Khattar v Hills Shoppingtown Pty Ltd

Bankruptcy and other submissions

The sixth form of enforcement was the service of a bankruptcy notice on Ms Fayad. For reasons which I will set out, a creditor's petition consequent upon failure to comply with that bankruptcy notice was never issued, and therefore no sequestration order was sought. Mr Notley's opposition to the appointment of a receiver primarily rested on this failure to pursue Ms Fayad to bankruptcy.
In an affidavit sworn by Ms Fayad on 1 October 2024, she recorded: "7. On 6 September 2024, her Honour Justice Adams of this honourable Court entered judgment against me for the sum of $24,405,424.43 in favour of the Deputy Commissioner of Taxation. 8. My financial position is fragile. I wish to resolve my taxation debt in my proceeding before the Administrative Appeals Tribunal, which I am currently awaiting a hearing. 9. I intend to consult with an insolvency practitioner within the next seven days."
Arising from that evidence, there was no dispute that Ms Fayad does not appear to have taken any steps, notwithstanding her "fragile" financial position and her apparent intention to consult an insolvency practitioner, to present a debtor's petition with a view to taking advantage of the protection of bankruptcy for herself.
Insofar as the plaintiffs' failure to pursue Ms Fayad to bankruptcy, Mr Knowles SC put that there were two explanations.
First, as a result of the unsurprisingly numerous investigations that the plaintiffs have made in relation to Ms Fayad's and the other defendants' affairs, it had become apparent that those affairs involved complex corporate structures. Without any criticism of the bankruptcy system, the plaintiffs were of the view that those structures would likely be subject to a more rigorous forensic investigation by a receiver appointed on their application and, it must be said, for whom they were paying, than might occur in the context of a bankruptcy.
The second reason related to Ms Fayad's resolution recorded in her affidavit to resolve her tax debt in proceedings currently before what is now the Administrative Review Tribunal. These concern an assessment that had been issued for some $20 million. Mr Knowles SC's point was, and I accept, that if on whoever's petition Ms Fayad is made bankrupt, the pursuit of a review of that assessment in the Tribunal would come to an end.
While ultimately not dispositive, I record that Mr Notley's submissions, after referring to the failure to pursue the option of bankruptcy against Ms Fayad, also relied on the fact that some of Ms Fayad's assets that would be subject to the receivership were either quite small shares of a larger piece of property or were interests as a joint tenant or tenant in common in property belonging to the third defendant that were already under the control of his trustee in bankruptcy.
Finally, as a result of a colloquy between the bench and Mr Notley, this undertaking was proffered to the Court by Ms Fayad: The second defendant undertakes to the Court, if the Court does not grant the relief sought in prayers 3 to 5 of the plaintiffs' Amended Notice of Motion dated 29 November 2024, that the second defendant: 1 will not take any steps to avoid service of any bankruptcy notice issued pursuant to section 41 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) on the application of the plaintiffs with respect to the final judgment and/or final orders made and entered against the second defendant in these proceedings; 2 will accept service by email to her solicitor, James Pope of Pope & Spinks Solicitors, at "james@popespinkslaw.com.au" of any bankruptcy notice issued pursuant to section 41 of the Bankruptcy Act on the application of the plaintiffs with respect to the final judgment and/or final orders made and entered against the second defendant in these proceedings; 3 will not take steps to set aside any bankruptcy notice issued and served pursuant to paragraphs 1 and 2 above; 4 will not take any steps to avoid service of any creditor's petition filed by the plaintiffs with respect to any bankruptcy notice issued and served pursuant to paragraphs 1 and 2 above; 5 will accept service by email to her solicitor, James Pope of Pope & Spinks Solicitors, at "james@popespinkslaw.com.au" of any creditor's petition filed by the plaintiffs with respect to any bankruptcy notice issued and served pursuant to paragraphs 1 and 2 above; and 6 will not take any steps to oppose the making of a sequestration order against her under section 43 of the Bankruptcy Act at any hearing of any creditor's petition filed by the plaintiffs with respect to any bankruptcy notice issued and served pursuant to paragraphs 1 and 2 above.

