Peter Sheldon v Steven John Scerri [2011] NSWSC 253 | Case summary

The rules 15The relevant rules are rules 37.2 and 37.3 of the Uniform Civil Procedure Rules 2005 (UCPR). They are as follows: "37.2 Application for instalment order by judgment debtor (1) A judgment debtor may apply to the court for an instalment order with respect to the amount owing under the judgment debt. (2) Such an application: (a) may be made whether or not some other instalment order is in force in relation to the judgment debt, and (b) must be supported by an affidavit as to the judgment debtor's financial circumstances, and (c) must be dealt with as soon as practicable after it is made. (3) An application under this rule: (a) except as provided by paragraph (b), is to be dealt with by the registrar under rule 37.3, or (b) if it is made during a hearing before the court, is to be dealt with by the court under rule 37.4. (4) Notice of motion of an application under this rule does not have to be filed or served if the application is made during the hearing at which the judgment debtor is being examined pursuant to an order for examination. (5) An application under this rule may be made not only to the court in which judgment was entered but also, in the case of a judgment entered in a Local Court, to any other Local Court by which an examination is being conducted as referred to in rule 38.5 (2). 37.3 Instalment order made by registrar (1) The registrar may deal with an application for an instalment order: (a)by making an instalment order in relation to the amount owing under the judgment debt, or (b)by making an order refusing the application. (2) As soon as practicable after making an instalment order under this rule, the registrar: (a)must give notice of the order to the judgment creditor and the judgment debtor, and (b)must also give to the judgment creditor a copy of the affidavit referred to in rule 37.2 (2) (b). (3) Either party may file an objection to an order made under subrule (1) (a) or (b) at any time within 14 days after the order is made." 16These rules do not specify any matters that the Court should take into account either in deciding to make an instalment order or deciding to rescind or vary one. 17The determination of whether or not the instalment order should be granted, rescinded or whether some other instalment order should be made is a hearing de novo. It is not an appeal from the decision of a Registrar. Since the Registrar made his decision the defendants have filed additional evidence and produced documents in answer to a notice to produce. Mr Scerri was cross examined during the hearing of this motion. The approach I will take is firstly to consider the evidence afresh, together with the new evidence and then exercise my discretion, without regard to a presumption in favour of the correctness of the order made by the Registrar. 18The parties referred to Chint Australia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1054 and Hellier Capital Pty Limited v Richard Albarran [2009] NSWSC 403. 19In Chint Australasia v Cosmoluce, Einstein J reviewed the rules and law in relation to whether a judgment debtor should be permitted to pay the judgment debt by instalments. Among the circumstances to which his Honour referred as bearing on the exercise of the discretion were that "a party having succeeded in obtaining substantial success in major commercial litigation is obviously entitled to the fruits of its success"; that "some particularly special circumstances would have to be shown to deny a party to major commercial litigation, its entitlement to enforce a court order"; and that "the fact that the losing party continues to run a substantial business ... cannot per se, affect the prima facie entitlement of the winning party to enforce the Court's order". 20In Chint Australasia v Cosmoluce, the judgment debt was $5,000,333 plus interest. Cosmoluce had a gross annual income in 2007 of $30 million. It had net assets of $2,115 million. Cosmoluce had the benefit of an undertaking from Mr Tsagaris and Ms Tsagaris, his wife, to meet any shortfall in its ability to meet its judgment debt to Chint. 21Both Mr and Mrs Tsagaris were the registered proprietors of five properties and owned shares in 12 companies. Einstein J stated at [15]: "15 It is trite to observe that the principled exercise of the relevant discretion requires that the particular circumstances which obtain in relation to any application for leave to pay a judgment debt in instalments be determined upon the particular facts. However it seems to me fair to observe that: i. Substantial commercial litigation stands a far distance from the fraud summons world earlier referred to; ii. Companies are placed into liquidation regularly: often that circumstance arising from contested litigation; iii. Prima facie a party having succeeded in obtaining substantial success in major commercial litigation is obviously entitled to the fruits of its success; iv. The fact that the losing party continues to run a substantial business [and that the winning party has no such business] cannot per se, affect the prima facie entitlement of the winning party to enforce the Courts order; v. Some particularly special circumstance would have to be shown to deny a party to major commercial litigation, its entitlement to enforce a court order; vi. No such circumstances have been here demonstrated." 