Talacko v Talacko
[2013] VSC 712
•17 December 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S CI 2009 7819
| JAN TALACKO (AS EXECUTOR OF THE ESTATE OF HELENA MARIE TALACKO) & ORS | Plaintiffs |
| v | |
| JAN EMIL TALACKO & ORS | Defendants |
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JUDGE: | SLOSS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 November 2013 | |
DATE OF JUDGMENT: | 17 December 2013 | |
CASE MAY BE CITED AS: | Talacko & ors v Talacko & ors | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 712 | |
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BANKRUPTCY – Appeal from Associate Judge – locus standi – appeal by bankrupt personally - claim for unliquidated damages for conspiracy and fraud – no provable debt - whether undischarged bankrupt has locus standi to appear and be heard – alternatively, whether Court has a discretion to permit undischarged bankrupt to appear and be heard – Bankruptcy Act 1903 (Cth) ss 58(3), 82(2) and 153(2)(b); Supreme Court (Civil Procedure) Rules 2005 (Vic), Rule 77.06.
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APPEARANCES: | Counsel | Solicitors |
| For the First Plaintiff | In person | - |
| For the Second to Fifth Plaintiffs | Mr S Howells with Mr P Fary and Ms L Kinda | Tolhurst Druce & Emmerson |
| For the First Defendant | Mr J Guss (solicitor) | Joseph Guss |
| For the Fourth Defendant | Ms M Petronijevic (solicitor) | Strongman & Crouch |
HER HONOUR:
Introduction
Background to the appeal
The litigation between the Talacko parties has a long history in this Court. The events giving rise to the current proceeding are conveniently summarised by Zammit AsJ in her reasons delivered on 19 April 2013 dealing with the fourth defendant’s application to have the plaintiffs’ claims in this proceeding dismissed for want of prosecution. [1]
[1]See Exhibit ‘DPP-1’ to the affidavit of Mr David Phelan sworn 1 November 2013 and filed on behalf of the second to fifth plaintiffs.
For present purposes, the relevant events are set out below.
The plaintiffs commenced the current proceeding on 17 July 2009. At that time there was already a proceeding on foot commenced by the plaintiffs against Mr Jan Emil Talacko (‘Mr JE Talacko’) in October 1998,[2] where they alleged causes of action for breaches of contract, trust and fiduciary duty in respect of dealings with a number of properties in Europe. The current proceeding was commenced in 2009 as a fresh proceeding, apparently so as not to interrupt or prevent the hearing and determination of the assessment of damages in the 1998 proceeding. [3]
[2]Supreme Court of Victoria Proceeding No. 7393 of 1998.
[3]The 1998 proceeding was settled on 23 February 2001, but Mr JE Talacko breached his obligations under the terms of settlement (see Talacko v Talacko [2008] VSC 128 (24 April 2008)), following which the plaintiffs successfully applied for reinstatement of the 1998 proceeding. Orders were subsequently made by Kyrou J on 11 December 2009, entering judgment in favour of the plaintiffs (see Talacko v Talacko [2009] VSC 579 (11 December 2009)).
In the current proceeding, the plaintiffs make claims against the first defendant, Mr JE Talacko, and two of his sons (the second and third defendants), and his wife (the fourth defendant) in relation to terms of settlement entered into on 23 February 2001 by way of settlement of the 1998 proceeding, and against Mr JE Talacko and his wife (the fourth defendant) in respect of the transfer by him to her of his half interest in their home at 312 Glenferrie Road, Malvern, Victoria in October 1998.
The Second Amended Statement of Claim, dated 21 December 2009, relevantly includes the following claims:
· breach of contract by Mr JE Talacko (relating to the terms of settlement);
· breach of trust and breach of fiduciary duty by Mr JE Talacko;
· knowing participation of the second and third defendants in his breaches of trust and fiduciary duty;
· a conspiracy between each of the second and third defendants and Mr JE Talacko, to deprive the plaintiffs of the benefits to which they are entitled under the terms of settlement; and
· the inducement and procurement of a breach of contract (being the alleged breach by Mr JE Talacko) by the second and third defendants.
The plaintiffs also make allegations against the fourth defendant to the effect that she wrongfully and unlawfully conspired and agreed with Mr JE Talacko:
(a) to defraud the plaintiffs of the benefits to which they were entitled under the terms of settlement; and
(b) to render nugatory the benefit to the plaintiffs of any judgment of this Court against Mr JE Talacko pursuant to the terms of settlement or otherwise.[4]
Further, in respect of the transfer by Mr JE Talacko of his half interest in the Glenferrie Road property to his wife, the plaintiffs plead that the transfer ‘was entered into by the parties thereto with intent to defraud the plaintiffs of the benefit of any judgment to which they may become entitled in the proceeding.’[5]
[4]Second Amended Statement of Claim dated 21 December 2009, [16A].
[5]Ibid [19].
The prayer for relief seeks declarations that the transfers of the European and Glenferrie Road properties are void and of no effect; injunctions ordering the defendants to take steps to reverse the transfers to reinstate the first defendant’s ownership interests; damages, including exemplary damages; and interest, costs etc.
In January 2010, Mr JE Talacko filed a defence, signed by Counsel, denying the substantive allegations. In addition, the defence pleads that the plaintiffs are ‘estopped by reason of the principles of res judicata, issue estoppel and/or Anshun estoppels from making in this proceeding any allegations of, further or alternatively any claims based upon, breach of the same terms of settlement.’[6] The defence also pleads that the plaintiffs’ claim in respect of the Glenferrie Road property is statute barred by reason of section 5(1) of the Limitation of Actions Act 1958 (Vic), alternatively by laches and delay.
[6]Defence of first defendant dated 21 January 2010, [11(f)].
On 7 November 2011, the Federal Court of Australia made a sequestration order against the estate of Mr JE Talacko.
On 6 December 2011, an application was made to the Victorian Civil & Administrative Tribunal (‘VCAT’) by Mr David Jellicoe Findlay, a retired solicitor, seeking orders that he be appointed as guardian and administrator for Mr JE Talacko. That application was opposed by the official trustee in bankruptcy and also by the second to fifth plaintiffs in this proceeding.
On 17 April 2012, the VCAT application for an administration and guardianship order was dismissed by Senior Member Dudycz.
On 10 December 2012, Justice North of the Federal Court granted leave to the plaintiffs pursuant to section 58(3) of the Bankruptcy Act 1966 (Cth) (the ‘Act’) to continue with the current proceeding against Mr JE Talacko up to the point of judgment.
On 21 December 2012, the fourth defendant issued a summons seeking an order that the plaintiffs’ claims in this proceeding be dismissed for want of prosecution. She relied upon the deterioration in the medical condition of Mr JE Talacko and her concern that he may not be able to give evidence in Court about events that occurred in 1998 to any significant extent. In essence, the fourth defendant contended that because the plaintiffs’ claims against her are intertwined with the claims made against Mr JE Talacko, his ability to give cogent evidence at trial was essential for her to be able to fairly defend the claims made against her.
In February 2013, when the fourth defendant’s application was heard, Mr JE Talacko was 83 years of age. At that time, he resided with the fourth defendant when she was in Australia, but otherwise he was cared for in a special accommodation home.
In dismissing the fourth defendant’s application, Zammit AsJ found that while the ‘medical evidence confirms that Mr JE Talacko suffers from mild to moderate dementia which affects his memory and that his illness may affect his ability to give evidence in this proceeding about events which occurred in 1998’[7] it is ‘not categorical that [his] memory is so impaired that there is no prospect of him giving useful evidence’ and ‘[a]s matters stand, JET [Mr JE Talacko] is currently managing this litigation.’[8] Accordingly, Her Honour did not consider it to be in the interests of justice to dismiss the plaintiffs’ claim against the fourth defendant and/or all the defendants, and directed instead that the matter be expedited.[9]
[7]See Exhibit ‘DPP-1’: Reasons of Zammit AsJ delivered on 19 April 2013, [74].
