ORDERS THAT:

1.         The application of the respondent dated 4 May 1989 be dismissed as to paragraph 3(a).

The respondent is to pay the applicant's and cross- respondent's costs of paragraph 3(a) of the application.

Note: Settlement and entry of orders is dealt with in
Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT	)
OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT
OF THE STATE OF
WESTERN AUSTRALIA	) NO. 616 of 1988

RE: FRANCESCO CANDELORO LA ROSA

and LINDA ROBYN LA ROSA

Bankrupts

EX PARTE: ROSS STEWART NORGARD
as Trustee in Bankruptcy of the
Estate of Francesco Candeloro La

Rosa and Linda Robyn La Rosa

Applicant

and

RODPAT NOMINEES PTY LTD

Respondent

and

RODPAT NOMINEES PTY LTD

Cross-Claimant

and

THE RURAL AND INDUSTRIES BANK OF

WESTERN AUSTRALIA

Cross-Respondent

CORAM :	FRENCH J.
14 AUGUST 1989

EX TEMPORE REASONS FOR JUDGMENT

ON APPLICATION TO STAY PROCEEDINGS

This is an application to stay proceedings brought under
s.120 of the Bankruptcy Act 1966 for the recovery of some

$2,842,500 said to have been paid to the respondent, Rodpat Nominees Pty Ltd, in April 1988. The respondent applies for a stay on the basis that conspiracy charges pending against one of its directors, Mr Rod Ferguson, arise out of the transactions which are the subject of this litigation.

Although Dr. Schoombee for the respondent has put comprehensive and well prepared argument in support of a stay, I do not propose to call on the other parties to respond. I am satisfied that the application is premature and that I should not make the orders sought at this time.

I have already canvassed the pleadings as they presently stand save for the cross-claim and defence thereto in the context of the application to strike out part of the defence on which I gave judgment on 26 June and I do not propose to repeat the analysis of the pleadings set out in that judgment. It is sufficient to say that by its defence the respondent asserts that the relevant transactions between the bankrupts and itself were carried out with the knowledge, consent and co-operation of the Rural and Industries Bank and under its supervision. The Bank is the principal creditor of the bankrupts, claiming to be owed some

based upon estoppel and unconscionable conduct, the respondent	$29,635,000 out of total debts of $29,885,915. Invoklng arguments
contends that if there were a settlement as alleged by the Trustee, any recovery should be limited to the amount necessary to pay administration expenses and creditors other than the Bank. The cross-claim brought against the Bank ralses similar allegations and seeks declaratory and injunctive relief accordingly.
The defence to that cross-claim filed by the Bank asserts, inter alia, that Ferguson was acting in concert with La Rosa and with an officer of the Bank, Mr Dolling, to defraud it. Although copies of the complaints laid against Ferguson and others are before me, the precise particulars of the conduct relied upon have evidently not yet been provided. The extent of the overlap between the factual issues raised in these proceedings and in the pending charges is therefore not defined. Nevertheless, having regard to the terms of the complaints and Ferguson's affidavit in support of the stay application, I can accept for the purpose of this judgment that there is a significant degree of congruence between the facts raised on the substantive application and those raised by the complaints. But even on that assumption which I make without benefit of submissions from the applicant, the question arises whether or not the proceedings should be stayed, as the respondent asks, from close of pleadings. That would involve a stay of the discovery and interrogatory processes.
Ferguson, in his affidavit in support of the application, has said that the estimated duration of the trial is
no preliminary hearing is to be conducted, the trial may take some 90 days. He will not elect for a preliminary hearing, and if
place in February 1990. If there is to be a preliminary hearing in which he is lnvolved because of a different election by his CO-accused, the trial of the action may not take place until late 1990 and possibly early 1991. He said that if the present proceedings continue, if discovery is made by Rodpat, and interrogatories answered relating to issues raised in its defence and cross-claim, then the conduct of his defence in the criminal case would be materially prejudiced. He referred to the defence to cross-claim and the fact that it contains serious allegations involving the respondent and himself in essentially the same conduct as that charged in the criminal case. The legal expenses associated with these and the criminal proceedings are to be paid from essentially the same sources. He added:

"Should the present proceedings go ahead despite the pending criminal case, the respondent and I will be burdened with two sets of very substantial costs."

