Rouhat Pty Ltd v Haoui, Adam

[1998] FCA 921

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 8432 of 1997

BETWEEN:

ROUHAT PTY LIMITED
FIRST APPLICANT

REGENT SKYLIGHT SYSTEMS PTY LIMITED
SECOND APPLICANT

AND:

ADAM HAOUI
FIRST RESPONDENT

FAY HAOUI
SECOND RESPONDENT

JUDGE:	EINFELD J
DATE:	24 JULY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

By an amended application filed in Court without opposition, the applicants as alleged creditors seek to set aside a deed of arrangement made  on 22 July 1997 between the respondents as debtors and Max Christopher Donnelly as trustee of the deed.  The basis for the application is that the deed was entered into after the debtors provided to the trustee and the creditors materially false and misleading information and omitted material particulars, as a consequence of which it is suggested the applicants have been seriously disadvantaged.  The applicants’ allegations are strenuously denied.

This application was scheduled for hearing today but the respondents have applied to adjourn the proceedings.  They put their application on a number of bases.  Firstly, they claim they are not able to deal with the amended application, which now relies on several different sections of the Bankruptcy Act rather than the single section relied on in the original application.  Secondly, a significant amount of evidence was filed at a very late stage by the applicants, which the respondents claim they are not in a position to meet.  I have not investigated why the amended application and the new evidence was filed so late in the proceedings because there is no purpose in doing so. 

The third ground of the application for an adjournment relates to concurrent proceedings in the Supreme Court of New South Wales between the same parties, in which the respondents are claiming from the applicants monies allegedly owed under a building contract.  The applicants have cross-claimed.  The significance of the Supreme Court matter to the present application to set aside the deed of arrangement is that the creditors' meeting was informed that the respondents expected to obtain from the Supreme Court case a significant credit in their favour, thirty percent of which would be paid to the creditors under the deed of arrangement.  The applicants now argue that the facts concerning the proceedings in the Supreme Court have only crystallised relatively recently such that it has only now become clear that there is no chance of the Supreme Court proceedings resulting in the respondents receiving any money at all.

As I have been informed, the Supreme Court matter is presently before a referee who is to make findings as to various financial and mathematical matters requested by the Court, and  thereafter advise Justice Rolfe who is hearing the matter.  The hearing is apparently fixed for October, when the various issues of law and fact that arise would have to be resolved before the calculations of the referee will come into play at all.

The respondents say, firstly, that the determination as to whether the first applicant is a creditor of the respondents is dependent upon the results of the legal proceedings.  They say, secondly, that the proceedings in this Court are brought with a view to making it impossible for the matter in the Supreme Court to proceed.  The argument is that if the respondents are made bankrupt here, they would not be able to carry on the proceedings in their own names and would be dependent on the trustee’s decision as to whether he wished to carry them on.  Obviously he would not carry them on without some indemnity as to his costs, presumably provided by the creditors.  The respondents say that that event must be regarded at this stage as somewhat less than likely. 

Of course the trustee could sell the right of action to someone but if that happened, the applicants would undoubtedly seek security for costs, a great disincentive, it would seem, for someone buying the rights of a very uncertain action.  The respondents say that the Court should not allow the Supreme Court matter to be litigated in this Court arguing that the matters now raised in the evidence by the applicants, would require in effect a further hearing here of all or many of the matters being debated in the Supreme Court.  Manifestly, if that were so, there would be no question but that these proceedings would be adjourned because the courts of the country would not provide two fora for the litigation of these matters.

The applicants respond by saying that the Supreme Court proceedings have progressed to a stage where it has become clear that whatever their result, the applicants will in fact get nothing out of them and that all that is happening now is that the first applicant is caught in a net of legal proceedings which it has to defend but out of which, whatever the result of the case, it can gain nothing and can lose a very substantial sum in legal costs. 

There is some evidence before the Court, which has certainly not been tested and about which I can therefore make absolutely no finding, that the respondents feel that they are also caught in this litigation, apparently and inferentially against their will, and that they are pursuing it notwithstanding the fact that they recognise the unlikelihood of gaining anything of substance out of the proceedings.  They appear to feel trapped by the commitment they made to the creditors last year that they would contribute a significant portion of any verdict they obtained in the Supreme Court into the deed of arrangement and therefore make it available for the creditors.  The evidence I am referring to may be wholly or partly denied, and therefore I can make no finding about it at all.  But even without that evidence, it did occur to me during the hearing that the respondents may very well feel themselves as, in effect, carrying on the proceedings as representatives of the creditors notwithstanding that it must be becoming clearer and clearer that whatever they told the creditors and however truthfully they believed it at the time, the situation is changing to the point where they may not be able to honour the commitments they have made.  The claim of the applicants is therefore that the Court should go on with these proceedings with some urgency so that they can be saved the additional costs, probably unrecoverable, to which the first applicant is about to be subject in the Supreme Court.

