Bockowski v Kostrzynski

LEGISLATION CITED : (CTH) Bankruptcy Act 1966 (CTH) Superannuation Industry (Supervision) Act 1993

CASES CITED : Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

P Bockowski Pty Ltd (first plaintiff/respondent) PARTIES : Pawel Bockowski (second plaintiff/respondent) Krzysztof Kostrzynki (first defendant/applicant) Krzysztof Kostrzynski (as representative of late Theresa Kostrzynski) (second defendant)

COUNSEL : Mr Bockowski (in person) (second plaintiff/respondent) Mr A Joseph (defendants/applicant)

SOLICITORS : Byles Canceri Lawyers (defendants/applicant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2005/259476 P Bockowski Pty Limited v Krzysztof Kostrzynski JUDGMENT (ex tempore)

1 HIS HONOUR: The first plaintiff P Bockowski Pty Ltd and the second plaintiff Pawel Bockowski commenced these proceedings by summons filed on 18 March 2005, claiming a judgment in the sum of $73,897 against the first defendant Krzysztof Kostrzynski and a judgment of $59,897 against the second defendant Krzysztof Kostrzynski as personal representative of his late wife Theresa Kostrzynski, deceased. The plaintiffs also sought an order extending the operation of certain caveats that they had lodged affecting property of the defendants.

2 The proceedings continued on pleadings, and the plaintiffs filed a statement of claim on 19 November 2007, some 30 months after the summons had been filed, from which it appears that they alleged that, in breach of contracts made between the defendants and the first plaintiff in 2002, profits arising on the construction of homes by the plaintiff as builder on land of the respective defendants was not distributed, in part, to the plaintiffs.

3 The proceedings had an unhappy procedural history, beset with delays. At some stage, the plaintiffs agreed to withdraw the caveats to which reference has been made. After many earlier appearances before the court, when the matter came before the Registrar on 21 May 2008 there was no appearance by the plaintiffs, and the Registrar issued a notice, under UCPR r 13.6 that the proceedings were adjourned for directions on 19 June and if there were no attendance by on behalf of the plaintiffs on the adjourned date the court may dismiss the proceedings. It is clear that the plaintiffs received that notice, because there was a subsequent email exchange about it between Mr Bockowski and the Registrar.

4 On 19 June 2008, there being no appearance by the plaintiffs, the Registrar dismissed the proceedings pursuant to r 13.6, and on the defendants' application stood the matter over to the Associate Justice's list for argument as to costs. Again, it is clear that the plaintiffs were aware of those events, because of various exchanges that took place by email between Mr Bockowski and the Registrar. Ultimately, on 4 July 2008, Associate Justice Macready made an order that the second plaintiff (that is to say, Mr Bockowski) pay the defendants' costs of the proceedings.

5 On 15 March 2010, the defendants approached the court for a freezing order in respect of Mr Bockowski's assets, asserting that he had liquidated all his property in Australia and was leaving (if he had not already left) the jurisdiction, and providing some evidence of the quantum of their costs, which were claimed in the sum of $134,858, although they had not yet been assessed. On 17 March 2010, Nicholas J as Duty Judge made a freezing order against Mr Bockowski, relevantly prohibiting him from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of his assets in Australia up to the unencumbered value of $AUD140,000 otherwise in the usual form provided for by the applicable practice note and specifying that for the purposes of the order: your assets include (a) all your assets, whether or not they are in your name and whether they are solely or co owned; (b) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own. (You are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instruction); and (c) the following assets in particular: (i) the properties known as 6 Cockatiel Street, Toronto comprised in Folio Identifier 71/1070146 and lot 170 Terrara Parade, Erowal Bay, comprised in Folio Identifier 170/8591 or, if it has been sold, the net proceeds of the sale; (ii) the assets of your business Pawel Holdings Pty Ltd carried on at 4 Ansell Close, Chittaway Point or, if any or all of the assets have been sold, the net proceeds of the sale.

6 It should be noted that the registered proprietor of lot 71 is a company, Pawel Holdings Pty Ltd, of which Mr Bockowski is the sole shareholder and director. That company is also the registered proprietor of lot 107 at Erowal Bay. 7 The freezing order returned before the court on 22 March when Nicholas J continued it up to and including 31 March, and stood the matter over to the Duty Judge that day. His Honour also made directions for service of copies of the orders on various addresses by various means including registered post, there being difficulties to that point in bringing the matter to the notice of Mr Bockowski.

