Zahos v Michael
[2012] NSWSC 195
•07 March 2012
Supreme Court
New South Wales
Case Title: Zahos v Michael Medium Neutral Citation: [2012] NSWSC 195 Hearing Date(s): 5 March 2012 Decision Date: 07 March 2012 Jurisdiction: Common Law Before: R A Hulme J
Decision: The application for order 1 in the Notice of Motion filed by the plaintiff/applicant on 23 February 2012 is refused.
The plaintiff/applicant is to pay the first defendant/second respondent's costs.Catchwords: PRACTICE AND PROCEDURE - Discovery - Uniform Civil Procedure Rules 2005, r 5.3, 5.4 - person against whom the order for discovery is sought is not a "prospective defendant" - person against whom the order for discovery is sought is not a party to the proceedings - whether documents relate to a "question in the proceedings"
Legislation Cited: Conveyancing Act 1919
Legal Profession Act 2004
Rules of the Supreme Court 1971 (WA), O 26A
Uniform Civil Procedure Rules 2005Cases Cited: Fairfax Media Publications Pty Ltd v Western Australian Rugby Union Inc [2008] WASCA 123
Morton v Nylex Ltd [2007] NSWSC 562
Zahos v Industrial Relations Commission of NSW [2005] NSWCA 427Texts Cited: Category: Interlocutory applications Parties: Terry Zahos (Applicant)
Harry Hatzistergos (First respondent)
Poppy Michael (Second respondent/First Defendant)
CKZIA Pty Ltd (Second defendant)
Eatstablishment Pty Ltd (Third defendant)Representation - Counsel: Counsel:
Mr S Jacobs (Applicant)
Mr S Habib SC (Respondents)
Mr M Hourigan (Mr Anastasios Michael)- Solicitors: Solicitors:
Robertson & Associates
Mercantile LawFile number(s): 2012/55250 Publication Restriction:
JUDGMENT
HIS HONOUR: This is an application for preliminary discovery from a person who is not a party to proceedings pursuant to r 5.4 of the Uniform Civil Procedure Rules 2005 (UCPR).
The proceedings in respect of which the application is made were commenced with the filing of a statement of claim on 20 February 2012 in which Mr Terry Zahos is the plaintiff and Ms Poppy Michael, CKZIA Pty Ltd and Eatstablishment Pty Ltd are the defendants. To make sense of the relief that is claimed it is necessary to say something about the historical background.
There has been a long running dispute between Mr Zahos on the one hand and Ms Michael and her brother, Mr Harry Hatzistergos on the other. Ms Michael and Mr Hatzistergos commenced proceedings against Mr Zahos and another man in the Industrial Relations Commission in 2002. It seems that this litigation was bitterly contested and protracted. One aspect of it was an attempt to draw in Mr Zahos' parents. That step culminated in proceedings being brought in the Court of Appeal in which Mr Zahos' parents were successful and their costs were ordered to be paid by Ms Michael and Mr Hatzistergos: Zahos v Industrial Relations Commission of NSW [2005] NSWCA 427.
Ultimately, there was a by consent dismissal of the proceedings in the Industrial Relations Commission on 16 August 2007. Ms Michael and Mr Hatzistergos were ordered to pay the costs of Mr Zahos and the other defendant. Informal attempts to secure agreement as to quantum and payment were unsuccessful. Mr Zahos invoked the formal costs assessment processes under the Legal Profession Act 2004. Certificates as to the Determination of Costs and as to the Costs of the Costs Assessment were issued in May 2009. They were filed in this Court and a judgment was entered in the sum of $212,385 in favour of Mr Zahos against Ms Michael and Mr Hatzistergos on 20 August 2009 (file 2009/295027). Mr Zahos asserts that with interest, the sum presently due is in the order of $260,000 to $270,000.