Regardless of the weight of the respondents’ application for an adjournment, the practical problem that has arisen is that this case will now take much more than one day, and only one day was set aside today for the hearing, presumably on the advice of the parties.  There is unfortunately no possibility that I, at least, could make available the extra time required for an immediate hearing in order to save the first applicant from this costs dilemma in which it finds itself.  I agree that this matter should be resolved as quickly as possible, but when I speak of “this matter”, I mean not merely the litigation that is in this Court but the dispute between the parties in the Supreme Court.  As presumably the Supreme Court in fixing a hearing in October has given the earliest possible date it can provide, the revisiting of the deed of arrangement may be the only way in which expedition can be achieved if the disputes cannot be otherwise resolved. 

In the circumstances existing today, it is impossible for me to give any time at all this year for a three day case, and from what I understand it seems unlikely that any other Judge in the Court would be able to do so either.  Even if a hearing could be provided before the end of the year, it is most unlikely that a judgment would be available before the end of the year.  Yet unless this matter can be resolved before the resumption of the Supreme Court hearing in October, the costs for that hearing will already have been incurred.  It really means that to save the costs of that hearing, it would be necessary to resolve the matter in this Court at least a month before that time so that the parties were not put to the expense of having to prepare for it.  As I can see no chance that this Court could provide a hearing and a judgment before September, this Court is unfortunately not able to assist the parties to resolve their dilemma.

As the matter has not been litigated, I can make no sensible observation about the credibility and the stances which the parties are respectively taking, but accepting them at face value, they both appear to be caught up in a litigation merry-go-round which, whoever has brought it about, is nevertheless a real thing.  There are two pieces of litigation in separate courts arising out of the same substantive factual matter from which they both want to find a way to escape as soon as possible, and neither Court can apparently help them out of their situation in the short term.  If there is to be an early solution, therefore, it will have to be outside the court system.

The only way I can think of by which the parties can be relieved of this burden is for the creditors to be given an early opportunity to consider such additional facts as the parties may wish to place before them.  It undoubtedly will include some submission of the kind that I have heard this morning on behalf of the applicants which was a lengthy, eloquent and lucid explanation of the case they wish to make.  Essentially, it was an outline or introduction, something like a formal court opening, of the case which the applicants would make if these proceedings went ahead, but much of the same material would be relevant to a consideration by the creditors of the situation.  A letter is in evidence from the trustee saying that he would hold off until today's proceedings before making any distribution under the deed of arrangement.  In view of what has been presented today, it would, as I see it, be desirable that there be no distribution at all until the creditors have had a further opportunity to consider the facts, indeed, until the trustee himself has had an opportunity of considering what has been put before the Court today in the form of evidence in these proceedings. 

I have not heard the respondents’ answer to the submissions that have been put today on behalf of the first applicant, and I have of course heard no evidence.  There was no point in inviting the respondents to reply in detail to the submissions made, because the case, for the practical reasons I have indicated, is going to have to be adjourned in any event.  In any case, the people who have the greatest interest in hearing this material now are the creditors and the trustee, not the Court.  I cannot tell the trustee what to do, and he is not a party to these proceedings, but it seems to me that the resolution of these matters may be advantaged if the trustee gave consideration to recalling the creditors to hear the arguments, after a consideration by him and, if he thinks fit, a further report to the creditors on the basis of the information now available.  Taking the parties at face value, all this litigation might go away and be able to be resolved if there was a further meeting of creditors, and the parties saved from the situation in which they say they now are. 

Although I again attribute no culpability to anyone, the parties are in the position where litigation is surrounding them, with considerable doubt, from what I have so far been told, that in a financial sense at least the litigation is going to result in any particularly positive benefit to anyone.  Ordinarily the Court might send the matter out for mediation, which it has the power to do but, as I see it, that would only add yet another level of cost for the parties without great advantage because at the end of the day it is really for the creditors to decide what should be done with whatever assets the respondents have.

In the circumstances, therefore, I propose to adjourn the matter.  I have been asked to order an expedited hearing.  Normally upon such applications I take out my own diary and fix the matter for hearing.  I simply cannot do that on this occasion for the reason I have given, but I do regard the matter as important.  On the other hand, there is no point in ordering expedition if the Court cannot actually give an early hearing as is the case at present.  Upon leaving the bench I will therefore investigate with those who do the listing in the court whether it is remotely possible that an early hearing could be given by another Judge.  If so I will order that the matter be expedited.  In the meantime the preferable course would be for the trustee to give serious consideration to reconvening the creditors' meeting so that the materials now before the Court can be disclosed and so that the creditors can make any decision which commends itself to them.

The only order that I will make today is that this matter stand over until Tuesday, 11 August 1998, at 9.45 am for directions.  If by some chance I can organise an earlier hearing, the lawyers will be informed, but if not it will be listed before me on that morning for directions.  I will reserve the question of costs.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Einfeld

Associate:

Dated:             24 July 1998