Consolidated Press Property Pty Limited v Cirillo

REASONS FOR DECISION 1 On 23 February 2007 the applicants petitioned for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) (the Act) against the estate of the respondent. The petition was based on a judgment in favour of the applicants against the respondent entered by consent in Supreme Court of South Australia Action 1481/1985 on 28 July 2005. The amount of the judgment was for payment by the respondent to the applicants of $500,000 (the costs order). The costs order was for costs awarded against the respondent in proceedings in which he had unsuccessfully sued the applicants for losses he allegedly sustained by reason of an injunction granted against him supported by an undertaking as to damages given by the applicants. In essence, the respondent's claim in that Supreme Court action was to enforce the undertaking as to damages, after the injunction had been discharged. 2 The petition for a sequestration order was based on an active bankruptcy on the part of the respondent in failing to comply with a bankruptcy notice due to be served on him in respect of the costs order. The bankruptcy notice was served on him on 22 June 2006. The respondent applied to set the bankruptcy notice aside on the ground that he had a counter-claim, set-off or cross demand against the applicant that was equal to or greater than the amount of the costs order. That application was dismissed on 16 February 2007: Cirillo v Consolidated Press Property Pty Ltd (Formerly known as Citicorp Australia Ltd) [2007] FCA 139. 3 Shortly before the hearing of the petition, on 19 March 2007 the respondent on very short notice applied for an adjournment of the hearing for petition. There was no substantive material filed in support of the application. There was no notice in opposition to the petition filed on behalf of the respondent. The application was therefore adjourned for further hearing to the commencement of the hearing of the petition, which was set down for 22 March 2007. 4 At the commencement of the hearing on 22 March 2007, the respondent by counsel renewed the application for an adjournment of the petition to a date to be fixed. In essence, the adjournment was to enable the respondent to prosecute further proceedings in the Supreme Court action in relation to the costs order. Alternatively, but rather faintly, it was argued that on the material before the Court, the existence of proceedings seeking pre-action discovery, either alone or in conjunction with the claims of the respondent about the possibility of setting aside the costs order, should provide other sufficient reason to dismiss the petition. The applicants, in anticipation of that application, had filed further material showing the general history of the matter. That history is also noted briefly in the reasons for decision of Finn J in Cirillo [2007] FCA 139, at [3]. The hearing was therefore adjourned to the following day to enable counsel for the respondent to fully consider that additional material advanced on behalf of the applicants. 5 On 23 March 2007, after hearing submissions on behalf of the respondent for the adjournment, I rejected that application. I then considered the petition. No additional matters were put in opposition to the petition beyond those mentioned above. I made a sequestration order against the estate of the respondent. I then gave brief oral reasons for those orders, reserving to myself the right to provide written reasons if that became desirable. The respondent also applied for a stay of the sequestration order under s 52(3) of the Act for a period of 21 days, but I also refused that application. 6 As the respondent has now re-applied for a stay of the sequestration order, and has indicated his intention to appeal from the making of the sequestration order, I now set out in a little more detail my reasons for refusing the adjournment and for making the orders made on 23 March 2007. 7 The adjournment application was made for two reasons. 8 The first can be shortly dealt with. The respondent wanted to be represented by a particular senior counsel who was not available on the days of the hearing. No particular dates for the availability of that senior counsel were offered. I was told the respondent ahd "been trying to ascertain" his availability. I was not told when that counsel had first been retained. The respondent was represented by counsel at the hearing, and I was not informed of any attempts to engage other senior counsel, if that were the respondent's wish. Whilst the Court endeavours to accommodate the convenience of counsel whenever possible, in the face of the applicants' opposition to the adjournment and of the history of this matter, I did not consider that it was appropriate not adjourn the petition on that ground and in those circumstances. 9 The second reason involved the respondent seeking further time to explore the setting aside of the costs order in the Supreme Court of South Australia. It was said that there was an arguable case that the costs order might be set aside, and that the opportunity should be given to the respondent to do so before making a sequestration order. 10 An adjournment of the petition for a sequestration order may be appropriate if the debtor can demonstrate a genuine and arguable case that in circumstances such as those he confronts, the costs order might be set aside so that there is a real prospect of achieving a different result in that action. See generally National Australia Bank Ltd v Zollo [2000] FCA 972. 