On 6 December 2011, Mr Zahos filed a Notice of Motion for the issue of a writ for the levy of property against Ms Michael. The property in question was a residential home in Bexley North. Mr Zahos then, apparently, became concerned about a possibility of Ms Michael alienating her interests in that property and as well as other interests. He filed a Notice of Motion on 20 December 2011 with four respondents, Ms Michael, The Eatstablishment Trust, The Hatzistergos Family Trust and The Michael Family Trust, and The TWH Trust and The TWM Trust. Mr Zahos sought orders including that Ms Michael be restrained from dealing with (et cetera) her interest in the Bexley North home, her shares in two restaurants in Newtown and her shares in The Eatstablishment Pty Ltd and CKZIA Pty Ltd.
The Notice of Motion filed 20 December 2011 has been before the Court now on three occasions. There have been consent orders made on each occasion, without admissions, restraining Ms Michael from dealing with (et cetera) the specified interest/shares until the next Court date.
That then brings me to the Statement of Claim filed by Mr Zahos on 20 February 2012. The relief that is claimed is:
1. A declaration that the transfer by the First Defendant of her share in the Newtown restaurants known as Twelve Restaurant and Cafe Cinque, to the Second and/or Third Defendants, was an alienation of property with the intention to defraud the Plaintiff, within the meaning of Section 37A Conveyancing Act 1919.
2. An order that the First Defendant depose an affidavit setting out which entities (whether corporations, trusts or otherwise) her shares in the said two restaurants have passed through and where they are currently held.
3. An order that the Second and/or Third Defendants re-transfer the First Defendant's share of the two restaurants to her; alternatively
4. Further and/or alternative relief including the appointment of a receiver to the First Defendant's share in the said two restaurants;
5. Costs on such basis as this Honourable Court deems fit.
The pleadings in this statement of claim essentially set out the basis for Mr Zahos' concern that Ms Michael has transferred her interests in the two restaurants to the second and third defendants so as to avoid paying him his due.
On 23 February 2012 Mr Zahos filed a Notice of Motion with Mr Hatzistergos and Ms Michael as first and second respondents respectively. The orders sought are:
1. That the First Respondent, pursuant to Part 5 of the Uniform Civil Procedure Rules 2005, provide a verified list of documents that are in his possession, custody or control relating to the categories of documents listed on Schedule "A" hereto.
2. Pursuant to Part 19 of the Uniform Civil Procedure Rules 2005, the Applicant have leave to amend the Statement of Claim filed 20 February 2012 in the form of the proposed pleading at pages 46 to 50 of Exhibit DK-1 to the Affidavit of Ms Van Wyk-Kiranov affirmed on 21 February 2012.
3. Alternative relief.
4. Costs.
The motion came before me, sitting as duty judge, on 5 March 2012. Mr Jacobs, counsel for Mr Zahos, pressed for the making of order 1, but not order 2. It became apparent that Mr Zahos is not in a position to press for the making of order 2 until order 1 has been made and complied with and he has had the opportunity to review the outcome. To explain, it is necessary to say something about the amendment to the statement of claim that is sought in order 2.
The amendments to the statement of claim set out in the draft annexed to Ms Van Wyk-Kiranov's affidavit are: to add Ms Michael's husband, Mr Anastasios Michael, as a fourth defendant; to include claims for relief against him by way of a declaration that a transfer by Ms Michael to Mr Michael of her half share in the Bexley North home was an alienation of property with intent to defraud Mr Zahos within the meaning of s 37A Conveyancing Act ; and to seek an order that he re-convey to her that half share in the home.
Ms Michael and her husband were joint tenants in respect of the Bexley North home. According to a "contractual agreement" signed on 27 November 2006, there was a transfer of Ms Michael's share to Mr Michael in exchange for Mr Michael agreeing to pay her debt to Mr Zahos' father. It would seem that this debt relates to the order for costs made against her in the proceedings in the Court of Appeal in 2005.
The proposed amendment to the statement of claim includes augmenting the pleadings, inter alia, by referring to the transfer by Ms Michael to Mr Michael of her half share of the Bexley North home and to add an assertion that, at that time, her half share was worth approximately $237,500, but the amount paid for it was $81,943.41. This, it is proposed to be pleaded, amounted to an alienation of property with the intention to defraud Mr Zahos of the fruits of his judgment.
