Scott (Trustee), in the matter of de Varda (Bankrupt) v de Varda

JUDGE: FLICK J DATE OF ORDER: 18 MARCH 2015 WHERE MADE: SYDNEY

1. Mr Joseph de Varda is to file a statement of affairs in accordance with s 54 of the Bankruptcy Act 1966 (Cth) on or before 3 April 2015.
2. Mr Samuel Tov-Lev is to file a statement of affairs in accordance with s 54 of the Bankruptcy Act 1966 (Cth) on or before 3 April 2015. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1062 of 2014

IN THE MATTER OF THE BANKRUPT ESTATES OF JOSEPH DE VARDA AND DR SAMUEL TOV-LEV BETWEEN: ANDREW JOHN SCOTT, AS TRUSTEE OF THE PROPERTY OF DR SAMUEL TOV-LEV AND JOSEPH DE VARDA, BANKRUPTS

JUDGE: FLICK J DATE: 18 MARCH 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 23 February 2015 a Registrar of this Court sought to conduct a bankruptcy examination pursuant to s 81 of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act") in respect to the bankrupt estates of Mr Joseph de Varda and Mr Samuel Tov-Lev. 2 But both Mr de Varda and Mr Tov-Lev refused to be examined. They accepted that sequestration orders had been made. Nevertheless, they claimed that they were not in fact "bankrupt" and, accordingly, not susceptible to any power of examination. 3 The matter was referred by the Registrar to the Court as presently constituted as a duty matter. On the following day, on 24 February 2015, the trustee in bankruptcy indicated that the only order sought was an order pursuant to s 30(1)(b) of the Bankruptcy Act compelling both Mr de Varda and Mr Tov-Lev to file a Statement of Affairs within 7 days. No order was sought adjudging Mr de Varda and/or Mr Tov-Lev of any contempt that may have occurred. 4 Although there was no self-evident reason why a conclusion should not be reached that both Mr de Varda and Mr Tov-Lev were in fact "bankrupt", questions quickly emerged during a directions hearing as to whether or not the bases upon which they sought to contend that they were not "bankrupt" involved any inquiry into factual matters and (if so) whether any such inquiry would be now permitted by reason of those matters having already been previously judicially resolved. Notwithstanding considerable reservation as to whether either Mr de Varda or Mr Tov-Lev had any legal or factual basis to refuse examination - or to resist the requirement that they each file a Statement of Affairs in accordance with s 54 of the Bankruptcy Act - directions were made to ensure that all such material as they wished to rely upon was available to the Court. 5 The hearing proceeded on 9 March 2015. Mr Tov-Lev and Mr de Varda appeared for themselves. Each disputed that they had been served with the evidence upon which the trustee sought to rely. Counsel for the trustee adduced evidence of service. The fact of service is accepted. 6 The orders as sought by the trustee should be made. 7 In order to resist both examination before the Registrar on 23 February 2015 and the order the trustee now seeks, both Mr Tov-Lev and Mr de Varda claim that they are not "bankrupt". That claim is apparently founded - at least in part - upon their own definition of "bankruptcy", namely a person who is not able to pay his debts. But that is not the statutory definition. Mr Tov-Lev and Mr de Varda advanced a further series of arguments as to why this Court should set aside the sequestration orders. 8 It is concluded that both Mr Tov-Lev and Mr de Varda are "bankrupt" persons. It is further concluded that the orders the trustee seeks should be made in accordance with either s 30(1)(b) or s 30(5) of the Bankruptcy Act.

