Vouris, John v Nejad, Frank

[1998] FCA 1626

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – proceedings in connection with sequestration - bankruptcy notice founded on failure to pay taxed costs of previous court proceedings - issue of whether debtor had been joined as a party to those proceedings – whether a person can be made a party to interlocutory proceedings only – whether debtor bound by the costs order even if not a party to the proceedings.

Bankruptcy Act 1966 (Cth) s 52

Federal Court Rules O 6 r 8(2)

JOHN VOURIS v FRANK NEJAD

NG 7585 of 1998

MOORE J
11 DECEMBER 1998
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7585  of   1998

IN THE MATTER OF:		JOHN VOURIS APPLICANT
AND:		FRANK NEJAD RESPONDENT
JUDGE:	MOORE J
DATE OF ORDER:	11 DECEMBER 1998
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The estate of the Debtor be sequestrated.

1. The Petitioning Creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7585  of 1998

IN THE MATTER OF:	JOHN VOURIS APPLICANT
AND:	FRANK NEJAD RESPONDENT

JUDGE:	MOORE J
DATE:	11 DECEMBER 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

This is a creditor’s petition brought by Mr John Vouris (“the creditor”) seeking an order under s 52 of the Bankruptcy Act 1966 (“the Act”) sequestrating the estate of Mr Frank Nejad (“the debtor”). The creditor’s petition is founded on a bankruptcy notice served on the debtor on 11 February 1998 claiming payment of $14,500 which are taxed costs in proceedings in this Court. The debtor represented himself in these proceedings and sought to raise a number of issues in objection to the creditor’s petition. However, in my opinion, the only issue of substance raised was whether he had ever been a party to the proceedings in which the costs order was made and whether he was bound by that order.

The proceedings in which the costs order was made were NG 3185 of 1995.  Those proceedings were commenced by application filed on 24 April 1995.  The application was said to be one made under the Australian Corporations Law and the relief sought was an injunction seemingly preventing the sale of the assets of a company by a person styled as the “former administrator”.  The parties to the application were identified as “Sanirise Pty Limited (subject to deed of company arrangement)” as the applicant and “Court & Co” as the respondent.  At the foot of the first page of the application it was noted that it was filed by the debtor.  The application was accompanied by an affidavit of the debtor which, in the main, was a vehicle for the proof of a range of documents concerning the administration of Sanirise Pty Ltd (“Sanirise”) by the creditor as a voluntary administrator.  The affidavit recounted how on 5 July 1994 the creditor had been appointed a voluntary administrator and that on 9 October 1994 a deed of company arrangement was entered into by Sanirise with its creditors.  Annexed to the affidavit was correspondence concerning the conduct of Darling Harbourside (Sydney) Pty Limited which, it was contended, had on 14 October 1994 locked Sanirise out of premises it leased at Darling Harbour.  It is apparent from the application and supporting affidavit that there was, at that stage, no solicitor acting for the applicant company notwithstanding the provisions of O 4 r 14(2).

On 24 April 1995 Einfeld J issued an interlocutory injunction restraining the sale of assets of Sanirise on the condition that the debtor, as director of Sanirise, provide security to the value of $2,000 to cover the costs of the respondent “as a consequence of this injunction”.  His Honour made several consequential orders including that notice of the order “be given to Mr John Vouris of the Respondent Company”.  The injunction was expressed to continue till 8 May 1995 or until further order.  The application was stood over to 8 May 1995.

On 1 May 1995 an affidavit of the debtor was filed in the proceedings and the applicant continued to be identified as “Sanirise Pty Limited (subject to deed of company arrangement)”.  The respondent was identified as “Court & Co” though immediately below that name was the name of the creditor.  At a hearing before Einfeld J on 8 May 1995 a Mr R Willcock, solicitor, of Abbott Tout appeared for Sanirise and filed in court a notice of appearance recording that he appeared “on behalf of Sanirise Pty Ltd”.  At the hearing Mr Watson, solicitor, of Harper Watson, appeared for the respondent and filed in court a notice of appearance.  The notice of appearance was in terms “John Vouris of Court & Co … appears”.  The matter was stood over until 1 June 1995 and the applicant was given leave to file and serve an amended application and statement of claim by 29 May 1995. 