11 The claimed arguable case was based upon the following. Citicorp Australia Limited apparently advanced monies to CW Construction Pty Ltd, secured by debenture granted by CW Construction Pty Ltd to Citicorp on 18 April 1983. In January 1985, Citicorp exercising powers under the debenture appointed two of the present applicants as receivers and managers of the undertaking assets of CW Construction. Subsequently, in March 1985, CW Construction was placed in liquidation by order of the Supreme Court of South Australia. 12 An issue then arose as to whether a particular Poclain Excavator was the property of CW Construction, and so subject to the debenture to Citicorp. On 2 May 1985, the applicants commenced proceedings in the Supreme Court of South Australia in Action 1481/1985 against the respondent for a declaration that the excavator was the property of CW Constructions, and for an order restraining the respondent from dealing with it. On 24 May 1985 an interlocutory injunction was made against the respondent restraining him from dealing with the excavator. That interlocutory injunction was made upon the undertaking of the applicants as to damages given in the usual form. Ultimately, the proceedings by the applicants were discontinued on 4 February 1993 before they had proceeded to judgment. 13 In the meantime, the respondent had been declared bankrupt on a petition of the Australian Taxation Office on 4 June 1992. He was discharged from bankruptcy by operation of law on 20 June 1995. 14 Following his discharge from bankruptcy, on 4 April 1997 in the same Supreme Court proceeding 1481/1985, the respondent commenced proceedings against the applicants seeking an inquiry as to the damages he had suffered by reason of the injunction against him in force between 24 May 1985 and 4 February 1993. He was relying upon the undertaking as to damages. On 28 February 2003, that application was dismissed with costs. It is not presently necessary to refer to the reasons for that decision. The decision of the trial judge (Olsson AJ) was upheld on appeal by the Full Court of the Supreme Court of South Australia on 17 September 2004. On 17 June 2005, the High Court refused the respondent special leave to appeal from the decision. 15 The applicants on 3 March 2005 then sought an order for a lump sum for costs for having successfully defended the claim against them in Supreme Court Action 1481/1985 based upon the undertaking as to damages. They claimed that an appropriate lump sum order for costs was $1.1 million. After negotiation, on 28 July 2005 an order by consent was made fixing those costs in their favour at $500,000. That was the debt which was the basis of the bankruptcy notice. It is still unpaid. It is also the debt on which the petition is based. 16 The respondent now alleges that the costs order should be set aside. As I understand his contentions, he claims that it was procured in circumstances where the applicants failed to disclose material relating to the sale or asserted sale of Citicorp Australia Ltd to Consolidated Press Property Pty Limited in 1997, in circumstances where they are obliged to disclose that material, and that, had it been disclosed to the respondent, he would not have consented to the costs order and the costs order would not have been made. He therefore contends that he may apply to set aside the costs order. In essence, as I understand it, he claims that the first-named applicant was but a nominal plaintiff, and that in reality it did not have the entitlement to seek the costs order at all because of internal re-arrangement of assets within the Consolidated Press group. 17 For the purposes of the adjournment application, at present I am prepared to assume that the respondent has a genuine and arguable case to have the costs order set aside by appropriate proceedings in the Supreme Court of South Australia. However, even on that assumption, in the exercise of my discretion I determine not to adjourn the hearing of the petition for the following reasons. 18 The respondent has not yet commenced any proceedings to set aside the costs order. On his own evidence, he was aware of the sale of Citicorp to Consolidated Press at least by September 2006 if not earlier. Despite that, he did not then bring proceedings to set aside the consent order. In Cirillo [2007] FCA 139 Finn J remarked at [8] that the respondent had "steadfastly refused to entertain the prospect of an application to set aside the costs order." Only belatedly, on 21 March 2007, did the applicant commence proceedings in the Supreme Court of South Australia for pre-action discovery under r 32 of the Supreme Court Rules to seek an order for the production of further documents to determine whether there was a proper basis for him to commence such proceedings. If, as the form of that application suggests, the respondent presently does not have a sufficient basis to apply to set aside the costs order, he could and should in any event have commenced an action for pre-action discovery much earlier than the present time. 19 The potential delay to the applicants may be quite significant. They have been entitled to the benefits of the costs order (at least subject to the possibility of any application to set it aside) since mid-2005. They have taken appropriate and normal steps to enforce the costs order. The pre-action discovery proceedings, even if pursued efficiently, will take some time to resolve. If they are unsuccessful, the respondent will be in no better position than he is now. If they are successful and an order for pre-action discovery is given, that may not in fact lead to the discovery of any further documents in any event, or it may lead to the discovery of documents which do not advance the prospects of the respondent bringing proceedings to set aside the costs order. Even if he does bring such proceedings, obviously the time within which he will be able to do so and bring those proceedings to fruition will be quite lengthy. It is likely to be in excess of a period of 12 months before final resolution of such proceedings, if they are brought, by which time the petition itself will have lapsed. The potential prejudice to the applicants is self-evident. It is a prejudice which more prompt action and more focused action by the respondent could have substantially reduced. 