[8]Ibid.
[9]Ibid [78]–[79].
Against that background, on 28 May 2013, directions were made by Daly AsJ listing the matter for trial on 8 October 2013.
Applications made before Daly AsJ
On 27 September 2013, two applications came on for hearing before Daly AsJ. The first was an application made by the second to fifth plaintiffs seeking to vacate the trial date so as to permit service of documents to be undertaken in conformity with the Hague Convention, and the second was a notice of objection to a subpoena directed at Mr Peter Talacko, a non-party. On that occasion, Mr Joseph Guss sought to appear on behalf of the first defendant and to make an application to adjourn the hearing of the two applications before Her Honour.
In advance of the hearing on 27 September 2013, Mr Guss had informed the Court, by email addressed to Her Honour’s Associate dated 25 September 2013, that he had filed and served a notice dated 16 September 2013 notifying the parties that he acted for the first defendant. However, he said, no documents pertaining to the hearing on 27 September 2013 had been served on him, and he had only that day learned of the hearing from one of the other solicitors and had not had an opportunity to seek instructions from Mr JE Talacko. In his email, he further pointed out that the matter was a complex one and he contended that, notwithstanding the bankruptcy of the first defendant and the appointment of a trustee to his estate, the first defendant was entitled to be represented and objected strongly to the hearing date being vacated.
The hearing of the matter proceeded before Daly AsJ on 27 September 2013. Mr Guss made his application for an adjournment. In refusing it, Her Honour stated:
I’ll refuse the application for an adjournment of the applications that are to be heard today. In my view Mr Guss is not entitled to be heard on behalf of the 1st defendant in either application. First, I’m not satisfied that Mr Jan Talacko has standing by reason of his status as an undischarged bankrupt and secondly, given the extensive evidence submitted on behalf of the 4th defendant, his wife, on previous occasions my prima facie view is that Mr Talacko – Mr Jan Talacko is a handicapped person within the meaning of Rule 15.01 and therefore should be represented by a litigation guardian. The orderly and efficient conduct of the business of the court given the pending trial date of 8 October requires that the applications be dealt with today and therefore the application for an adjournment is refused. [10]
Her Honour then indicated that she would proceed to deal with the applications ‘because the orderly business of a court requires that they be dealt with now’[11] and Mr Guss informed Her Honour that he would proceed immediately to the Practice Court and tell the duty Judge that Her Honour had refused to stand the matter down to enable him to be heard.
[10]Transcript of proceedings, Talacko v Talacko (Supreme Court of Victoria, SCI 2009 07819, Daly AsJ, 27 September 2013), 11.
[11]Ibid 12.
Before the hearing had concluded, Mr Guss returned and informed Daly AsJ that he had mentioned his complaint to Justice Cavanough in the Practice Court and his Honour’s view was that the normal appeal processes should apply, and Mr Guss added that ‘subject to instructions that will probably be the case.’[12]
[12]Ibid 31.
Orders made by Daly AsJ
At the conclusion of the hearing, Daly AsJ made Orders including orders vacating the trial date, and adjourning the date for compliance with the subpoena. The second to fifth plaintiffs were ordered to pay the fourth defendant’s costs thrown away by reason of the adjournment, including the costs of the hearing that day, but the parties’ costs were otherwise reserved. The decisions made by Her Honour in relation to Mr Guss’s application were formally noted under ‘Other Matters’ as follows:
OTHER MATTERS: A. I will refuse the application made by Mr Guss on behalf of the first defendant to adjourn the hearing of the two applications before me today. In my view, Mr Guss is not entitled to be heard on behalf of the first defendant in either application on the following grounds:
(a) I am not satisfied that Mr Jan Talacko has standing in these proceedings, by reason of his status as an undischarged bankrupt; and
(b) given the extensive evidence previously submitted on behalf of the fourth defendant, Mr Talacko's wife, my prima facie view is that Mr Talacko is a handicapped person within the meaning of Rule 15.01 and should be represented by a litigation guardian.
B.Further, given the pending trial date of 8 October 2013, the orderly and efficient conduct of the business of the Court requires that the applications be dealt with today, and as such, I refuse the application for an adjournment.
C.The trial date ought to be vacated as there is a real risk that any judgment obtained against the second and third defendants may not be able to be enforced if the plaintiff does not re-serve the court documents in this proceeding in accordance with the requirements of the Hague Convention. The adjournment is to provide sufficient time for these procedures to be complied with.
D.The adjournment is granted at a request of the plaintiff. Counsel for the fourth defendant has indicated that the fact of the adjournment may be relied upon by the fourth defendant in any future application to dismiss the proceeding for want of prosecution.
E.Counsel for the second to fifth plaintiffs has indicated his clients will make application to set aside the notice of appearance filed by Mr Guss on behalf of the first defendant.
Appeal from Orders made by Daly AsJ
Procedural background
A Notice of Appeal against the Orders made by The Hon. Daly AsJ was filed by the solicitor for the first defendant on 9 October 2013 and an Appeal Book was filed on 17 October 2013. An affidavit of Mr David Phelan, the solicitor for the second to fifth plaintiffs, was filed on 4 November 2013, in opposition to the Notice of Appeal.
Under Rule 77.06 of the Supreme Court (Civil Procedure) Rules 2005 (Vic), an appeal from any judgment or order of an Associate Judge made under any Chapter of the Rules lies to the Trial Division constituted by a Judge, save where an appeal lies to the Court of Appeal. Rule 77.06.9 provides that on such an appeal, the Judge shall have all of the powers of the Court constituted by an Associate Judge and may:
(a)draw inferences of fact;
(b)give any judgment and make any order which ought to have been given or made; and
(c)make any further or other order as the case may require.[13]
[13]Supreme Court (Civil Procedure) Rules 2005 (Vic) r 77.06.9(2).
The first return of the Notice of Appeal was listed in the Practice Court on 12 November 2013, and short outlines of submissions were forwarded to the Court that morning on behalf of the second to fifth plaintiffs, and the first defendant. Given the late provision of submissions and the other business in the Practice Court that day, I adjourned the hearing of the matter to 18 November 2013 to allow the second to fifth plaintiffs an opportunity to consider, and if thought fit, address, the matters that had been raised on behalf of the first defendant. I also requested that Mr JE Talacko’s trustee in bankruptcy be notified of the current application.
A further written outline was filed on behalf of the second to fifth plaintiffs on 14 November 2013, and a responding submission was provided to the Court by Mr Guss, the first defendant’s solicitor, at the commencement of the hearing in the Practice Court on 18 November 2013.
Summary of submissions made by the respective parties
At the hearing, Mr Guss appeared for the first defendant. At the outset, he clarified that he was seeking an order that the first defendant be served forthwith with the documents that were before the Court on 27 September 2013 (that were not served on him), an order that the first defendant be allowed to appear, and an order that he be permitted to seek to agitate for an urgent trial date. He then sought to make out the grounds of error contended for.
As no transcript is routinely provided in the Practice Court, I shall summarise the gist of the submissions made, noting that the matter was argued by both sides on the basis that the critical question for determination was whether the first defendant is entitled to be represented in the proceeding separately from his trustee.