22In Hellier Capital Pty Limited v Richard Albarran, McDougall J in considering whether to rescind an instalment ordered stated at [19] - [21]: "19 There is one more factor to which regard must be paid. That was hinted at by Einstein J in Chint, when his Honour referred to the proposition that a successful party is entitled to the fruits of its success, and to enforce the court's orders. I accept that. Although his Honour framed the proposition in terms of "major commercial litigation" I do not think that the principle is so limited. There is a real public interest in enabling parties who have litigated their disputes to enforce the victory that they have achieved. That public interest arises, at least in part, because the system of adjudication through courts depends firstly on acceptance of the outcome (if necessary, after exhausting all available avenues of appeal) and, secondly, the ability to enforce the outcome. If the process of adjudication is to survive, so that people do not resort to self-help, the courts should be slow to interfere in the normal processes of enforcement. 20. Equally, however, there is a legitimate public interest in having trained people, who perform important work, remaining available to perform that work. It would be a loss to the community if Mr Albarran's services as an insolvency practitioner were not available to the community; particularly, although this is not a consideration of great significance, during what is often called the "global financial crisis". 20Equally, there is a significant public interest in the proper support of dependants by those who are, in the old-fashioned and somewhat paternalistic phrase, the breadwinner. Mr Albarran's unchallenged evidence is that the child of his previous marriage, the children of his present partner, and the child that he has had with that present partner, as well as that present partner, are all dependent on him for support. If he is prevented from earning his living (and the proper inference from his evidence is that the making of a bankruptcy order would prevent him from earning his living) then all those people will suffer." 23I respectfully adopt those comments made by McDougall J. 24Each case depends on its own facts. The judgments debtors in these current proceedings are not involved in large commercial transactions. I do not regard the circumstances referred by Einstein J in Chint Australasia v Cosmoluce as having particular significance to the facts of these proceedings. 25Essentially counsel for the plaintiff submitted that the defendants could pay all of the judgment debt if they chose to do so and they have not shown special circumstances as to why they should pay the judgment debt by instalments. Counsel for the plaintiff also submitted that Mr and Mrs Scerri do not wish to dip into their assets to pay the judgment debt, the plaintiff should be entitled to the fruits of his success, the defendants had not been candid with the disclosure of their assets and they had dragged out the costs assessment process. It is for these reasons the plaintiff submitted that the Court should not exercise its discretion in the defendants favour and the instalment order should be rescinded. 26It is common ground that the defendants have paid the sum of $97,500. In addition to the lump sum of $70,000, they have paid an additional sum of $20,000. All monthly instalments have been paid to date. There is the sum of $48,500 owing (excluding interest). Under the current payment regime it will take the defendants about 20 months to finalise the judgment debt. 27The plaintiff's counsel made reference to AAMC Warehousing & Transport Pty Ltd v Fairfax Media Publications Pty Ltd [2009] NSWSC 970; and Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955 as authority for the proposition that party when seeking exparte relief assumes an obligation of utmost candour with the Court. 28Counsel for the plaintiff submitted that the defendants omitted to disclose their incomes of $80,000 per year both in their application to the Registrar and in their affidavits. From documents produced pursuant to the notice to produce, the defendants' amended 2010 tax returns show that they received $160,000 of income, that is $80,000 each. From this income each defendant paid $16,150 tax. That left each defendant with a nett income of $63,850. That equates approximately $1228 nett per week each or $2456 nett for both defendants. While these amounts were not disclosed in the defendants' affidavits, they had disclosed an average weekly salary of $2,828 in the financial statement that was considered by the Registrar when the instalment order was made. The estimate of income recorded in the financial statement was higher than their actual income. 29I agree that the defendants availed themselves to having Mr Sheldon's legal costs assessed and then seeking a review of the Costs Assessor's decision. There was little reduction made to the assessed costs with the Scerris being ordered to pay costs of the assessment process. I also accept that Mr Sheldon has expended the sum of $53,653.84 in legal costs enforcing the payment of this judgment debt and contesting this instalment order. 