20 In addition, the conduct of the respondent to date does not indicate that he has chosen to focus his putative attack on the costs order in a sensible way. The applicants have had to confront the application to set aside the bankruptcy notice, apparently on the basis of allegations the same as or very similar to those which are the essence of the presently asserted reason not to make the sequestration order. As noted above, despite that, the respondent declined to that time to seek to set aside the consent order or, as apparently is now more appropriate in his view, to seek pre-action discovery before determining whether he has a proper foundation to do so. The applicants have also had to confront a claim in this Court by the respondent for procuring the costs order by failing to disclose certain documents which (it was alleged) was in breach of s 52 of the Trade Practices Act 1975 (Cth) and gave rise to a claim for damages under s 82 of that Act and in tort. It was claimed that the quantum of that claim gave rise to a set-off sufficient to defeat the costs order. That claim was dismissed by Finn J on 7 February 2007: Cirillo v Consolidated Press Property Pty Ltd (Formerly known as Citicorp Australia Limited) [2007] FCA 60. 21 On the other hand, if a sound foundation for the claim to set aside the costs order can be shown to exist, there is no reason why the trustee of the respondent's estate could not bring that action if the trustee considered those proceedings to be appropriate. Neither counsel for the applicants nor counsel for the respondent contended that such proceedings would not be within the capacity of the trustee, properly advised. Those considerations are of course relevant to whether to grant the adjournment which was sought. See Zollo [2000] FCA 972. 22 I therefore reached the view that I should decline the adjournment sought even assuming that the respondent had a genuine and arguable case that the costs order might be set aside. Without deciding that question, in addition, I think that this is one matter where I can also put into the scales the apparent strength or otherwise of that genuine and arguable case. I can make such an assessment in the present circumstances because that is the assessment of the respondent himself. In his affidavit, he discloses that he requires pre-action discovery to "determine whether I have any cause of action against [the applicants] to set aside the costs agreement". In addition, given the lengthy procedural history, there is a real risk that any subsequent application by the respondent to set aside the costs order will be met with the claim that he should have raised all the matters he wished to raise in that regard in his claim for damages against the applicants in the proceedings which were determined on 7 February 2007 adversely to him, that is the decision of Finn J referred to above: Cirillo [2007] FCA 60. See for example Chamberlain v Commissioner of Taxation (1991) 28 FCR 21. I note further that there has been no appeal from the decision of the Supreme Court of South Australia given in matter 1481/1985 on 28 February 2003 dismissing the respondent's claim for an inquiry as to the loss he had suffered by reason of the injunction, nor any appeal from the costs order which followed it. The only issue therefore which the respondent seeks to revisit is the amount of those costs. Those costs in any view would be very substantial as the proceeding was dismissed only following a lengthy trial. There would therefore be a substantial costs liability on the part of the respondent in any event. 23 Accordingly, where I take into account on the adjournment application the prospect of the respondent setting aside the costs order, and the consequences of him doing so, those additional considerations would also tend in the present circumstances to support the conclusion which I have reached in any event that the adjournment application should be refused. 24 The evidence in support of the making of the sequestration order with respect to the respondent's estate was quite straightforward. There was no cogent evidence to establish that that order should not be made. Counsel for the respondent acknowledged that there would have to have been further evidence to even get to the point of making up any sort of case on that score. For the reasons which I have given, on the material presently before me, I do not consider that the respondent has made out any other reason existing for not making the sequestration order. 25 I accordingly made a sequestration order in respect of his estate. Finally, as noted above, the respondent sought a stay of the sequestration order for 21 days under s 53(3) of the Act. That, of course, is the maximum period of a stay which can be made. Nothing was put to indicate that a stay for that period would have any particular benefit to the respondent. I accordingly declined that application. 26 As I indicated at the time of my brief oral reasons given on 23 March 2007, I extend the time within which any appeal from the making of the sequestration order should run to the date of the publication of these reasons, namely 18 April 2007. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.