Mr Guss submitted that Daly AsJ had erred in not adjourning the proceedings on 27 September 2013 so as to allow the first defendant to be served with the materials before the Court and to permit him to have a proper opportunity to oppose the adjournment of the trial. He contended that the first defendant is entitled to appear and defend the allegations made against him, notwithstanding that he is an undischarged bankrupt and has a trustee in bankruptcy who is responsible for the administration of his estate. He added that it is an elementary requirement of procedural fairness that persons who are entitled to be heard be given notice and an adequate time to prepare their case.[14]
[14]In this respect, Mr Guss also relied on the Charter of Human Rights and Responsibilities Act 2006 (Vic) and in particular, s 24(1).
The plaintiffs opposed the application. Counsel for the second to fifth plaintiffs, Mr Howells, who appeared with Mr Fary and Ms Kinda on their behalf, did so on the basis that the approach adopted by Daly AsJ was the correct one and the appeal ought be dismissed because the first defendant does not have a financial interest in the outcome of the proceedings to give him ‘an entitlement to be heard’.[15] Alternatively, he said, the appeal would not fall within the rare category of cases that involve purely personal rights of a bankrupt.[16] Reliance was also placed on the fact that leave to continue the proceeding up to the point of judgment has been granted under section 58(3) of the Act.
[15]Cummings v Claremont Petroleum NL (1996) 185 CLR 124; McCallum v FCT (1996) 75 FCR 458; Civitareale v Secretary, Department of Family and Community Services (1999) 57 ALD 451.
[16]Griffiths v Civil Aviation Authority (1996) 67 FCR 301.
Dr Jan Talacko, the first plaintiff, made brief oral submissions. He opposed the application generally on the basis that the matter has been before the Court for more than 15 years, and he contended that this appeal was ‘a tactical and technical ruse’ by the first defendant to avoid making payment to the estates of his brothers and sisters.
Ms Petronijevic, the solicitor for the fourth defendant, also appeared but did not seek to make any submissions.
Standing of a bankrupt to appear and be heard
The primary submission made by Mr Guss on behalf of the first defendant was presented in two ways. First, he said, the second to fifth plaintiffs’ reliance on the provisions of section 58(3) of the Act was misconceived because section 58(3) does not bar the first defendant from appearing in the proceeding to defend the serious allegations of conspiracy and fraud made against him.
Section 58(3) is framed in the following terms:
(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.
He submitted that the appeal brought by the first defendant does not concern ‘property’ of the bankrupt nor is it a ‘provable debt’. The expressions ‘property’ and ‘provable debt’ are defined in section 5 of the Act, as follows:
property means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property.
provable debt means a debt or liability that is, under this Act, provable in bankruptcy.
Mr Guss also adverted to the fact that before the first defendant was declared bankrupt, he had filed a defence denying the allegations made against him. His trustee in bankruptcy, on the other hand, has taken no real interest in the defence of the current proceedings – his trustee did not appear on the hearing of the application before Daly AsJ and is not a party, even though he had appeared by Counsel on an earlier occasion.
As has been noted, the allegations made against the first defendant in the current proceeding are serious ones – involving alleged conspiracies and fraud – for which relief by way of declarations, injunctions and damages are claimed. Mr Guss contended that where claims for damages for conspiracy or fraud are alleged, they are viewed as giving rise to an ‘unliquidated debt’ and so, for bankruptcy purposes, they do not constitute a ‘provable debt’ for the purposes of section 82(2) of the Act. Further, he said, the effect of section 153(2)(b) of the Act is such that those suits would continue and remain available against the bankrupt notwithstanding that the bankruptcy may later be discharged. Moreover, he said, Mr JE Talacko strenuously denies the allegations of fraud and conspiracy and he ought to be given an opportunity to contest and defend them, particularly in circumstances where the plaintiffs have found it necessary to seek leave to proceed to judgment against him.
The second and alternative way the argument was presented by Mr Guss was to rely upon the inherent jurisdiction of the Court. In essence, he said, that even if he was wrong about the effect of section 58 of the Act, and the first defendant as a bankrupt does not have locus standi or an entitlement to be heard, in a case such as the present involving serious allegations of personal misconduct on the part of a bankrupt, the authorities show that the Court nevertheless has a discretion to grant the first defendant leave to appear and give evidence in answer to those allegations. He developed this submission by referring to the decision of Dodds-Streeton J in Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1 (‘Re-Engine’) and that of Beazley JA in Baulkham Hills Shire Council v Stankovic [2009] NSWCA 281 to similar effect.
I shall deal with each of these arguments in turn.
Does the first defendant have locus standi to prosecute the appeal and defend the claims against him for damages for conspiracy and fraud?
In Cummings v Claremont Petroleum NL (1996) 185 CLR 124 (‘Cummings’), Brennan CJ, Gaudron and McHugh JJ described the effect of bankruptcy in the following terms:
Broadly, and not precisely, the effect of bankruptcy is to divest a bankrupt of his property, to vest that property in a trustee and to make it available for the payment of provable debts. The right to commence or take a fresh step in legal proceedings or to enforce any remedy against the person or property of the bankrupt in respect of a provable debt are, in general, denied to creditors when sequestration is ordered (s 58(3)). The right of the bankrupt to prosecute proceedings that he has commenced is restricted by s 60(2). The bankrupt’s concern as to the administration of his property and the payment of his creditors can be addressed by the Court in the exercise of its supervisory jurisdiction over the conduct of the trustee.[17]
[17](1996) 185 CLR 124, 132 (citations omitted).
In Cummings, while their Honours in the majority did not regard the right to appeal as property of the respective bankrupt directors, they were nevertheless of the view that the decision reached by the majority of the Full Court of the Federal Court was correct.[18] They held that the bankrupt directors had no locus standi to institute appeals against the judgment pronounced against them, which was for substantial damages for conspiracy and deceit, breaches of duty as company directors and contraventions of the Companies (South Australia) Code and the Fair Trading Act 1987 (SA), on the ground that to the extent that the judgment entered creates or evidences a provable debt in the bankruptcy, the bankrupt has no financial interest that confers locus standi to appeal in his own name against the judgment.
[18]See Fuller v Beach Petroleum NL (1993) 43 FCR 60.
Their Honours in the majority referred with approval to the decision of the Court of Appeal in Heath v Tang,[19] delivered by Hoffman LJ, and his Lordship’s conclusion to the effect that ‘in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee.’ Their Honours continued, stating that:
[19][1993] 1 WLR 1421, 1427; [1993] 4 All ER 694, 701.
So far as a judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectfully agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts. [20]
However, in a footnote to that passage their Honours noted, by way of observation, that in the case before them:
It was not suggested in argument that, pursuant to s 153 [of the Bankruptcy Act], the discharge of the appellants from bankruptcy would not release them from liability for the judgment debt, albeit there has been a finding of fraud. On that footing, the appellants have no financial interest in the judgment entered against them.[21]
[20]Cummings v Claremont Petroleum NL (1996) 185 CLR 124, 138.
[21]Ibid (fn 63).
In the present appeal, Mr Guss sought to distinguish the position of the first defendant from that of the bankrupt directors in Cummings, so as to demonstrate that the first defendant did have standing to pursue his appeal and defend the claim. He contended, relying upon the footnoted observation reproduced above, that the effect of section 153(2)(b) of the Act is such that the claims for conspiracy and fraud made against the first defendant in the current proceeding, would continue and remain available against him notwithstanding that the bankruptcy may later be discharged. [22] Mr Guss developed this submission by referring to the decision of Brinsden J in Barewa Oil & Mining NL (in liq) v Isim Mineral Development Pty Ltd (1981) 59 FLR 451 (’Barewa’), affirmed on appeal by the Full Court of the Supreme Court of Western Australia in Cornelius v Barewa Oil & Mining NL (in liq) [1982] WAR 311 (‘Cornelius’).[23]
[22]Section 153(2)(b) relevantly provides that:
(2)The discharge of a bankrupt from a bankruptcy does not:
…
(b)release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud.