Mr Hatzistergos became bankrupt on 12 October 2009. In a list of creditors annexed to a Notice of Bankruptcy there are listed a number of unsecured creditors, including Mr Michael in an amount of $521,179. Also listed as a creditor is Mr Zahos for an amount of $207,000, he having lodged a proof of debt in respect of the judgment debt. It is asserted in the affidavit of Ms Van Wyk-Kiranov, and confirmed in the affidavit of Mr Zahos, that he was told by Mr Hatzistergos' trustee in bankruptcy that the $521,179 said to be due by Mr Hatzistergos to Mr Michael related to legal fees that Mr Hatzistergos said that he had incurred and that the first defendant's husband either had paid on his behalf or lent Mr Hatzistergos the money to pay.
The affidavit of Ms Van Wyk-Kiranov goes on to say:
"From the correspondence exhibited, it will be seen that I wish to probe, on behalf of [Mr Zahos], whether [Ms Michael] alienated her half share of her family residence at Bexley North, to her husband, Anastasios Michael, in order to defraud my client of the fruits of his IRC costs order.
The missing pieces in the evidentiary mosaic which will either in my view, and that of my principal, Ms Nell Robertson, implicate Mr Michael in a fraudulent design as aforesaid, or demonstrate his innocence, are the tax invoices (i.e. legal bills) which he says he discharged on behalf of [Ms Michael] and the surrounding primary vouchers.
However, despite my requests to Mr Wily and Ms Evans [trustee in bankruptcy] and to [Mr Hatzistergos], the tax invoices and surrounding primary vouchers have not been provided to me."
I now return to the order sought in prayer one of the Notice of Motion. It is sought to invoke the provisions of UCPR, r 5.4. That rule, relevantly is in the following terms:
(1) The court may order that a person who is not a party to proceedings, but in respect of whom it appears to the court that the person may have or have had possession of a document that relates to any question in the proceedings, must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to that question.
The documents sought to be discovered are described as:
All documents referring or relating to the amount of $521,179 noted in [Mr Hatzistergos'] Notice of Bankruptcy dated 5 November 2009 ... including but not limited to [various categories of documents are then listed].
Mr Jacobs submitted that there were three questions which arose for decision. The first was whether the person against whom the order is sought is not a party to the proceedings. There is no dispute that Mr Hatzistergos is not a party in respect of the Statement of Claim filed 20 February 2012.
The second issue was said to be whether it appears to the Court that Mr Hatzistergos may have or have had possession of a document. In relation to that, it was submitted that because it appears Mr Hatzistergos had informed his trustee in bankruptcy that he was indebted to Mr Michael in the sum of $521,179 in relation to legal fees that Mr Hatzistergos had incurred, it was on the cards that Mr Hatzistergos had relevant documents such as bills of costs, tax invoices, receipts and the like relating to those fees. It was noted as well that in all of the communication both written and oral there had never been a denial that such documents existed. I accept that submission.
The third and critical issue is whether such documents as Mr Hatzistergos may have or have had possession of is one that "relates to any question in the proceedings". Mr Jacobs submitted that the question in the proceedings was whether there should be an amendment to the Statement of Claim and whether there was a pleadable case of fraud. This is a reference to the second prayer for relief in the Notice of Motion (see above at [9]).
As was accepted on behalf of Mr Zahos, the proposed amendment of the Statement of Claim cannot proceed until the plaintiff has available to him a reasonable basis to make the assertion concerning the first and fourth defendants in relation to the transaction in question. Put another way, the plaintiff does not have sufficient evidence to found such an assertion but suspects that there is the potential for such evidence to be available and hence has pursued the order for discovery.
Mr Jacobs submission was, in short, that there was a question in the proceedings as to whether the amendment to the Statement of Claim should be made. The documents sought by way of discovery relate to that question. Accordingly, pursuant to r 5.4 the Court should order that discovery be given.