A bankrupt person - a statement of affairs and examinations 9 The provisions of the Bankruptcy Act of immediate relevance to the present proceeding are within a limited compass. They should nevertheless be set forth in the hope that they may provide some assistance, especially to Mr de Varda and Mr Tov-Lev. 10 Section 5 of the Bankruptcy Act defines a "bankrupt" as a person "against whose estate a sequestration order has been made" or a person "who has become a bankrupt by virtue of the presentation of a debtor's petition". 11 The Bankruptcy Act thereafter sets forth (inter alia) the duties imposed upon a trustee of a bankrupt estate and the duties imposed upon a "bankrupt" person. 12 Relevantly, for present purposes, s 19(1) sets forth the duties of a trustee in bankruptcy as follows: The duties of the trustee of the estate of a bankrupt include the following: (a) notifying the bankrupt's creditors of the bankruptcy; (b) determining whether the estate includes property that can be realised to pay a dividend to creditors; (c) reporting to creditors within 3 months of the date of the bankruptcy on the likelihood of creditors receiving a dividend before the end of the bankruptcy; … (g) taking whatever action is practicable to try to ensure that the bankrupt discharges all of the bankrupt's duties under this Act; … (j) administering the estate as efficiently as possible by avoiding unnecessary expense; (k) exercising powers and performing functions in a commercially sound way. 13 And, again relevantly for present purposes, s 54 provides for the filing of a Statement of Affairs by the person against whom a sequestration order has been made. The policy behind s 54 has been explained as follows by Hill J in Nilant v Macchia [2000] FCA 1528, (2000) 104 FCR 238 at 245: [29] Given the penal nature of the obligation created by s 54, it is difficult to see that breach of the section, no matter how inadvertent, could be categorised as merely formal. The policy behind s 54 is clear. The obligation to file a statement of affairs in a public register is intended to make information concerning the bankrupt's affairs available to creditors and, for that matter, members of the public. The former may inspect without payment of a fee, the latter only on payment of a fee. But it is in the interests of the public in the encouragement of morality in trading that the financial situation of a bankrupt debtor be open to inspection. Because, ordinarily, the administration of the estate and ultimate distribution of dividends from the estate, will be dependent upon the trustee having full details of the trade dealings and debts of a debtor, the statement is to be made available as well to the trustee in bankruptcy … Section 54 does not, accordingly, "operate solely for the benefit of a petitioning creditor": de Robillard v Carver [2007] FCAFC 73 at [129], (2007) 159 FCR 38 at 61 per Buchanan J (Moore and Conti JJ agreeing). Questions may arise in the administration of a bankrupt estate as to whether a statement which has been filed is so "substantially incomplete" that it does not comply with the requirements of s 54: e.g., Vince v Sopikiotis [2012] FCA 573. It would obviously "not satisfy s 54(1) for a bankrupt to seek to file a blank statement of affairs in the form approved": Wangman v Official Receiver [2006] FCA 202 at [47] per Collier J. Questions may also arise as to the steps to be taken by a bankrupt in order to "file" a statement: e.g., Lelleton v White [2009] FCA 1165. But there can be no question that s 54 imposes upon the bankrupt the obligation to file a statement in accordance with that section: Sofia v Pattison (unreported, Federal Court of Australia, Finkelstein J, 20 October 1997). 14 To facilitate the proper administration of a bankrupt estate, s 81 provides for the examination of a bankrupt as follows: (1) Where a person (in this section called the relevant person) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of: (a) a person (in this section called a creditor) who has or had a debt provable in the bankruptcy; (b) the trustee of the relevant person's estate; or (c) the Official Receiver; summon the relevant person, or an examinable person in relation to the relevant person, for examination in relation to the bankruptcy. … (4) The Registrar or a magistrate may at any time adjourn the examination of a person under this section for further hearing before the Court. …. (6) Where the examination is adjourned for further hearing before the Court, the Court may: (a) continue the examination; (b) at any time direct that the examination be continued before the Registrar or a magistrate; or (c) make such other order as it thinks proper in the circumstances. … (10) The Court, the Registrar or the magistrate may put, or allow to be put, to a person being examined under this section such questions about the relevant person or any of the relevant person's examinable affairs as the Court, the Registrar or the magistrate, as the case may be, thinks appropriate. … (11) A person being examined under this section shall answer all questions that the Court, the Registrar or the magistrate puts or allows to be put to him or her. A refusal to answer a question may constitute contempt in the face of the Court. 15 Further to s 81(11), s 264C provides as follows: Refusal to be sworn or give evidence etc. (1) A person appearing before the Court, the Registrar or a magistrate for the purpose of being examined under this Act, or appearing as a witness before the Court, shall not: (a) refuse or fail to be sworn or to make an affirmation; (b) refuse or fail to answer a question which he or she is required to answer by the Court, the Registrar or the magistrate, as the case may be; or (c) refuse or fail to produce any books that he or she is required by the Court, the Registrar or the magistrate, as the case may be, or by a summons under this Act, to produce. Penalty: $1,000 or imprisonment for 6 months, or both. (1A) Subsection (1) does not apply if the person has a reasonable excuse. (2) Nothing in this section limits the power of the Court to punish persons for contempt of court, but a person shall not be punished under this section and for contempt of court in respect of the same act or omission. The Court, it should be noted, retains a separate power to punish a person for contempt despite the person having contravened the statutory offence created by s 264C: Nathan v Burness [2011] FCA 288, (2011) 193 FCR 360. 16 The powers conferred by s 81 are of fundamental importance. The power to compel an examination is properly described as an "extraordinary power": Re North Australian Territory Co (1890) 45 Ch D 87 at 93 per Bowen LJ. In that case it was said to be "an inquisitorial power, which may work with great severity against third persons" and a power which "ought to be used with the greatest care…". A ruling made under s 81(10) of the Bankruptcy Act is thus susceptible to judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth): Clark v Wood (1997) 78 FCR 356 at 357 per Finkelstein J. The Court also retains a more general power to prevent injustices arising from the use of its procedures: Hamilton v Oades (1989) 166 CLR 486 at 498 to 499 per Mason CJ. Although s 81 confers the power to conduct an examination, a Court will ensure that a bankruptcy examination neither degenerates into a "fishing" expedition nor is conducted for the pursuit of "an indirect purpose not connected with the bankruptcy": Re Hodder; Ex parte Cougle (1965) 7 FLR 436 at 437. 17 Although recognising that "the power given by s 81 of the Act is an unusual and far-reaching one", Foster, Woodward and Spender JJ in Karounos v Official Trustee (1988) 19 FCR 330 at 335 also considered that: … the power is exercised in the interests of creditors, and those interests should not be defeated by an unduly technical or restrictive approach to the use of the power. The procedure is basically designed to establish what assets the bankrupt had, what has happened to those assets, and whether action should be begun (or continued) to recover them … Their Honours also observed: If a person summoned believes that compliance with the summons would be oppressive or vexatious, he can apply to the court to have the summons set aside or adjourned to a more convenient time. Such an application to the court will usually be determined on a broad view of the issues in the particular case and a weighing of competing principles. See also: Equititrust Ltd v Equititrust Ltd [2014] FCA 692 at [57] per Foster J; O'Neill v Piscopo (No 3) [2012] FCA 1036 at [104] per Collier J.