For the purposes of the Act, the expression ‘debt’ includes liability: s 5(1).
[23]See also Civitareale v Secretary, Department of Family and Community Services (1999) 57 ALD 451, [82]-[86].
In Barewa, the plaintiff claimed that two sums of money, obtained from applicants for shares in the company and used to purchase mineral claims from the first defendant and petroleum permits from the second defendant, were moneys had and received to the use of the plaintiff and that the third defendant had conspired with others to take the moneys from the plaintiff. Alternatively, the plaintiff claimed that the third defendant and another were in breach of their duties as directors. Relief by way of damages for conspiracy was claimed against all defendants and alternatively damages for breach of fiduciary duty were claimed against the third defendant, Mr Cornelius, and others.
At first instance, before Brinsden J, the third defendant, Cornelius, argued that:
however Barewa makes its claim whether for moneys had and received, for damages for conspiracy or for breach of fiduciary duty, the debt or liability arising from such a claim was a debt provable of bankruptcy and therefore he is now discharged from liability for it.[24]
[24]Barewa Oil & Mining NL (in liq) v Isim Mineral Development Pty Ltd (1981) 59 FLR 451, 455-456.
In dealing with this argument, His Honour referred to section 82 of the Act,[25] concerning debts that were provable in bankruptcy, and said:
It cannot be doubted that the claim in respect of moneys had and received is in the nature of a claim for a liquidated amount and is therefore a debt provable in bankruptcy. So far as the claim for breach of fiduciary duty is concerned, the authorities suggest that that is a claim arising out of contract or analogous to it and is also provable in bankruptcy: see Emma Silver Mining Co v Grant (1880) 17 Ch D 122 per Jessel MR at 130 and Re MacFadyen; Ex parte Vizianagaram Mining CoLtd [1908] 2 KB 817, per Farwell LJ at 822 ….
… The claim for damages for conspiracy clearly enough does not arise by reason of a contract, promise or breach of trust and is therefore not provable in bankruptcy unless the claim is for liquidated damages. The statement of claim is open to the interpretation that both in respect of the claim for breach of fiduciary duty as well as the claim for conspiracy, the relief sought is by way of liquidated damages for the amount sought to be recovered is the total sum of $684,358, though it may well be that should the plaintiff succeed it may not recover the full amount, allowance being made for some estimate of the value of the mineral claims and oil permit. I would conclude that the claim, in so far as it is expressed as a claim for moneys had and received and a breach of fiduciary duty, is a claim in the nature of a debt or liability provable in bankruptcy, but in so far as the claim is for damages for conspiracy then it is a demand for unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, and therefore not provable in bankruptcy.[26]
[25]Relevantly, section 82(2) provides that:
(2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
[26]Barewa Oil & Mining NL (in liq) v Isim Mineral Development Pty Ltd (1981) 59 FLR 451, 456.
On appeal, the Full Court of the Supreme Court of Western Australia dismissed both grounds advanced by the appellant, Cornelius. They found that the claim for a specified amount of money as damages for conspiracy did not render the claim other than one in the nature of unliquidated damages for the purposes of section 82(2) of the Act. In his judgment, Burt CJ observed:
A conspiracy to injure is only actionable if it results in damage and the damages are in all such actions unliquidated. To quantify the damage in a pleading cannot, in my opinion, change the ‘nature’ of the demand or the ‘nature’ of the cause of action. It remains a demand ‘in the nature of unliquidated damages’ and it arises ‘otherwise than by reason of a contract, promise or breach of trust’ and hence it is a demand not provable in bankruptcy.[27]
See also the reasons of Wickham J[28] and Kennedy J[29] to similar effect.
[27]Cornelius v Barewa Oil & Mining NL (in liq) [1982] WAR 311, 312.
[28]Ibid 317.
[29]Ibid 318.
In dealing with the second ground of appeal, their Honours confirmed that the expression ‘debt’ in section 153(2)(b) of the Act is used in its defined sense and includes liability. Thus it followed that the contention made on behalf of Cornelius ‘that a liability, as distinct from a ‘debt’, incurred by means of fraud or fraudulent breach of trust is released upon the discharge of a bankrupt from bankruptcy must fail.’[30]
[30]Ibid 319 (Kennedy J).
Mr Guss also relied on decisions in cases such as Griffiths v Civil Aviation Authority (1996) 67 FCR 301 (Griffiths) to demonstrate that the courts have upheld the ability of a bankrupt to pursue personal claims where the relevant ‘property’ involved cannot be characterized as ‘property to be divisible amongst the creditors of the bankrupt’ for the purposes of section 116(1) and so is not property vesting in the trustee on bankruptcy. That case concerned the capacity of a bankrupt, Mr Griffiths, to take proceedings pursuant to section 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) to challenge a decision of the Tribunal in respect of two aviation licences held by him. A point of contention was raised by the respondent authority before Kiefel J, seeking an order that the appeal to Her Honour be dismissed as incompetent, on the basis that the appellant as a bankrupt had no standing and was not entitled to prosecute the proceeding. Her Honour dismissed the appeal as incompetent under O 52, r 18 of the Federal Court Rules 1979 (Cth) on the basis that the appellant had become a bankrupt prior to the commencement of the appeal.
On appeal to the Full Court, the respondent had filed an identical motion for summary dismissal of the appeal from Kiefel J. The Full Court (Spender, Einfeld and Cooper JJ) allowed the appeal. Their Honours held that a commercial pilot’s licence is personal to the holder, and being neither transferable nor assignable, cannot be characterised as ‘property to be divisible amongst the creditors of the bankrupt’ for the purposes of section 116(1) and so is not property vesting in the trustee on bankruptcy. In his judgment, Cooper J noted that the definition of ‘property’ in section 5 of the Act is expressed in the broadest of terms and that the courts ‘have always taken a wide view of the property which passes to the assignee or trustee.’[31] Against that background, His Honour proceeded to explain the scheme of the Act, stating:
[31]Griffiths v Civil Aviation Authority (1996) 67 FCR 301, 323.
The statutory object of the Act is to vest the property of a bankrupt in a trustee in order that the same may be divisible amongst the bankrupt’s creditors. The trustee is to get in the property and reduce it to a money sum and to disown, for example, property which would be a drain on the estate. The statutory object is also to protect the person of the bankrupt and his property in so far as his creditors are concerned as at the date of the making of the sequestration order (see s 58(3) and (4) and s 60(1)(a) and (b) of the Act and generally Storey v Lane (1981) 147 CLR 549 at 557).
The Act is not concerned to protect the person of the bankrupt from legal proceedings brought by persons other than creditors or by persons seeking to enforce payment of an obligation imposed by statute or in the exercise of a power authorised by statute ... Nor is the Act concerned to prevent the bankrupt enforcing rights which are personal to the bankrupt and irrelevant to the attainment of the statutory objects of the Act. In consequence, a construction of the Act which denies to the bankrupt the enjoyment of rights which do not affect the value of the bankrupt’s estate or the administration of the estate is to be avoided.
At common law, a right of action for a personal injury done to the bankrupt ... was not property which passed to the assignee. That exception has been acknowledged and given effect to in Australia in the various insolvency statutes, including the Act (see ss 60(4) and 116(2)(g)). However, in my view, it was not the intention of Parliament in passing s 60(4) and 116(2)(g) nor the predecessors of these sections, to state exhaustively the exceptions to the property in the nature of rights of action which would not pass to the trustee and thereby to identify by omission all other rights as ‘property’ within the meaning of s 5 of the Act.
...
Claims by or against the bankrupt which do not affect the estate of the bankrupt in any way or interfere in the due administration of it are of no interest to the trustee (see Merry v The Queen (1887) 13 VLR 264 at 267 per Higinbotham CJ ...)