He claimed that his legal costs so far are in the viclnity of $75,000 of which approximately two-thirds are attributable to these proceedings. If it be the case, and it seems an extraordinary and disturbing proposition that these proceedings have already generated costs of $50,000, I would find it difficult to imagine that the work done would not have encompassed the inquiries necessary for providing discovery. Ferguson also claimed that both he and the respondent would be disadvantaged if both cases were to proceed concurrently by reason

of the time that he will have to spend in dealing with extensive

and often quite technical evidence in each. In this regard he

referred to statements, with which he has been served in the criminal proceedings, of 59 witnesses, or potential witnesses, to be called by the Crown. He said he would have to testify and be cross-examined in the present proceedings and given the nature of the pleading issues are bound to be canvassed which go to the matter central to the criminal charges. Should he decline to answer any questions on the basis of self-incrimination, Rodpat would be unable to present its case properly and would be denied a fair trial. The same position, he argued, would apply in respect of fir La Rosa, already a deponent on behalf of Rodpat, in this matter. Should La Rosa decline to answer incriminating questions, the proper trial of this application could be thwarted. Reference was also made to the extensive public~ty which has been attracted already to the affairs of La Rosa and his bankruptcy and pending litigation both of a civil and criminal character. I accept that both these and the criminal proceedings are likely to attract a good deal of public interest and publicity. Ferguson also noted that the Bank is by far the major creditor in the bankrupt estate of the La Rosas, a fact which was perhaps mentioned in support of the proposition that the real contest here is between the interest of the Bank as the principal creditor and the interest of the individual in relation to his freedom and the criminal proceedings which he faces.

In discussion with Dr. Schoombee dur~ng his submissions,

I raised the question whether it is premature to make a judgment about any stay relating to the hear~ng of the action. I am satisfied that at this stage the question whether the trial of

cannot be determined until more is known about the length and	these proceedings should be stayed cannot be determ~ned. It
likely date of the substantive hearing in the absence of a stay and the length and likely date of any cr~minal trial involving Ferguson. Those matters are still to be ascerta~ned. They will depend, in part, upon the outcome of the election proceedings where various accused in a crim~nal case will determine whether or not they wish a preliminary hearing. I accept that Ferguson does not propose to so elect, but if some other CO-accused does, then it may be the case that he will be involved, albeit involuntarily, in preliminary proceedings.
The position, so far as the trial of thls action is concerned, is unresolved. The trustee has recently filed an application seek~ng to substantially amend his statement of claim and raising for the first time, a case of fraud against the respondent invoking s.121 of the Bankruptcy Act 1966. Until the pleadings are settled and more is known about the case, no real judgment can be made about the llkely time and length of the trial. That leaves to be determined the question whether a stay should be granted in respect of discovery and interrogatories. The threshold issue there is whether a stay should be granted in respect of the discovery process. Principles relevant to the discretion to grant a stay in civil proceedings pending the resolution of criminal prosecutions, were set out by Wootten J. In McMahon v Gould (1982) 1 ACLC 98 and accepted by Wllcox J. in Cameron1s Unit Services Pty Ltd v Kevin R. Whelpton Associates (Australia) Pty Ltd (1984) 4 FCR 428. I particularly refer to the
propositions embodied in the former judgment that:

(a)	A plaintiff is entitled to have hls action tried in the ordinary course of the procedural position of the Court.
(b)	It is a grave matter to interfere with this entitlement by a stay of proceedings which requires justification on proper grounds.

(C) The burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff's ordinary rights should not be interferred with.