The power to make the orders sought - s 30 18 Section 30(1) of the Bankruptcy Act provides as follows: The Court: (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter. Section 30(5) should also be noted. That sub-section provides as follows: Where: (a) a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or (b) a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector-General, under this Act; the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector-General, as the case requires: (c) order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or (d) if it thinks fit, make an immediate order for the committal to prison of that person. 19 Section 30(1), it has been said, "is a facultative provision giving the Court full power, within the limits of its jurisdiction to be found elsewhere, to make such orders as it considers should be made in order to carry out and give effect to the Act": Re Bilen; Ex parte Sistrom (unreported, Federal Court of Australia, Neaves J, 11 April 1985). His Honour there went on to state that the "words used are not words of limitation but of extension". Citing this decision with approval, Gray, Mansfield and McKerracher JJ in Talacko v Talacko [2010] FCAFC 54 at [18] to [19], (2010) 183 FCR 311 at 321 similarly observed that the "judicial power conferred is intended to assist in the exercise of jurisdiction in bankruptcy". See also: Verge, Re Underdown (a bankrupt) v Fazio [2013] FCA 18 at [21] per McKerracher J. It is a provision to be "generously construed": Vale v Sutherland [2009] HCA 26 at [19] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. But it "is not a source of power to override express provisions of the Bankruptcy Act": Tyler v Thomas [2006] FCAFC 6 at [13], (2006) 150 FCR 357 at 361 per Branson J. See also: [2006] FCAFC 6 at [78] per Bennett J, at [208] per Graham J.