30It was submitted that the Scerris, in obtaining the instalment order and securing a stay of execution of the writ against their real property, had the $590,000 equity line of credit borrowed from the ANZ Bank and secured by the mortgage over their home. Despite this, according to the plaintiff, they did not disclose that, as at 23 November 2011, the balance owing to the Bank was $497,123.22, thus enabling them to have immediately drawn over $90,000 to pay Mr Sheldon at that time. 31The plaintiff's counsel further submitted that Mr Scerri also failed to disclose the $25,000 received from the sale of his boat, nor did he disclose the $115,000 received from the sale of the "Supafest" share sale agreement (Ex B) in their application made to the Registrar. I accept that these assets were not disclosed in that application. However, they have been referred to in Mr Scerri's affidavit. Mr Scerri's evidence is that he obtained the sum of $90,000, which has been paid to the judgment creditor, from the sale of his boat and other personal items as well as an income producing asset and trademark known as Supafest Pty Limited and the Supafest trademark (Ex 1). He said that amount represented the nett amount he received from the sale of those assets after setting aside an amount for income tax and other expenses payable on the sale. I accept that he put $92,500 from the proceedings of those sales towards paying off the judgment debt. 32The only other asset the defendants have, which they could sell so as to fully discharge the judgment debt immediately, is the family home. This property was built in 1884 and is a landmark property in the Wynnum/Manly area. It is of great sentimental value to both defendants and their two children aged 18 and 20. They have lived in the home for the last 16 years. During that time they have expended considerable funds renovating it, however, they have been unable to complete the renovation. If they are forced to sell the property, they would obtain considerably less for it than if the renovations had been completed. They own a motor vehicle but that is not of much commercial value. 33The judgment debtors have tried to borrow $100,000 to cover the amount and interest still owing on the judgment debt. On 24 September 2010, the defendants made an application for finance in the sum of $100,000 from the ANZ Bank. After the defendants provided further information on 8 March 2011, the Bank advised that their application was unsuccessful (Exhibit 1). 34Mr Scerri was cross examined about his ability to transfer from funds Emedia Pty Ltd a company of which he is a director. As at 30 November 2010, Emedia's bank account records revealed a balance of $127,957.96. Of this at least $30,000 was being held on behalf of the promoter of a John Farnham concert and $55,000 to $60,000 was required as operating costs. Counsel for the defendant submitted that the defendant could borrow money from Emedia. This is, in my view, unrealistic. Mr Scerri needs to run his business in order to be able to earn an income. In order to earn an income, Emedia needs to have operating funds. Mr Scerri also needs funds to be available to operate the business from the line of credit referred to earlier in this judgment. Aside from those funds, the family needs to earn $2000 per week to provide for basic living expenses, such as food, household supplies, utilities and mortgage repayments. 35At the conclusion of submissions, counsel for the plaintiff suggested that the instalments should be varied to order that the defendants pay three instalments of $17,500 with each payment being made in 45, 60 or 90 days. It is my view that the defendants do not have the funds to make these payments. They would need to borrow money. They have already tried to obtain additional funds from the ANZ Bank but were unsuccessful. However, as I previously stated, if the current instalment arrangement is adhered to, it will take 20 months to pay off the judgment debt. 36The Scerris' situation is more akin to that of Mr Albarran in Hellier Capital v Richard Albarran. 37I am satisfied that in order for Mr Scerri to pay the judgment debt, he has to continue his employment and to do so he needs some funds to operate his business. The only way the Scerris' could pay more is by selling the family home. This is a drastic step, as his family will be forced to move and obtain rental accommodation. It is possible that a partially renovated property of the kind described would take some time to sell. Under the current payment regime the remainder of the judgment debt will not remain outstanding for an unconscionable period of time. After taking all of these matters into account, I am of the view that the order sought for rescission of the instalment order made on 23 November 2010 should not be granted. That is because, re-exercising the discretion anew myself, as I am required to do, I am persuaded that the instalment order is in all the circumstances of this case appropriate. 38The result is that the plaintiff's notice of motion filed 30 November 2010 is dismissed. Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendants' costs as agreed or assessed.

Peter Sheldon v Steven John Scerri

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