...
There is a unity of object and purpose in the operation of ss 58, 60 and 116 of the Act if it is recognised that the consistent focus of attention is upon rights which the trustee can turn to advantage for the benefit of creditors or upon rights the exercise of which will adversely affect or delay the administration of the estate. It is these rights which fall within the definition of ‘property’ in s 5 and the enforcement of which by action are stayed by s 60(2) upon a person becoming bankrupt. To interpret ‘property’ for the purposes of s 5 in this way avoids the injustice of denying to the bankrupt the power to exercise a right in which the trustee has no interest and the exercise of which cannot operate adversely on the property of the bankrupt or the administration of the bankrupt’s estate.[32]
[32]Ibid 323-326.
Thus, Mr Guss contended, in circumstances where, as in Griffiths, the right of appeal does not affect any property which forms part of the bankrupt’s estate and which vests in the trustee as property, the right of appeal will not ordinarily be characterised as property divisible amongst creditors.
Does the Court in its inherent jurisdiction have a discretion to allow the first defendant to prosecute the appeal and defend the claims against him for damages for conspiracy and fraud?
As noted above, the alternative argument advanced by the first defendant sought to invoke the Court’s inherent jurisdiction. Mr Guss contended that in circumstances where serious allegations of personal misconduct are made against the bankrupt, the Court nevertheless has a discretion notwithstanding the provisions of the Act, to grant the bankrupt leave to appear and give evidence in answer to those allegations. He developed this submission by referring to the decision of Dodds-Streeton J in Re-Engine.
In essence, Mr Guss said the first defendant denies the fraud and conspiracy allegations made against him. He observed that were it not for his defence, the second to fifth plaintiffs could effectively proceed to obtain summary judgment against the first defendant. Further, he said, the trustee in bankruptcy is not a party to the current proceeding and the trustee’s solicitor did not respond to the most recent notification that the Court directed be given, and this is so notwithstanding that some benefit could flow to the trustee if the first defendant’s defence were ultimately successful.
In Re-Engine, the relevant facts were as follows. Mr Fergusson was a director of two companies, being the first plaintiff, Re-Engine Pty Ltd (in liq) (‘Re-Engine’) and the third defendant, Della Court Pty Ltd (‘Della Court’). Della Court acted as the trustee of the Fergusson Family Trust and at all material times Mr Fergusson controlled and directed Della Court’s activities. Mr Fergusson caused Re-Engine to apply for loans and draw down funds on a bank facility. The plaintiffs alleged that Mr Fergusson did so in breach of his statutory and fiduciary duties owed as a director of Re-Engine, and that he also acted dishonestly by making false statements and invoices. They contended that Mr and Mrs Fergusson and Della Court were liable to account for funds advanced by the bank to Re-Engine pursuant to a breach of fiduciary duty by Mr Fergusson and subsequently misapplied.
On 8 December 2006, Mr Fergusson and his wife were made bankrupt on their own petition. At trial, the plaintiffs sought to pursue their claim against Della Court only. No relief was sought against Mr Fergusson in the proceeding and he had no interest in property available to satisfy the claim. Nevertheless, he sought to participate in the proceeding and to present his version of events and his trustee in bankruptcy did not defend the proceeding or object to him being heard.
In Re-Engine, the plaintiffs opposed the grant of leave to be heard. They contended that Mr Fergusson ‘had no remaining interest in the proceeding, no standing and no entitlement to be heard, because, as a bankrupt, he was neither liable for the claims made in the proceeding nor had any interest in any property against which the plaintiffs’ claims could be satisfied should they succeed at trial.’[33] Further, it was submitted, relying upon the High Court’s decision in Cummings, that even though Mr and Mrs Fergusson were named as defendants in the proceeding, given their status as bankrupts, no further step could be taken against them without leave and no relief was sought against them in the proceeding; rather the position was that only their trustee, who had elected to play no part in the proceeding, had the right to be heard. The plaintiffs also relied on other authorities (such as Bendigo Bank v Demaria[34] and Farrow Mortgage Services Pty Ltd v Winfield[35]) which indicate that a bankrupt defendant has no locus standi or entitlement to be heard.
[33]Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1, 8 [41].
[34][2001] VSC 218 (21 June 2001).
[35][1992] 2 Qd R 282.
Justice Dodds-Streeton observed that none of the cases to which she had been referred involved precisely the same set of facts as in the case before her. The request for an audience before the court was made by Mr Fergusson, who was a bankrupt, in the context of a trial rather than an appeal, brought against him and his bankrupt wife and their family company, which Her Honour noted ‘will proceed, and give rise to some costs, whether or not Mr Fergusson is permitted to be heard.’[36]
[36]Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1, 10 [53].
Her Honour then turned to consider the allegations made against Mr Fergusson in the proceeding, observing as follows:
The present case is also distinguishable from Bendigo Bank v Demaria and Farrow Mortgage Services Pty Ltd v Winfield, because the plaintiffs, in order to obtain the relief sought against Della Court, must establish that Mr Fergusson committed serious breaches of fiduciary or statutory duty and was guilty of misleading and deceptive conduct. The allegations have a potential impact on his character and reputation, in which he has a continuing interest.[37]
[37]Ibid [54].
There being no authority precisely on point, Her Honour sought guidance from the cases on fraudulent dispositions under the Act, involving situations where the trustee in bankruptcy had issued proceedings against third parties to recover allegedly fraudulent dispositions by the bankrupt, and it was recognised that the bankrupt should be made a party, even though the bankrupt had no interest in the subject property and no locus standi. Her Honour noted that in Re Mannella; Ex parte Official Trustee in Bankruptcy v Giorgio (‘Re Mannella’), [38] where the bankrupt was not initially made a party to the proceeding, Sweeney J observed that the problems which had arisen ‘shows the wisdom of making a bankrupt a respondent in a case such as the present.’[39]
[38](1989) 21 FCR 50.
[39]Ibid 53.
In his judgment in Re Mannella, Sweeney J commented that, in addition to other advantages, affording a bankrupt an opportunity to be heard may provide real assistance to the court:
In such cases, where the trustee bears the burden of proof that there was actual fraud, that is an actual intention by the bankrupt to defraud creditors, it will be of assistance to the court if the trustee makes him a party so that, if he has an answer to the allegation, he may have an opportunity of presenting it.[40]
In Re Mannella, the bankrupt was then added as a party, swore affidavits and was cross-examined.
[40]Ibid.
Justice Dodds-Streeton also referred to the decision of the Full Court of the Federal Court in Flower & Hart (a firm) v WhiteIndustries (Qld) Pty Ltd[41] where, she said, the Full Court found it would be ‘unsafe to make findings of improper purpose’ against a non-party, who was a witness in the proceeding, without the matters on which the findings were based being fairly put to him, so as to provide him with an opportunity to explain his position.[42]
[41][1999] 87 FCR 134.
[42]Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1, 11 [61].
Finally, Her Honour said it is well-established that the Court has a wide discretion to grant leave to any person to address it, citing the judgment of the Full Court in Hubbard Association of Scientologists International v Anderson and Just (No. 2),[43] but noting that in that case the Full Court declined to exercise the discretion in order to permit a legally unqualified agent to appear on behalf of a company.[44]
[43][1972] VR 340.
[44]Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1, 11 [65].