The bankruptcy of de Varda and Tov-Lev 20 There can be no conclusion other than that both Mr de Varda and Mr Tov-Lev are "bankrupt" persons for the purposes of the Bankruptcy Act. 21 Bankruptcy Notices were served on both Mr de Varda and Mr Tov-Lev in May 2013. 22 Sequestration orders were made by a Judge of the Federal Circuit Court of Australia on 20 December 2013: Lowbeer v Tov Lev [2013] FCCA 1813. The present Applicant, Mr Andrew Scott, was appointed as trustee. In his reasons, the Federal Circuit Court Judge referred to the facts which Mr de Varda and Mr Tov-Lev sought to canvass, and noted that those facts had previously given rise to proceedings in the Supreme Court of New South Wales and the Consumer, Trade and Tenancy Tribunal of that State. Those reasons also canvassed the many bases upon which the making of sequestration orders was then resisted. 23 Both Mr de Varda and Mr Tov-Lev appealed against the orders of the Federal Circuit Court. Both sought to have the sequestration orders annulled. The appeal was dismissed: Tov-Lev v Lowbeer (No 2) [2014] FCA 379. In dismissing the appeal, the primary Judge there addressed the arguments previously advanced before the Federal Circuit Court and other arguments advanced in the Supreme Court proceeding, including arguments directed to: setting aside the subpoenas requiring persons to attend and to give evidence; the need to "look behind" the judgment debts because they had been obtained by fraud; any entitlement to receive an "indemnity"; and "fraud" in the obtaining of judgments. There have also been other proceedings in this Court, including Tov-Lev v Lowbeer (No 3) [2014] FCA 699; Tov-Lev v Lowbeer (No 4) [2014] FCA 797. An Application for Special Leave to Appeal from the decision of Rares J was filed in April 2014. Special leave to appeal was refused: [2014] HCASL 166. 24 An inevitable consequence of these facts is that Mr de Varda and Mr Tov-Lev are "bankrupt" persons, each of whom is liable to file a statement of affairs and to be examined. 25 Neither Mr de Varda nor Mr Tov-Lev has to date filed a statement of his affairs. 26 This is so notwithstanding the fact that on 8 April 2014 the trustee brought to the attention of both Mr de Varda and Mr Tov-Lev the requirement to file a Statement of Affairs. Each was also advised that "if you do not lodge your Statement of Affairs within 14 days" this would amount to "an offence under the Bankruptcy Act". Each letter annexed a copy of the Statement of Affairs to be completed. That request was met with silence. Subsequently the trustee also sought, by way of a letter dated 22 May 2014, a copy of any Statement of Affairs which may have been completed. 27 Given the failure of both Mr de Varda and Mr Tov-Lev to file the Statement of Affairs required by s 54, and given their refusal to answer questions during an examination held according to s 81, the order as sought by the trustee pursuant to s 30(1)(b) is considered "necessary for the purposes of carrying out or giving effect to" the Bankruptcy Act. It is also concluded that Mr Tov-Lev and Mr de Varda have both failed to comply with "a direction or requirement … of …[a] trustee" for the purposes of s 30(5)(a). 28 In seeking to resist the requirement to file a Statement of Affairs, both Mr de Varda and Mr Tov-Lev seek to again rely upon the same arguments (or substantially the same arguments) as have previously been argued and rejected by (inter alia) the Federal Circuit Court and this Court on appeal. To permit them to do so would be a manifest abuse of the processes of this Court. 29 There is a legitimate public interest in ensuring that the same dispute is not agitated time and time again. In Spalla v St George Motor Finance Ltd (No 6) [2004] FCA 1699, French J (as his Honour then was) observed: [66] The doctrines of res judicata, issue estoppel and Anshun do not exhaust the circumstances in which a proceeding may be regarded as amounting to an abuse of process by way of attempted relitigation of a dispute already judicially determined. As another Full Court said in Coffey v Secretary, Department of Social Security (1999) 86 FCR 434 (at 443): 'An attempt to litigate in the Court a dispute or issue which has been resolved in earlier litigation in another court or tribunal may constitute an abuse of process even though the earlier proceeding did not give rise to a res judicata or issue estoppel: see Sea Culture International v Scoles (1991) 32 FCR 275 at 279 and Walton v Gardiner (1993) 177 CLR 378 at 393-394. Whether it does depends on the facts of the particular case.' [67] The considerations of public policy which underlie res judicata and issue estoppel help to define the scope of abuse of process by relitigation generally. As Lord Hoffman said in Arthur JS Hall & Co v Simons [2000] 3 WLR 543 at 572, the underlying policies are that a defendant should not be troubled twice for the same reason and that there is 'a general public interest in the same issue not being litigated over again'. Lord Hoffman observed that the second rationale could be used to justify the extension of the rules of issue estoppel to cases in which the parties are not the same but the circumstances are such as to bring the parties within the spirit of the rule … "It is well established that it is an abuse of process to simply seek to relitigate a case which has already been disposed of by earlier proceedings": Ninan v Valuer-General of Western Australia [2013] FCA 789 at [20] per Buchanan J. See also: Morgan v WorkCover Corporation [2013] SASCFC 139 at [127] to [145], (2013) 118 SASR 297 at 323 to 331 per Blue J (Kourakis CJ and Sulan J agreeing); Ninan v St George Bank Ltd [2014] FCA 334 at [17] per McKerracher J; Dafallah v Fair Work Commission [2014] FCA 328 at [61] per Mortimer J. 30 There is also a legitimate and well-recognised public interest in ensuring that all arguments able to be relied upon are resolved in one proceeding rather than in a sequence of proceedings, each of which resolves only part of the overall dispute: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. This general principle applies to all proceedings, including bankruptcy proceedings: Macchia v Nilant [2006] FCA 213 per Siopis J.