8 On 31 March, the matter was referred to me. Although there was evidence that Nicholas J's directions as to service had been substantially complied with, I declined to make an order deeming service of the order to have been effected, because I was of the view that whether sufficient notice of the order had been given to a party bound was a matter to be determined, if at all, by the judge hearing any contempt application, and not prospectively. However, I continued the freezing order until further order and ordered that the second plaintiff pay the defendants' costs of the motion for the freezing order. I reserved liberty to apply on two days' notice.

9 No doubt the order then came to the attention of Mr Bockowski, because on 14 April 2010 he made an oral application to the Chief Judge in Equity to have removal from the register of land titles notification of an order which the defendant had caused to be registered on the title of lot 71 as dealing AF 409479, and which presumably gave notice of the freezing order. Her Honour directed that notice of the application be given to the defendants' solicitor and adjourned the proceedings to 16 April. On 16 April, her Honour referred Mr Bockowski for pro bono legal advice (but, whether or not that was sought, it does not appear to have been availed of) and adjourned the matter for hearing before me on 29 April.

10 On 29 April, Mr Bockowski appeared before me in person and indicated, as he had before the Chief Judge, that he wished to have the freezing order removed from what he described as "superannuation fund property", namely, lot 71. He presented some documentary material which tended to show that lot 71 was an asset of a superannuation fund, but it was then insufficient to permit me to conclude that it was necessarily an asset of a superannuation fund, or that the superannuation fund was a regulated superannuation fund.

11 I therefore made orders that Mr Bockowski produce to the court today the original or a complete copy of the rules of his superannuation fund, a complete set of its most recent financial statements, and the original or a complete copy of an executed and stamped counterpart of the contract for purchase of lot 71 by Pawel Holdings. I adjourned, for hearing today, the further hearing of Mr Bockowski's oral application to set aside or vary the freezing order and for removal of the registration of that order in the Register of Land Titles. I also noted that unless Mr Bockowski complied with paragraph 8 of the freezing order, by swearing and serving on the defendants the appropriate affidavit of disclosure, I would regard him as in default and disqualify from him from being entitled to be heard on his application today. The present hearing is conducted against the background that Mr Bockowski has made arrangements to return to Poland tomorrow. 12 The court has been informed that the National Parks and Wildlife Service is resuming or acquiring lot 107 and an application for variation of the freezing order in respect of it was not pressed. I need be concerned today only with lot 71.

13 So far as lot 71 is concerned, the evidence establishes, first, that the registered proprietor is, as I have said, Pawel Holdings Pty Ltd. 14 Mr Bockowski has produced a copy of the front page of a contract for sale of land in the 2000 edition dated 22 July 2004 between Stannick Securities Pty Ltd as vendor and Pawel Holdings as purchaser for a price of $187,000. 15 Importantly, the purchaser is described as: "Pawel Holdings Pty Ltd as trustee for Bockowski Family Superannuation Fund". The contract bears the seal of Pawel Holdings as purchaser and the signature of Steven John Rush for and on behalf of Stannick Securities, apparently pursuant to power of attorney book 42836789 number 638. It bears a stamp evidencing payment of stamp duty on 27 July 2004 on the contract price. Although it is a photocopy, the markings on it, in particular the marking adjacent to the name of the purchaser to cross-reference it to the transfer, gives it a strong appearance of authenticity. That is a marking which, while well familiar to conveyancing lawyers, would not ordinarily be known to a lay person and lends some considerable credibility to the authenticity of the document.

16 Also amongst the documents produced today is the trust deed of the Bockowski Family Superannuation Fund, and an Australian Taxation Office acknowledgement of regulation as a superannuation fund dated 22 August 2001, which records an election by the Bockowski Family Superannuation Fund to become a regulated self-managed superannuation fund and states "As such, Bockowski Family Superannuation Fund is now a regulated superannuation fund".

17 Also amongst the evidence produced previously and again today are the financial statements of the Bockowski Family Superannuation Fund for the year 2006 to 2007. In addition, those for the financial years ending 2004, 2005 and 2006 were also produced today. The financial statements for the year ended 30 June 2004 record, as assets: cash at bank of $188,000, freehold land at cost of $36,000, and total assets thus of about $225,000. The financial statements as at 30 June 2005 record as assets: cash at bank $40,000, and freehold land -- lot 71, $196,000. In other words, the financial statements identify from the year 2004/2005 (which corresponds with the date of the contract), lot 71 as an asset of the superannuation fund. It remains so shown in the 2007 financial statements.