(d)	Neither an accused nor the Crown are entitled as a right to have a civil proceeding stayed because of a pending or possible criminal proceeding.
(e)	The Court's task is one of the balancing of justice between the parties taking account of all relevant factors.
(f)	Each case must be judged on its own merits and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors.
(g)	One factor to take into account where there are pending or possible criminal proceedings is what is sometimes referred to as the accused's right of silence and the reasons why that right under the law as it stands is a right of a defendant in a criminal proceeding.
(h)	The so-called right of silence does not extend to give a defendant, as a matter of right, the same protection in contemporaneous civil proceedings.

(i)  The Court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings.

His Honour also set out various factors relevant to the question of injustice. These include the possibility of publicity, the proximity of the crimlnal hearing, the possibility disclosure of a defence might provide an opportunity for fabrication of evidence by prosecution witnesses, or interference

with witnesses, the burden on the defendant of preparing for both	sets of proceedings concurrently and whether the defendant had
already disclosed his defence to the allegations. The effect on the plaintiff of a stay must also be considered and weighed against the effect on the defendant if no order is made. In that regard Wootten J. noted that in an appropriate case proceedings may be allowed to progress to a certain stage e.g. setting down for trial and then stayed.
No question of publicity arises, I would think, in the present case so far as the discovery process is concerned. Nor does the discovery of documents by one party to another in this proceeding automatically make those documents available to the Crown. The process of discovery does involve an implied undertaking that the parties inspecting discovered documents wlll not make collateral use of them outslde the framework of the litigation. In this case that restrlctlon would not permit the Bank to disclose to the Crown Prosecutor or his officers documents discovered to it by the respondent. Dr. Schoombee nevertheless argues that witnesses in the present proceedings include witnesses likely to be called by the Crown in the criminal proceedings and that those witnesses might quite properly be shown some of the documents disclosed in the process of discovery by the respondent and thus be, in some way, alerted to matters on which they might be cross-examlned at the respondent's trial.
I am not satisfied that the rlsk of unfair prejudice arising from discovery is sufficiently great to warrant the granting of a stay, having regard to the other general factors to
which I have made reference. Certainly, there will be some limited disclosure. Certainly it would seem that Crown witnesses
may have access to discovered documents in the preparation for these proceedings. But, I do not consider that that is a matter which imposes such oppressive burdens or unfairness in relation to the preparation by Ferguson, of hls criminal defence, that rt would warrant the grant of a stay. As to the practical burdens of preparing discovery, much of the work is carried out in the solicitors' office. It does not involve the person providing discovery to the same degree as the interlocutory process or preparation of proofs of evidence for trial.
Indeed, it would seem to me that if the preparatory processes in this case have been as extensive as to justify the alleged costs to date, much, if not all, of the necessary work must by now have been done. In the circumstances, I am not prepared to stay discovery. The question of whether the interrogatory process should be stayed is, to some extent, speculative. It is not known whether anybody proposes to interrogate. And of course it is not known what interrogatories may be forthcoming. The question whether the Court will give leave to interrogate and if so, to what extent, has not arisen. It is premature therefore to make any judgment on a stay in relation to interrogatories.
In the circumstances, the appropriate course is to dismiss the application for a stay on the basis that the respondent will have liberty to further apply either after the discovery process and in the light of proposed interrogatories or in relation to the trial of the action. This decision does not
foreclose those options.

I certify that the preceding
nine (9) pages are a true copy of the
Ex Tempore Reasons for Judgment of his

Honour Justice French.

Associate:	c I6LW-L-
Date:

Counsel for the Applicant: Mr R.W. Richardson
Solicitors for the Applicant: Blake Dawson Waldron

Counsel for the Respondent: Mr J.J. Schoombee Solicitors for the Respondent: Bennett & Co.

Counsel for the Cross-Respondent: Mr S.P. Boyle

Solicitors for the Cross-Respondent: Robinson Cox

Date of Hearing:	14 August 1989
Date of Judgment: 14 August 1989