The matter came before Einfeld J on 1 June 1995 and Mr Willcock and Mr Watson again appeared.  The matter was stood over to 29 June 1995.  On 29 June 1995 an amended application dated 29 June 1995 was filed in court by Mr Willcock together with a statement of claim also dated 29 June 1995.  The amended application identified the respondent as “John Vouris” and no reference was made to Court & Co.  The amended application sought an order removing the respondent as administrator of Sanirise and related orders.  Damages were also sought.  The application sought, in terms, by way of interlocutory relief that:

A.Leave be given to add Frank Nejad and Christine Kelly as co-Applicants.

The amended application identified in its heading not only Sanirise as the applicant but also “Christine Kelly” and “Frank Nejad”.  The amended application was signed by Mr Willcock as the “Applicants’ Solicitor”.  The statement of claim again identified the three applicants in its heading and pleaded:

2.At all material times the second and thirdnamed Applicants were directors of Sanirise.

Also filed in court on 29 June 1995 by Mr Willcock was a notice of motion dated 28 June 1995 seeking orders releasing plant and equipment of Sanirise.  That notice of motion was accompanied by an affidavit sworn by Mr Willcock in which he identified himself as “the solicitor acting on behalf of the Applicant (Sanirise)”.  The proceedings were adjourned to later that day and then adjourned to 30 June 1995.

On 30 June 1995 a notice of motion was filed in court on behalf of the respondent, identified in the notice of motion as “Court & Co”, seeking orders that the proceedings be dismissed or stayed.  Orders were also sought for security for costs.  The notice of motion was accompanied by an affidavit of the creditor.  The report of listing records an order made by Einfeld J in the following terms:

I order names in A motion 28/June filed in court 29 June be Sanirise Pty Ltd (1A) Mr Nejad and Christine Kelly (2A).  Same order made in N/M.  Name of R changed to John Vouris.

The report of listing also records that the Court noted an agreement between the parties.  Annexed to the report of listing is a document entitled “Short Minutes of Order”.  It contained an undertaking given by the applicants and an agreement between the parties.  The heading of the document identified in a typed form the applicant as “Sanirise Pty Limited (subject to deed of company arrangement)” and in handwriting “Fariborz Moshfeghi-Nejad” and “Christine Elizabeth Kelly” as the “Second Applicants”.  The word “Applicant” was typed under the name “Sanirise Pty Limited (subject to deed of company arrangement)” and in the same handwriting as the names of “Nejad” and “Kelly” is written the word “First” against the typed word “Applicant”.  The agreement in the document ran for 17 paragraphs.  Repeated reference is made to “the applicants” in the agreement and is signed by the debtor, Ms Kelly and the “Applicants [sic] solicitor”.  The transcript of the proceedings on that day records that Einfeld J said:

… come forward Mr Neejab [sic] and Ms Kelly.  I’ll order that the names of the applicants in the applicants motion of 28 June filed in court on 29 June be Sanirise Pty Limited, first applicant, and …Neejab [sic] and Christine Elizabeth Kelly, second applicants.  I think the same change should actually be made to the respondent’s notice of motion where indeed even the respondent’s name is not correctly stated either there so the same order will be made in that motion and the name of the respondent will be changed in that motion to John Vouris.

A little later both the debtor and Ms Kelly gave evidence.  The transcript of the proceedings when the debtor gave evidence is incomplete.  However the evidence of Ms Kelly included the following:

And are you the same person who has just recently, by his Honour’s order been added as a party in these proceedings? … Yes

In written submissions filed in these proceedings the debtor acknowledged that he may have been asked a similar question but implied that any answer he may have given would have related to his status as a party to the notice of motion.

This order of Einfeld J is the order critical to the resolution of one aspect of the issue raised in these proceedings.  The order, in terms, seemingly only added the debtor as a party to the notice of motion.  It might be thought, and was submitted by the debtor, that the literal terms of the order were limited in their effect.  That is, they added the debtor as a party to the interlocutory proceedings commenced by the notice of motion in order to bind him to the undertaking given to the Court in settlement of the notice of motion and to allow him to be a party to the agreement noted by the Court with the status of a party to the interlocutory proceedings.  I will return to the events of this day and the order of Einfeld J shortly.  However it is desirable to set out briefly what followed in the proceedings.

The matter next came before Einfeld J on 29 August 1995.  Mr Willcock again appeared and there was no appearance for the respondent.  His Honour directed that a defence be filed by 29 September 1995.  It was filed on 27 October 1995 and the defence identified the applicants as Sanirise, Kelly and the debtor and the respondent as the creditor.  No further hearing date was set though Einfeld J gave liberty to apply on three days notice.