18 It is true that the High Court of Australia has, in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, held that there are circumstances in which a Mareva injunction may in some circumstances lie against a third party, including where the third party is in control of assets in which the judgment debtor or defendant has a beneficial interest, or where there is some prospect that assets of the third party could be recovered for the benefit of the judgment debtor (for example, as a result of setting aside a disposition in favour of that party in fraud of creditors). The question is whether that concept is applicable to assets of a regulated superannuation fund, in which the members are Mr Bockowski and his wife, and, on the financial statements, his wife has the larger interest, although Mr Bockowski's is by no means insignificant.

19 Section 116 of the (CTH) Bankruptcy Act 1966, having provided that (subject to the Act) all property that belonged to or was vested in a bankrupt at the commencement of the bankruptcy or subsequently devolves on him or her is property divisible amongst the creditors of the bankrupt, goes on to provide (by subsection (2)) that subsection (1) does not extend to, inter alia: (d) ... (iii) the interest of the bankrupt in: (A) a regulated superannuation fund (within the meaning of the (CTH) Superannuation Industry (Supervision) Act 1993)....

20 When the matter was last before the court, I asked counsel who then appeared for Mr Kostrzynski how any interest that Mr Bockowski might have in the superannuation fund could be taken in execution or otherwise secured for the benefit of Mr Kostrzynski. No sensible answer was forthcoming, nor has any better answer been advanced by counsel who appears for Mr Kostrzynski today. Mr Bockowski's interest in his superannuation fund is not an asset that can become available, by way of execution or otherwise, for the benefit of creditors. If he were bankrupted, it would not be divisible property because of the operation of the statute to which I have just referred. In those circumstances, I do not see how it should properly be the subject of a Mareva injunction. For that reason, I propose to vary the freezing order, by deleting from it the reference to lot 71. Similarly, I will direct that the recording of the order against that property be removed from the register.

21 In taking this course, I have not overlooked the procedural circumstances, including the possibility that this might occasion prejudice to Mr Kostrzynski. His counsel has sought an adjournment in order to permit him to test the documentation that has been put before the court today, and which there has not been significant opportunity earlier to investigate. He fairly points out that if, as is proposed, Mr Bockowski leaves the country tomorrow, then contempt proceedings may well be of little utility because of the enormous practical difficulties of effecting personal service in Poland, let alone procuring his return. I observe that, on the last occasion I required Mr Bockowski to file a notice of address for service in the Sydney metropolitan area, and that has been done, and I have pointed out to him that process served at that address will be good service on him unless and until he files a different notice of address for service in the Sydney metropolitan area.

22 That, is of itself, no answer to the requirement that normally a contempt application be personally served. However, for Mr Bockowski's information, I record at this point that, because of the indulgence he is presently receiving in a sense, and without binding myself or any other judge to do so, I would be inclined to order on an appropriate application and evidence, that any motion for contempt could be sufficiently served by way of substituted service at his address for service, without requiring personal service.

23 In addition, I do not overlook the possibility that the property might be alienated and the proceeds removed from the jurisdiction while there is no injunction in place affecting it, and that if evidence were gained during an adjournment that could show that the prima facie view I have reached is incorrect, there could be irremediable prejudice to the defendant. However, I have to bear in mind, first, that a Mareva injunction is an extraordinary order; secondly, that the onus of supporting it is on the party who seeks it, and Mr Bockowski bears no onus in that respect; and thirdly, that the evidence as it stands before me, which I have discussed in some detail above, presents a fairly compelling case that lot 71 is an asset of a regulated superannuation fund, not available to Mr Bockowski's creditors.

24 Both because of where the onus lies and where the weight of the evidence presently is, it is quite inappropriate that a Mareva injunction which prima facie cannot be supported in respect of lot 71, should continue during any adjournment. If further evidence is found which requires that position to be revisited, then it will be open to Mr Kostrzynski to make a further application.

1. The freezing order made on 17 March 2010 and continued on 22 March and 31 March 2010 be varied, by deleting from the terms of the freezing order in paragraph 7(1)(c)(i) the matter "properties known as 6 Cockatiel Street, Toronto comprised in folio identifier 71/1070146 and", and substituting the words "property known as", so that the effect is that that paragraph will read, "The property known as lot 170 Terrara Parade, Erowal Bay...". 2. Notification AF 409479 Order of Court be removed, insofar as it affects the land comprised in folio identifier 71/1070146. **********

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