Consideration

There was no dispute as to the legal principles applicable to equitable execution of the Court's judgments. An oft-cited statement of those principles is found in the decision of Ball J (as his Honour then was) in Hall v Foster [2012] NSWSC 974: 16 Finally, the Court has an inherent equitable jurisdiction to enforce judgments, which is often referred to as "equitable execution". As Bryson J explained in DM & BP Wiskich Pty Ltd v Joseph Saadi (Supreme Court of NSW, Bryson J, 16 February 1996, unreported) at pp 4-5: Before the Judicature reforms equitable remedies were from time to time given to enable judgments to be enforced in circumstances where the remedies available under the common law were inadequate. In the complex and technical history of the law relating to execution, a number of valuable interests could not be the subject of execution under common law process. Many of the difficulties were overcome by legislation ... However equitable execution continues to be possible, and while quite uncommon, from time to time orders are made appropriating funds in Court or otherwise under the control of the Court to the satisfaction of judgments without the intervention of any writ for levy of property or other formal execution process. 17 This inherent jurisdiction includes a power to appoint a receiver. As Waddell J said in Corporate Affairs Commission v Smithson [1984] 3 NSWLR 547 at 552: [R]eceivers may be appointed ... under the inherent jurisdiction, for the purpose of equitable execution where the appointment may be made to enable a judgment creditor to obtain payment out of property which cannot be reached by legal execution. 18 It is unclear whether the inherent power to appoint a receiver should be seen as being embodied in s 67 of the Supreme Court Act 1970 (NSW) or whether s 67 should be seen as conferring an additional power. That section provides: The Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 19 In DM and BP Wiskich, Bryson J appears to have regarded the power to appoint a receiver for the purposes of equitable execution as being governed by s 67: at p 5. However, in my opinion, s 67 should be seen as conferring a separate power. The wording of s 67 suggests that it is concerned with the interim preservation of the subject matter of the litigation pending a final resolution of the proceedings, not with the appointment of a receiver as a final order to give effect to a judgment that has been delivered. A Court should only grant equitable execution where the legal remedies available are inadequate.
The parties focused their attention, as is common in applications of this kind, on the last sentence of his Honour's judgment which I have just quoted: "A court should only grant equitable execution where the legal remedies available are inadequate".
Without suggesting that his Honour's expression is to be given statutory force, as I have already noted, it is frequently relied upon. The present case invites consideration of what is meant by "inadequate" in his Honour's summary.
The Macquarie Online Dictionary defines "inadequate" to mean "not adequate". It is therefore necessary to turn to the definition of "adequate", which includes "Equal to the requirement or occasion, fairly sufficient, suitable or fit". This means that in determining an application to appoint a receiver in aid of execution, the Court must consider whether the legal remedies available are not fairly sufficient, suitable or fit. To do this involves an assessment of the particular facts.
Moreover, in my respectful opinion, it does not mean that all legal means must have been exhausted such that a judgment creditor must, as it were, tick all the legal enforcement "boxes", including bankruptcy, before the Court will grant equitable execution. To take that approach would be inimical to the traditionally flexible nature of equitable remedies in ameliorating any inadequacy or injustice in the particular case of the application of the remedies available at law.
In this case, there are three reasons why the Court will accede to the plaintiffs' application.
First, the legal remedy of bankruptcy is not suitable or fit in the facts of this case. This is because I accept Mr Knowles SC's submission that the bankruptcy of Ms Fayad will almost certainly bring her challenge to her tax assessment to an end. Even without evidence as to the merits of her challenge, the Court is satisfied that will deprive the plaintiffs of any possibility that any pool of funds available to unsecured creditors may be increased by diminution of the liability to the ATO.
Second, I accept Mr Knowles SC's submission that the reason to which I have just referred overcomes what might otherwise be the persuasive value of the undertaking.
Third, as a matter of discretion, the Court is not prepared to give the option of bankruptcy the weight for which Ms Fayad contends. This is because despite her "fragile" financial position and her indication of seeking insolvency advice within seven days of 1 October 2024, Ms Fayad has not presented a debtor's petition and is continuing to challenge her assessment in the Tribunal. I respectfully agree with Mr Knowles SC's characterisation that it lies ill in the mouth of Ms Fayad to suggest that the plaintiffs should be thwarted in their application for a receiver by not having pursued bankruptcy in circumstances where it appears she herself has not taken any action in that regard, or put on any evidence about the outcome of her consultations, if there were any, with an insolvency practitioner.
Finally, for completeness in dealing with Mr Notley's submissions, I record that the Court is not satisfied that the fact that some parts of the assets the subject of the proposed receivership are already under the control of the third defendant's trustee in bankruptcy is a sufficient reason not to appoint the receiver. Separate controllers of the interests of joint tenants or tenants in common is a phenomenon with which the Court and experienced insolvency practitioners are well familiar. No particular problem beyond the fact of the joint ownership has been identified. To the extent such ownership could be described in and of itself as a problem (a proposition with which I disagree), it is not sufficient to militate against the appointment of a receiver.

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (1)