Horvath v Pattison

REASONS FOR JUDGMENT 1 Gabor Horvath and his wife Agota Horvath, each of them a bankrupt, apply ex parte for leave to bring an application to annul their respective bankruptcies under s 153B of the Bankruptcy Act 1966 (Cth) and, in the alternative, to review the decision of their trustee in bankruptcy, Mr Paul A Pattison, to admit a proof of debt lodged by the Commonwealth Bank of Australia ("the Bank"). 2 Mr and Mrs Horvath ask for leave in consequence of an order made by Weinberg J on 27 April 1999. On that day, on the application of Mr Pattison and the Bank, his Honour ordered that Mr and Mrs Horvath "shall not, without the leave of the Court, institute in [the] Court any proceedings against Mr Paul A Pattison, their trustee in bankruptcy, or against the Commonwealth Bank of Australia" other than an appeal against that order. 3 The order was made in reliance upon O 21 r 2 of the Federal Court Rules which provides: "Where any person (in this rule called the vexatious litigant) habitually and persistently and without any reasonable ground institutes a vexatious proceeding against any person (in this rule called the person aggrieved) in the Court, the Court may, on application by the person aggrieved, order that the vexatious litigant shall not, without leave of the Court, institute any proceeding against the person aggrieved in the Court and that any proceeding instituted by the vexatious litigant against the person aggrieved in the Court before the making of the order shall not be continued by him without leave of the Court." 4 The reasons for making the order can be briefly stated, but for those interested in the details I refer you to the reasons for decision delivered by Weinberg J. In 1987 Mr and Mrs Horvath and their son, then a minor, borrowed money from the Bank to purchase a property. A mortgage was granted over the property to secure the repayment of the debt. Default was made in the payment of the debt and the Bank recovered a judgment against Mr and Mrs Horvath and their son for possession of the property and the balance of the debt. That judgment was obtained in the Supreme Court of Victoria. Many unsuccessful attempts were made to set aside the judgment obtained against Mr and Mrs Horvath, including an appeal to the Court of Appeal. 5 Then the Bank served bankruptcy notices on Mr and Mrs Horvath. Applications to set aside those notices were dismissed. A petition was presented to sequestrate the estates of Mr and Mrs Horvath. That petition was unsuccessfully defended and an appeal against the sequestration order failed. Other attempts were made to have the bankruptcy order reversed, again without success. One such application came on before Weinberg J. He described it as an attempt to set aside or annul the sequestration order, although in form the application sought different relief. 6 Mr and Mrs Horvath have for a long time contended that they were not indebted to the Bank in the amount claimed by it. They say that the mortgage that purported to secure the debt was a forgery. They also rely on the fact that at the time the loan was made their son - one of the borrowers - was an infant. These were the grounds that were relied upon to have the bankruptcy notices set aside and the petition dismissed. As the reasons for the judgment of Weinberg J indicate, the contention that Mr and Mrs Horvath were not indebted to the Bank is without foundation. 7 The application that Mr and Mrs Horvath now seek leave to commence is yet another attempt by them to establish that they did not owe the Bank the amount of the judgment debt recovered against them. It is for this reason that they seek an annulment of their bankruptcies and an order reversing the decision of the trustee to admit the Bank's proof of debt. However, Mr and Mrs Horvath also seek to contend that the proof was admitted for an excessive amount. 8 The evidence shows that the Bank had obtained a judgment against Mr and Mrs Horvath in the sum of $338,816.93 plus costs. In the schedule to the petition upon which the bankruptcy orders were made, the Bank stated that it held security for the debt, (the mortgaged property) and that the value of that property was approximately $210,000. The proof of debt that was lodged with the trustee specified the amount of the debt as $482,780.61 which was comprised of the amount of the judgment, interest in the sum of $88,099.58 and costs which were said to total $55,864.10. The trustee admitted the claim in the amount of $426,916.51. This was the sum of the judgment debt and interest. The trustee did not admit the amount claimed for costs because those costs had not been taxed. 9 It is not necessary to decide whether the trustee was correct in rejecting the claim for costs or whether he should have estimated the amount of that claim and allowed the proof in accordance with his estimate. However, it does seem unusual that the trustee admitted the Bank's claim for the judgment debt and interest when, on the Bank's own admission, it holds a security to the value of approximately $210,000. 