On 21 November 1995 a notice of motion was filed seeking the removal of the creditor as the administrator of Sanirise.  The notice of motion was signed by the debtor and Ms Kelly and was accompanied by an affidavit of the debtor.  In both the notice of motion and affidavit the “applicant” (sic) in the proceedings was identified as “Sanirise Pty Limited (subject to deed of company arrangement)”, “Christine Kelly” and “Frank Nejad”.

The matter came before Einfeld J on 24 November 1995 when a further notice of motion was filed in court by the debtor who was then appearing for the applicants.  Several days earlier both the debtor and Ms Kelly had made an application for waiver of fees pursuant to the Federal Court of Australia Regulations.  On 24 November 1995 Einfeld J commenced to deal with the application which was in essence to prevent the sale of assets of Sanirise.  An undertaking was given by the creditor about the disbursement of the proceeds of an auction and directions were given about the further conduct of the proceedings.

The matter next came before Einfeld J on 29 November 1995.  The debtor appeared in person and the respondent was represented by Mr Watson.  A further notice of motion was filed by the debtor in court and again the parties were identified as “Sanirise Pty Limited (subject to deed of company arrangement)”, “Christine Kelly” and “Frank Nejad” as “applicant” (sic), and the creditor as respondent.  Further undertakings were given by the respondent and the proceedings were relisted on 6 December 1995.  The $2,000 that had earlier been paid into Court was released upon an undertaking being given.  The report of listing noted that the undertaking was one given “by both individual applicants to court today”.  The order when actually entered recorded the undertaking as “of the Applicants Christine Kelly and Frank Nejad given in Court today”.

The matter came before Einfeld J on 6 December 1995 when certain directions were given concerning the filing of further pleadings and outlines of evidence.  The notices of motion of 24 and 29 November 1995 were dismissed.  On, it appears, 28 December 1995 a notice of ceasing to act was signed by Mr Willcock.  In it he identified himself as “Solicitor for the Plaintiff”.  In the notice the applicant is identified only as “Sanirise Pty Ltd (subject to deed of company arrangement)”.  The notice was not filed until 9 April 1996.  On 21 February 1996 the matter came before Einfeld J.  His Honour then listed for 28 February 1996 what was described in the report of listing as a “motion to strike out action by” the respondent.  On 28 February 1996 two notices of appearance were filed by Williams Hussain Davidson, solicitors.  Both identified “Sanirise Pty Limited (Subject to Deed of Company Arrangement)” as the first applicant and “Christine Kelly & Frank Nejad” as the second applicants.  One notice of appearance stated that “The First Applicant appears” and the other that “The Second Applicant (sic) Appear”.

On 28 February 1996 Einfeld J heard and determined the “strike out” application.  It appears he gave judgment extempore though his reasons were published in a written form on 28 April 1997.  In that published form the first applicant is identified as “Sanirise Pty Limited” and the second applicants as “Christine Kelly & Frank Nejad”.  At two points in his reasons, his Honour refers to the applicants.  At one point his Honour says:

It has been one of the features of this litigation that the applicant company and the personal applicants have no assets of any substance at all that could be relied upon to pay any order for costs now made.

And later:

For those reasons it is my decision that the proceedings by Sanirise Pty Limited and the two individual applicants, Kelly and Nijad [sic], against John Vouros [sic] should be dismissed with costs, including any cost reserved on previous occasions.

The orders made by Einfeld J on 28 February 1996 were entered on 12 March 1996.  The orders as entered were in the following terms:

1.The proceedings against the Respondent be dismissed.

2.The Applicants to pay the Respondent’s costs, such costs to include all costs reserved on all previous occasions by the Court.

The heading of the order identifies “Sanirise Pty Limited (subject to deed of company arrangement)” as the first applicant and “Christine Kelly & Frank Nejad” as the second applicants.  The respondent is identified as the creditor.

In due course a bill of costs was prepared and on 18 September 1997 a certificate of taxation issued certifying the costs as $14,500.  That certificate was served on 23 September 1997.  On 26 November 1997 an order was made under O 62 subr 45(3) of the Federal Court Rules and entered that day.  The order provided:

1.The Applicants pay the sum of $14,500 to the Respondent.

The heading of the order identified “Sanirise Pty Limited (subject to deed of company arrangement)” as the first applicant and “Christine Kelly & Frank Nejad” as the second applicants.