Against that background, Dodds-Streeton J turned to examine the allegations made against Mr Fergusson. Her Honour found that in ‘the unusual circumstances of this case’ the due administration of justice would be promoted by giving him an audience to appear. Her Honour stated:
In the present case, the allegations against Mr Fergusson involve breach of fiduciary duty, the creation of false invoices, contravention of the Fair Trading Act, and dishonesty. Although he has no interest in any property which will be available to satisfy the plaintiffs’ claim, is not now personally liable to satisfy the plaintiffs’ claim, and no further steps may be taken against him in the proceeding without leave by reason of his bankruptcy, Mr Fergusson is already a party and has not ceased to be such by virtue of his bankruptcy. The plaintiffs must establish the allegations of serious misconduct against Mr Fergusson in order to succeed against Della Court. Mr Fergusson has a subsisting interest in the preservation of his reputation and character. His trustee in bankruptcy did not object to his appearance.
Although the authorities indicate that a bankrupt does not have locus standi or an entitlement to be heard, the Court has a discretion to permit Mr Fergusson to give evidence in answer to the allegations.
In the unusual circumstances of this case, it would, in my view, promote the due administration of justice to permit Mr Fergusson to be heard, because the principles of natural justice favour giving him audience to answer the serious allegations of personal misconduct, the trustee in bankruptcy does not object to his participation, the trial will proceed in any event, the Court may be assisted by a contradictor and the bankrupt defendant’s participation will not impose an undue costs burden on other parties.[45]
(emphasis added)
[45]Ibid [66]-[68].
Mr Guss also referred to the decision of Beazley JA in Baulkham Hills Shire Council v Stankovic to similar effect. [46]
[46][2009] NSWCA 281 (10 September 2009).
The first defendant contends that he should be granted leave and be permitted to appear in the current proceeding because the claims made against him are being pursued by the plaintiffs and they have been given leave to proceed under section 58(3) of the Act to the point of judgment; the claims involve serious allegations of conspiracy and fraud, and the first defendant has pleaded substantive defences in response to them; and some but not all of the claims made may give rise to debts that are provable in bankruptcy but the trustee in bankruptcy has not shown any real interest in appearing. Further, the first defendant says he is named as a defendant to the current proceeding, and he has brought the appeal simply because he has been denied the opportunity to participate further in the proceeding.
Response on behalf of the second to fifth plaintiffs concerning first defendant’s standing to appear and be heard
The second to fifth plaintiffs had the carriage of the substantive opposition to the first defendant’s application. They relied on their written outlines of submissions that had been filed[47] and formally read the affidavit of Mr David Phelan, the solicitor for the second to fifth plaintiffs, filed on 4 November 2013 in opposition to the Notice of Appeal.
[47]Dated 12 November 2013 and 14 November 2013 respectively.
The thrust of those submissions was to the effect that the first defendant, being an undischarged bankrupt with a trustee appointed, has no right to be heard in the proceeding and the appeal should therefore be dismissed as incompetent. Alternatively, the second to fifth plaintiffs contended that the appeal ought to be dismissed because the bankrupt does not have a financial interest in the outcome of the proceedings to give him ‘an entitlement to be heard’.[48]
[48]Cummings v Claremont Petroleum NL (1996) 185 CLR 124; McCallum v FCT (1997) 75 FCR 458; Civitareale v Secretary, Department of Family and Community Services (1999) 57 ALD 451.
Mr Howells commenced his oral submissions by observing that even if the first defendant has some kind of entitlement or right to participate in the current proceeding, that entitlement or right does not extend to every cause of action in the proceeding: see Cornelius.[49] Further, he said, if the basis for the first defendant’s claimed entitlement or right to appear and be heard had been notified to the plaintiffs by his solicitor in advance of the hearing before Daly AsJ, instructions could have been sought and obtained with a view to minimising the costs and inconvenience involved. Indeed, he said, amendments could have been made to the pleading so as to clarify those claims or causes of action for conspiracy or fraud that the first defendant contends he has a right, or alternatively, should as a matter of discretion be permitted, to appear and be heard on.
[49][1982] WAR 311.
In dealing with the first defendant’s alternative argument, based on the inherent jurisdiction of the Court, Mr Howells contended that there is a distinction between an entitlement to be heard and a right to give evidence in answer to allegations. He sought to distinguish the factual situation that applied in Re-Engine, where there was no contradictor or person who could adduce relevant evidence from Mr Fergusson or his wife, from the present case, where he contended that it is open to the fourth defendant, Mr JE Talacko’s wife, to call him to give evidence so as to answer the allegations. He also noted that in Re Mannella, once the bankrupt was joined as a respondent, he swore affidavits and was cross-examined.
In oral submissions, Mr Howells also focussed attention on the provisions of the Civil Procedure Act 2010 (Vic) (the ‘Civil Procedure Act’), contending that regardless of the nature or source of the bankrupt’s right (if any) to participate in the current proceeding, any such participation would need to be consistent with both the ‘paramount duty’ set out in section 16 and the ‘overarching obligations’ set out in sections 16 to 26 of the Civil Procedure Act. He further contended that any such participation ‘[n]ecessarily ... would be very limited in nature.’[50]
[50]See Further Submissions on behalf of the Plaintiffs/Respondents, dated 14 November 2013, [15].
Mr Howells also referred the Court to the ‘overarching purpose’[51] of the Civil Procedure Act and to the requirement in section 8(1) that the Court must seek to give effect to the overarching purpose in the exercise of any of its powers, or in the interpretation of those powers. He contended that in circumstances where there is already a contradictor before the Court, considerations of convenience and the overarching purpose should inform the exercise of the Court’s discretion.
[51]Defined in section 7(1) of the Civil Procedure Act as being ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.’
When dealing with discretionary considerations, Mr Howells also made reference to Hoffman LJ’s observations in Heath v Tang[52] concerning the twin purposes of the bankruptcy regime, that were cited with approval by the High Court in Cummings in the context of their Honours consideration of the court’s jurisdiction under section 178 of the Act. In Cummings their Honours in the majority referred to Heath v Tang and stated:
[52][1993] 1 WLR 1421, 1427.
He [Hoffman LJ in Heath v Tang] further observed:
‘The bankruptcy court acts as a screen which both prevents the bankrupt’s substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims.’
The Court’s discretion is at large and is to be exercised in the particular circumstances of each case. It may be that, before a bankrupt obtains an order under which an appeal will be instituted for the protection of his reputation, the trustee’s costs would have to be met by sources other than the bankrupt estate in which the bankrupt no longer has an interest. The Court would be unlikely to permit the bankrupt to pursue his personal interests, in so far as they are not coincident with the due administration of the estate by the trustee, at the expense of creditors. But it is unnecessary now to examine how the Court should exercise its jurisdiction under s 178 to safeguard the reputation of the bankrupt and, at the same time, protect the creditors from the risk of costs incurred in an appeal. There is no application under s 178 for consideration in this case.[53]
Mr Howells submitted that similar considerations would apply in the context of any exercise of the Court’s discretion under its inherent jurisdiction, recognising that each case will turn on its particular facts.
[53](1996) 185 CLR 124, 139.
Mr Howells also adverted to the fact that the Notice of Appeal seeks to overturn the orders made by Daly AsJ vacating the hearing date of 8 October 2013. He said that the date having long passed, that aspect of the first defendant’s appeal is now moot. He added that the orders made by way of vacating the trial date and adjourning for a time sufficient to permit court documents to be re-served on the second and third defendants in accordance with the Hague Convention were made for the orderly and efficient conduct of the business of the Court, and in furtherance of the overarching purpose.
Conclusion on first defendant’s standing to appear and be heard
In the context of the present case, and in light of the authorities discussed above, it seems clear that at least to the extent that the plaintiffs claim damages in respect of their allegations of conspiracy and fraud pleaded against the first defendant, those claims are not claims for liquidated damages and so, for bankruptcy purposes, do not constitute a ‘provable debt’ for the purposes of section 82(2) of the Act. Accordingly, as those claims would not be provable in the bankruptcy of the first defendant, they are of no interest to the trustee. However, the first defendant has expressed an interest in actively defending them because under section 153(2)(b) of the Act, those claims will continue and remain available to be pursued against him notwithstanding that his bankruptcy may later be discharged.