Mr Habib SC referred to the power in UCPR r 5.3 of a court to order discovery where an applicant may be entitled to make a claim for relief but is unable to obtain sufficient information to decide whether or not to commence proceedings. It was submitted that this is really what Mr Zahos is attempting to achieve. However, that power only applies in respect of a "prospective defendant" (or a prospective respondent to a proposed claim or cross claim: r 5.3(4)). There is no suggestion that Mr Hatzistergos comes within that description. There has been no suggestion that Mr Zahos is contemplating the possibility of commencing proceedings against Mr Hatzistergos and so he is not a "prospective defendant".
It was submitted that UCPR, r 5.4 was not applicable as the document(s) cannot be said to relate to any "question in the proceedings". Mr Habib noted that the proceedings are concerned with Ms Michael and interests she has, or had, in two restaurants at Newtown. The proceedings currently have nothing to do with any question of a share she may have had in the property at Bexley North. Accordingly, any documents that might provide verification or otherwise as to the reasons Ms Michael transferred her share in that home cannot relate to any question in the proceedings.
Mr Jacobs spent some time in submissions, written and oral, dealing with the meaning of "relates to". With respect, the focus should be more on determining whether a document (or documents) Mr Hatzistergos may have or have had in his possession relates to "any question in the proceedings".
Mr Jacobs characterised that question as being "whether the applicant, Terry Zahos, is entitled to make a claim for relief against an existing defendant, [Ms] Michael, and against a prospective defendant, Mr Michael".
There is very little authority dealing with preliminary discovery against third parties. Fairfax Media Publications Pty Ltd v Western Australian Rugby Union Inc [2008] WASCA 123 was concerned with a similarly worded provision in the Rules of the Supreme Court 1971 (WA), O 26A r 5. It used the expression "documents that relate to any matter in question in the action". Newnes AJA, with whom Buss JA agreed, stated:
[30] ... What are the matters in question in the action is to be determined by reference to the pleadings in the action, but it is sufficient if a document would, or would lead to a train of enquiry which would, either advance a party's own case or damage that of the other party. ...
In the present case, there is nothing in the pleadings, certainly not directly but not even incidentally, that raises any question about whether the plaintiff is entitled to make an entirely new and different claim for relief against Ms Michael, or to make a claim for relief against a person who is currently not even a party.
The application may be seen as analogous to that in Morton v Nylex Ltd [2007] NSWSC 562. In that case there were two applications for preliminary discovery before the Court. One involved an application for discovery pursuant to UCPR, r 5.3 in relation to a prospective defendant (Nylex Ltd). The other was an application for discovery pursuant to UCPR, r 5.4 in relation to a third party (National Australia Bank). The documents from the bank were sought for the purpose of the applicants ascertaining whether they related to a contemplated action against Nylex Ltd. White J said:
[47] Orders may be made under r 5.4 where it appears to the Court that the person against whom discovery is sought may have or have had possession of documents that relate to a " question in the proceedings ". The only proceedings on foot are these proceedings for preliminary discovery. The only relevant questions in the proceedings are whether the criteria in r 5.3 are made out in the claim against Nylex, and whether the terms of r 5.4 are made out. The documents sought do not relate to those questions. They may relate to questions which would arise in substantive proceedings if such proceedings are instituted by the plaintiffs against Nylex or others. The questions in the present proceedings are resolved without the need for the production of any documents from the National Australia Bank.
I respectively agree with his Honour's analysis. The same reasoning is apt in the present case. Reference to "proceedings" in UCPR, r 5.4(1) clearly relates to proceedings that are in existence. The documents sought from Mr Hatzistergos relate to questions in proceedings that do not at present exist.
Orders
The application for order 1 in the Notice of Motion filed by the plaintiff/applicant on 23 February 2012 is refused.
The plaintiff/applicant is to pay the first defendant/second respondent's costs.
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