The first question raised in this application is whether, by virtue of the order made on 30 June 1995, the debtor became a party to the principal proceedings.  That is, the proceedings commenced on 24 April 1995.  As discussed earlier the orders appear to be directed to the addition of the debtor and Ms Kelly to what was described as the notice of motion dated 28 June 1995 and filed 29 June 1995.  The document fitting that description was the notice of motion making the interlocutory application seeking orders requiring the creditor to release plant and equipment in his custody and control. 

It is possible for a person other than a party to proceedings to be an applicant in interlocutory proceedings though it is unusual.  An example that not infrequently arises is an application by a third party to set aside a subpoena directed to it, though the making of such an application by a person who is not a party is expressly provided for in the rules: see O 27 r 9(2).  The making of an interlocutory application by a non-party is a procedure recognized expressly in the rules of the Supreme Court of Victoria: see r 1.14(2) and Delmo v Merrigal Pty Ltd and Fairgate Investments Pty Ltd, Supreme Court of Victoria, 29 April 1988, Murphy J (reported in Williams Civil Procedure Victoria Practice Vol 3 at 16,007) though under earlier rules of the Supreme Court of Victoria it was not possible for a non-party to seek to have an order for substituted service, or a judgment, set aside: see Bradvica v Radulovic [1975] VR 434. It is not a procedure expressly recognized in the rules of this Court though a person can be made a party to part of a proceeding: see Friends of Hinchinbrook Society Inc v Minister for Immigration (1996) 69 FCR 1. It may be, having regard to the definition of “proceedings” in s 4 of the Federal Courtof Australia Act 1976, that generally a person can be a party to an interlocutory application in principal proceedings to which the person is not a party. However this is an issue I need not consider in detail as I am prepared to assume they can.

Thus it is conceivable that Einfeld J had in mind somehow regularizing the interlocutory application and making the debtor and Ms Kelly parties to the interlocutory application without making them parties to the principal proceedings.  However I doubt that this is what his Honour intended and all the more so given that Mr Willcock from Abbott Tout, who I infer was, in fact, instructed by the debtor and Kelly, filed an application seeking to have both of them added to the principal proceedings.  While O 6 r 8(2) of the Federal Court Rules provides that a person shall not be added as an applicant without their consent, it can be inferred that both the debtor and Ms Kelly consented to their addition as applicants in the proceedings generally given that the solicitor instructed by them made the application that they be added to the proceedings generally.  That his Honour intended to join the debtor and Ms Kelly as applicants to the proceedings generally is reinforced by him treating them thereafter as applicants to the principal proceedings.  In my opinion, the proper construction of the order made by Einfeld J is that the debtor and Ms Kelly were added as applicants to the principal proceedings.

If I am wrong and the order did not have that effect, then questions would arise about the effect of the costs order his Honour made on 28 February 1996.  It is legitimate to have regard to his Honour’s reasons in construing the order which is plainly ambiguous: see Repatriation Commission v Nation (1995) 57 FCR 25. It is clear from those reasons that his Honour was intending that, amongst other things, the debtor and Ms Kelly would be liable for the costs personally. His order was plainly intended to give effect to that view. The Court has power under s 43 to order a non-party to pay the costs in proceedings even though it is a power that is rarely used: see Knight v F P Special Assets Ltd (1992) 174 CLR 178 and De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544 and Oz B&S Pty Ltd v Elders IXL Ltd (1993) 117 ALR 128. Thus the Court would have had power to make an order against the debtor for the costs of the proceedings even if he had not been party to them. At the time the orders were made the debtor and Ms Kelly were represented by counsel. It is not suggested they were not given an opportunity to raise whatever issues they wished to raised in resisting, inter alia, any order as to costs.

In my opinion the debtor was jointly and severally liable for the costs in the proceedings either because he was a party to the proceedings and, in that capacity, bound by the order made by Einfeld J on 28 February 1996 or was not a party but nonetheless bound by the order.

The challenge made by the debtor to the debt founding the bankruptcy notice must fail.  I am otherwise satisfied that an order should be made sequestrating the estate of the debtor.  I so order.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore

Associate:

Dated:             11 December 1998

Counsel for the Petitioning Creditor:	J Johnson
Solicitor for the Petitioning Creditor:	Harper Watson
The Debtor appeared in person.
Date of Hearing:	28 July 1998
Date of Judgment:	11 December 1998