10 From what I have said thus far, it is apparent that if Mr and Mrs Horvath proceed with their proposed application for annulment or their application to review the decision of the trustee to admit the proof of debt on the ground that no debt is owed to the Bank, that application is doomed to failure. I leave out of account the fact that the application to review the decision of the trustee is out of time: see s 104(3) which requires the application to be made within 21 days of the decision, unless the Court grants an extension of time. The application would fail on the merits for the reasons given by Weinberg J. 11 However, it is by no means clear that the effect of the order made by Weinberg J stands as a barrier to Mr and Mrs Horvath bringing one aspect of their proposed application without leave. The Federal Court Rules O 21, r 2 permits the Court to make an order that a person shall not institute proceedings against an aggrieved person. That is the form of the order that was made by Weinberg J. It prevents Mr and Mrs Horvath commencing a proceeding against their trustee or against the Bank. 12 However, an application for annulment under s 153B is not an application against any person. In particular, it is not an application against the trustee or the Bank for it seeks no relief against either of those persons. It is true that the form in which Mr and Mrs Horvath have prepared their proposed application names those persons as respondents. However, generally speaking, in my view an application for an annulment is an ex parte application which pursuant to the rules of the Court must be served on the trustee: see O 77, r 42. It may be that in some circumstances the petitioning creditor should be named as a respondent: see In Re Hastie (No 2) (1926) NZLR 829. 13 The position seems to be different in the case of an appeal against a trustee's decision to admit a proof of debt. Although I have not had the opportunity to investigate this matter in any detail, I assume that in such an application the trustee is a "party litigant" as is a liquidator of a company on an application to review his decision to admit a proof of debt: see Tanning Research Laboratories Inc v O'Brien (1990) 1 ACSR 510 at 515 per Brennan and Dawson JJ. 14 Although the order of Weinberg J does not appear to operate so as to prevent Mr and Mrs Horvath bringing their application for annulment, if I had the power to do so, I would make an order that would prevent them making that application on the basis that to do so would be an abuse of process. 15 In Commonwealth Trading Bank v Inglis (1974) 131 CLR 311, the High Court held that a court has no inherent jurisdiction to restrain a person from commencing a new proceeding without the leave of the court. It could only do so if there were appropriate legislation or rules of court permitting such an order to be made. Of course, it was accepted by the High Court that a court does have inherent power to prevent an abuse of process in pending proceedings. There are a number of examples where that power has been exercised by the making of an order preventing a party instituting an interlocutory application of one type or another without the leave of the court. 16 In Grepe v Loam [1888] 37 ChD 168, after judgment in an action had been given, the court restrained the making of applications to have the judgment set aside or orders inconsistent with the judgment. It was considered that those applications were made "in the action" although after judgment. 17 In my opinion, the proposed application to annul the bankruptcy is, by parity of reasoning, an application in the bankruptcy proceeding and in my view the court has an inherent power to restrain it. Further, I am of the view that that power should be exercised in this case. 18 The position with regard to the proposed application to review the decision of the trustee to admit the Bank's proof of debt, stands on a different basis. Here Mr and Mrs Horvath should not be given leave to review the decision of the trustee generally. If they were given leave generally they would be able to again raise the ground that they are not indebted to the Bank. However, I would grant them leave to apply for an order to extend the time for making an application to review the decision of the trustee, limited to the ground that the trustee should have deducted from the amount of the debt claimed in the proof the value of the security held by the Bank. If an extension of time is granted then I would be disposed to grant leave to permit the application for the review of the decision on that ground alone. 19 Accordingly, the orders that I propose to make are as follows: 1. Order that Mr and Mrs Horvath do not institute an application for an order to annul their bankruptcies upon the ground that the Commonwealth Bank of Australia was not entitled to present the petition upon which the sequestration order was made. 2. Grant to Mr and Mrs Horvath leave to make an application under s 104(3) of the Bankruptcy Act 1966 (Cth) for extending the time within which to make an application under s 104(1) to review the decision of the trustee to admit the Commonwealth Bank of Australia's proof of debt in the sum of $426,916.51, limited to the ground that the trustee should have deducted from the amount of the debt the value of any security held by that bank. 3. Otherwise, the application is to stand dismissed. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.