In those circumstances, the first defendant should be permitted to appear and be heard by way of defence to those claims for conspiracy and fraud. The extent of this limited right of audience is, however, something that will need to be the subject of case management by the Court and, in particular, the Judge hearing the trial. On the current pleadings, it is not possible to delineate a precise carve-out, and confine the right of audience to particular paragraphs of those pleadings.
Whether any greater right of audience should be permitted under the alternative ground advanced by the solicitor for first defendant, relying upon the inherent jurisdiction of the Court, will likely depend upon whether there is a proper contradictor before the Court.
The circumstances in the present case do not correspond precisely with what Dodds-Streeton J described as the ‘unusual circumstances’ in Re-Engine. It will be recalled that in Re-Engine, no claims were in fact being pursued against the bankrupt. Nevertheless, Her Honour found that were it not for Mr Fergusson’s participation in the hearing, the absence of a contradictor may have presented real difficulties for the Court.
In the present case, however, the first defendant’s wife, the fourth defendant, who is also alleged to have engaged in fraud and conspiracy to defeat the plaintiffs’ interest, has appeared and is represented. It is also possible that, subject to service under the Hague Convention, appearances may be filed by the first defendant’s sons, the second and third defendants, who also share a common cause with him to contradict the allegations of conspiracy and fraud. Thus, there may well be a proper contradictor before the Court for some, even if not all, of the causes of action to be pursued at the hearing.
In my view, until it is known whether or not there is a proper contradictor, it would be premature for the Court to exercise any discretion it may have under its inherent jurisdiction to permit the first defendant a right of audience. But that is something that could be re-visited, if necessary, closer to the trial.
Furthermore, in my view, any participation by the first defendant, and indeed all of the parties, in the current proceeding should be undertaken in accordance with the provisions of the Civil Procedure Act. Whilst this litigation was commenced prior to the Civil Procedure Act coming into operation, and thus it might be suggested that the ‘overarching obligations’ do not expressly apply, the underlying principles embodied in the Act, and particularly the ‘overarching purpose’,[54] nevertheless reflect the approach this Court has taken over many years to facilitate the efficient utilisation of scarce court resources. Indeed, the Court of Appeal recently referred with approval to the observations of Hargrave J in Director of Consumer Affairs v Scully (No 2)[55] to the effect that obligations of the kind embodied in the ‘overarching obligations’ have, in fact, ‘always existed’.[56]
[54]Defined in s 7(1) of the Civil Procedure Act as being ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.’
[55][2011] VSC 239 (1 June 2011), [21]-[22].
[56]See Yara Australia Pty Ltd v Oswal [2013] VSCA 337 (27 November 2013), [10].
Given the long history of this litigation, and the costs incurred (and to be incurred) by the parties and the Court time involved, it is important that the current proceeding be conducted efficiently and that it be heard in a timely way, especially given the age and medical condition of the first defendant.
Representation of the first defendant – whether a litigation guardian is required?
The second substantive ground of alleged error that the solicitor for the first defendant sought to agitate on appeal was the ‘prima facie view’ expressed by Daly AsJ in paragraph A.(b) of ‘Other Matters’ that Mr JE Talacko is a handicapped person within the meaning of Rule 15.01 of the Supreme Court (Civil Procedure) Rules 2005 (Vic), and should be represented by a litigation guardian.
Order 15 deals with litigation where a party is a ‘person under disability’, that is, a minor or handicapped person. It makes special provision for the conduct or defence of litigation by such a person by his or her ‘litigation guardian’, acting by a solicitor. Order 15 does not restrict who may apply to the Court for the appointment of a litigation guardian and the commentary in Williams’ Civil Procedure - Victoria notes that ‘[a] Judge may raise the matter of incapacity of his or her own motion or a party’s solicitor may apply.’[57]
[57]LexisNexis Butterworths, Civil Procedure:Victoria, vol 1, 2982 [15.03.10].
The first defendant’s Notice of Appeal relevantly alleges:
In respect to paragraph (b) thereof:
(a)She [Daly AsJ] wrongfully relied on what she said was ‘the extensive evidence’ previously submitted on behalf of the 4th defendant to which the first defendant was not privy, and refusing to hear or consider submissions from Mr Guss in respect thereto on behalf of the first defendant.
(b)While not set out by her in her order she [Daly AsJ] was in error in refusing to hear or consider a submission from Mr Guss that the first named defendant had appointed an enduring power of attorney, namely Mr David Findlay, who had authority thereunder to and did engage Mr Guss to act and appear on behalf of the first defendant in this proceeding.
(c)That Her Honour was wrong and not entitled in the circumstances to form a ‘prima facie view’ that the first defendant was a handicapped person within the meaning of Rule 15.01 (which it is contended he was not), and should be represented by a litigation guardian.
(d)That Her Honour in forming the ‘prima facie’ view that she did was wrong in ruling that Mr Guss was not entitled to submit evidence on behalf of the first defendant in rebuttal of that ’prima facie’ view.
(e)That Her Honour was wrong in ruling that the forming of her ‘prima facie’ view nevertheless precluded Mr Guss from appearing on behalf of the first defendant.
The reasons of Zammit AsJ delivered on 19 April 2013 concerning the fourth defendant’s application for an order dismissing the plaintiffs’ claims in this proceeding for want of prosecution, summarise the gist of the medical evidence that had been filed in relation to Mr JE Talacko.[58] Reference is there made to the first defendant having given a power of attorney to Mr David Jellicoe Findlay, a retired solicitor. The outline of submissions filed on behalf of the first defendant, dated 12 November 2013, refers to this power of attorney as being ‘an enduring power of attorney’ but the power of attorney was not in evidence before me. Those submissions also include a statement from Mr Guss to the effect that ‘Mr Findlay ... has instructed me on behalf of the first defendant, and I can say I myself have recently taken instructions direct from the first defendant in respect to this appeal.’[59]
[58]See Exhibit ‘DPP-1’: Reasons of Zammit AsJ delivered on 19 April 2013, ‘Medical evidence in relation to JET’ set out at [43]–[49].
[59]See outline of submissions filed on behalf of the first defendant, dated 12 November 2013, [13].
Counsel for the second to fifth plaintiffs pointed to the absence of any proper material before the Court concerning the engagement of the solicitor for the first defendant and the question of whether or not any litigation guardian is required. Mr Howells referred to the proceedings before Zammit AsJ, and Her Honour’s findings concerning the medical evidence, relevantly as follows:
I accept that the medical evidence confirms that JET [Mr JE Talacko] suffers from mild to moderate dementia which affects his memory and that his illness may affect his ability to give evidence in this proceeding about events which occurred in 1998. The medical evidence however is not categorical that JET’s [Mr JE Talacko’s] memory is so impaired that there is no prospect of him giving useful evidence.
...
I also note that while there is medical evidence pointing to a deterioration to JET’s [Mr JE Talacko’s] memory, there have been no steps by JET’s [Mr JE Talacko’s] solicitors to have a litigation guardian appointed or to bring the attention to the other parties and the Court of the need for a litigation guardian. As matters stand, JET [Mr JE Talacko] is currently managing this litigation.[60]
[60]See Exhibit ‘DPP-1’: Reasons of Zammit AsJ delivered on 19 April 2013, [74], [77].
It is not precisely clear what constituted the ’extensive evidence previously submitted on behalf of the fourth defendant’ that was referred to by Daly AsJ, and what status that ‘evidence’ now has, if any, in light of the findings made by Zammit AsJ. It would appear that at or about the time Zammit AsJ gave her ruling, the first defendant did not have solicitors acting for him. As I understand it, the position is that on 6 January 2012, the firm of Findlay Arthur Phillips had filed a notice of ceasing to act for Mr JE Talacko in this proceeding, and in March 2012, the first defendant apparently gave a power of attorney to Mr Findlay. It was not until 16 September 2013 or thereabouts that Mr Guss filed a ‘Notice that Legal Practitioner acts’ pursuant to Rule 20.2 and he did so, it seems, on the instructions of Mr Findlay as the first defendant’s attorney.
Accordingly, in the context of the first defendant seeking to appear before the Court by a solicitor after a prolonged absence of legal representation, and apparently upon instructions from the first defendant and his attorney, the expression of a ‘prima facie view’ by Daly AsJ may amount to no more than Her Honour simply noting, by way of a shorthand reference, the fact that in mid April 2013 Zammit AsJ had found there was medical evidence before the Court pointing to a deterioration of the first defendant’s memory, and that no steps had been taken to have a litigation guardian appointed.
In any event, in circumstances where an issue had earlier been raised before the Court as to the mental capacity of the first defendant, and some months had elapsed before a notice was filed by Mr Guss, it was appropriate for the Court to record that an issue had earlier been raised that may require ongoing supervision. That remains the position.
In these circumstances, matters that will remain relevant for the Court in this regard include:[61]
[61]See Pistorino v Connell [2012] VSC 438 (25 September 2012), [23]-[24], drawing upon the observations of Kyrou J in Slaveski v Victoria (2009) 25 VR 160, 184, [32].
(a) Whether the first defendant understands the factual and legal framework for his defence to the claims of conspiracy and fraud made against him and the type of evidence required for him to succeed on those defences?
(b) Whether the first defendant is capable of understanding what is relevant to the proceeding and what is not relevant when these matters are explained to him?
(c) Whether the first defendant is capable of assessing any settlement proposal on its merits, having regard to the state of the evidence, the parties’ submissions and other developments in the proceeding as at the time the proposal is made?
(d) Whether the first defendant understands and acknowledges that any such participation by him in the proceeding would need to be consistent with both the ‘paramount duty’ set out in section 16 and the ‘overarching obligations’ set out in sections 16 to 26 of the Civil Procedure Act.
The Court notes that the first defendant now has legal representation. In those circumstances, in a context where allegations of fraud and conspiracy have been made against him and he seeks actively to defend them, it is likely that he has been given advice about the risks and potential consequences involved in him giving evidence, making submissions and cross-examining the plaintiffs’ witnesses. However, given the serious nature of the allegations, the Court would simply reiterate the importance of the first defendant being informed of these matters.
Proposed Orders
In the Notice of Appeal, the first defendant appeals against:
The orders of Associate Justice Daly made herein on 27 September 2013 whereby:
1 Her Honour ordered that Mr J Guss who appeared for the First Defendant was not entitled to appear on his behalf in either of the applications before her for the reasons set out in Paragraph A of ‘Other Matters’.
2 Her Honour refused to grant an adjournment of such applications.
3 Her Honour ordered that the trial date of 8 October 2013 be vacated.
Therein, the ‘Scope of the Appeal’ is stated as being:
To review the said orders made herein by Associate Justice Daly on 27 September 2013 and make orders in accordance with the justice of the matter and according to law in their stead.
The real complaint of the first defendant was, as Mr Guss made clear at the hearing, that the first defendant had not been permitted to appear in his own right. He also complained that he had not been served with the materials before the Court, and he objected to the trial date being vacated. However, with the passage of time, and the order for the vacation of the trial date having taken effect, there is no longer any utility in reviewing the orders Daly AsJ made concerning the trial date. Nevertheless, the first defendant does seek to have the trial of the matter proceed as soon as possible. In this regard, I note that when Zammit AsJ made orders on 19 April 2013, Her Honour directed that the matter be expedited.
In light of the requirement in section 8(1) of the Civil Procedure Act that the Court must seek to give effect to the overarching purpose in the exercise of its powers and the fact that on an appeal from an Associate Judge it is open to the Court to make any orders that the Associate Judge could have made,[62] I propose to make the following orders on the appeal so as to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.
[62]Rule 77.06.9 of the Supreme Court (Civil Procedure) Rules 2005 (Vic) provides that on such an appeal, the Judge shall have all of the powers of the Court constituted by an Associate Judge.
Based on the material and submissions made before me, I have found that the first defendant should be permitted to appear and be heard by way of defence to the plaintiffs’ claims for unliquidated damages for conspiracy and fraud.
I have also found that in circumstances where an issue had earlier been raised before the Court as to the mental capacity of the first defendant, some ongoing supervision may be required, and for that reason I will order that the question of whether the first defendant should be represented by a litigation guardian is reserved to the trial judge.
Accordingly, the appeal against the findings made by Daly AsJ in paragraphs A.a and A.b of ‘Other Matters’ is allowed.
In lieu of those findings, the Court orders:
(a) that the first defendant is entitled to be represented in the proceeding in respect of the plaintiffs’ claims for unliquidated damages for conspiracy and fraud, but not otherwise unless the trial judge so directs; and
(b) the question of whether the first defendant should be represented by a litigation guardian is reserved to the trial judge.
Under ‘Other Matters’ I will also direct each of the parties and their solicitors, if they have not done so already, to file forthwith an ‘overarching obligations certification’ and ‘proper basis certification’.
At the hearing, both parties addressed me on the question of costs. In essence, at the hearing, each sought orders that the other party or their legal practitioner pay their costs of the appeal on an indemnity basis.[63] I do not propose to make any order for costs against the legal practitioners personally or on an indemnity basis.
[63]In their outline of submissions filed in advance of the hearing (dated 12 September 2013, at [19]), the second to fifth plaintiffs sought an order pursuant to Rule 63.23 that Mr Guss pay their costs of the appeal on an indemnity basis as follows:
a. At the time he instituted this Appeal, Mr Guss knew of the issues concerning the first defendant’s health, and he was aware that a power had been executed and must be taken to have known the date of the power;
b. Mr Guss had not filed any material to explain what is presently the state of the first defendant’s health or how and when he obtained his instructions and he has not filed a written submission;
c. Mr Guss was served with the Affidavit of David Phelan on Friday 8 November 2013 and was therefore provided with a copy of the [second to fifth plaintiffs’] submission dated 27 September 2013 that contained a detailed outline of the law concerning the question whether a defendant/respondent can have any interest in proceedings against him or her that would entitle him or her to be heard;
d. In spite of a request from the Court, Mr Guss had not advised either the Court or the parties of his intentions as to the conduct of the Appeal until late on the afternoon of Monday 11 November 2013; and
e. In spite of these circumstances and the plain fact that his application to be heard on behalf of the first defendant could not have been successful and would not have been vindicated on appeal, Mr Guss has nevertheless insisted on conducting his appeal and has thereby caused the plaintiffs/respondents cost and inconvenience without just cause.
The order for costs made by Daly AsJ at the hearing on 27 September 2013 was that the second to fifth plaintiffs pay the fourth defendant’s costs thrown away by reason of the adjournment, including the costs of the hearing before her, but otherwise, the parties’ costs were reserved. I am aware that that costs order made by Daly AsJ did not address the position of the first defendant. In circumstances where the first defendant did not file any affidavit material or otherwise correspond with the other parties in a timely way in advance of the hearing to articulate the basis for his intervention and the orders sought, I will make an order that the first defendant’s costs of and including the hearing before Daly AsJ form part of his costs in the proceeding.
On the appeal, the first defendant has enjoyed a measure of success. In those circumstances, I will also make an order that the plaintiffs pay his costs of the appeal to be taxed as between party and party.
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