The orders sought by Tov-Lev and de Varda 31 In addition to resisting the orders sought by the trustee that statements of affairs be filed, Mr Tov-Lev also sought (inter alia) orders: removing the trustee because of a conflict of interest; quashing the sequestration orders; annulling the bankruptcies; and for the payment of a sum in excess of $3.6 million. No such orders should be made. It is understood that Mr de Varda supported the making of these further orders. 32 The orders sought, to a large extent, were orders which had previously been sought and rejected. Such orders would depend upon the ability of Messrs Tov-Lev and de Varda to re-litigate arguments previously advanced and rejected. There is no basis upon which any order should now be made removing Mr Scott as the trustee. And moreover, there was no evidence upon which to make any of the other orders they sought. 33 One submission should be expressly, if briefly, addressed. Both Mr Tov-Lev and Mr de Varda repeatedly alleged the "unlawful" removal of documents from Court files. The submission, however, remains an unsubstantiated allegation. There is no evidence to support the allegation. 34 But one instance of the allegation that emerged in the current proceeding was that two affidavits had been filed on 27 June 2014 in proceeding NSD 84 of 2014 - one affidavit of Mr Tov-Lev; another affidavit of Mr de Varda. That was the proceeding before Nicholas J in Tov-Lev v Lowbeer (No 4) [2014] FCA 797. The Court file was brought to Court and reviewed. A short adjournment was allowed to permit Messrs Tov-Lev and de Varda the opportunity to examine that file. The Index to the Court file recorded no affidavits being filed on that date. Nor were any such affidavits contained within the Court file, albeit affidavits filed but mistakenly not recorded in the Index. Notwithstanding the two deponents being present in Court, neither of the two affidavits was available to be tendered in the present proceeding. 35 The affidavits were said to assume relevance in the application to have Mr Scott removed as the trustee. A number of letters said to have been annexed to those two affidavits were also sought to be relied upon. But copies of those letters were also not available for tender. One e-mail dated 13 May 2014, however, was tendered. Part of the relief sought before Nicholas J included an order to remove Mr Scott as trustee. That application was rejected: [2014] FCA 797 at [10] to [11]. 36 The submission that documents have been unlawfully removed from files of this Court is rejected.

CONCLUSIONS 37 No question was raised as to the jurisdiction of the Court to make the orders as sought by the trustee. Those orders were sought in the proceeding in which the examination summonses were first issued. A difficulty having arisen in that proceeding, the Court is thereafter clothed with sufficient power by s 30(1)(b) to make the order sought, that order being considered "necessary for the purposes of carrying out or giving effect" to the Bankruptcy Act. Section 30(5) is a further source of this power. 38 Whatever may be the personal convictions of Mr de Varda and Mr Tov-Lev to the contrary, the reality is that they are "bankrupt" persons. Their personal definition of "bankruptcy" fails to correspond with that set forth in s 5 of the Bankruptcy Act, a failure which is fatal to the success of their cases. They are subject to sequestration orders which have not been set aside. 39 Both have pursued challenges to the sequestrations orders, and both have failed. To attempt to re-agitate those issues again in this proceeding would be an abuse of process. So long as they remain "bankrupt" persons, the Bankruptcy Act imposes upon them the same obligation to disclose their assets and liabilities as is imposed upon any other "bankrupt" person. In question is not merely the right of any "bankrupt" person to have powers exercised according to law; in question is also the right of creditors to be fully informed. The Bankruptcy Act confers powers upon this Court (inter alia) to protect the rights of creditors. Power is also conferred to protect the broader public interest in the proper administration of the Bankruptcy Act. It is of importance both to a bankrupt and to creditors that bankrupt estates are administered according to law in a prompt and orderly fashion. The conduct of both Mr de Varda and Mr Tov-Lev has, with respect, done nothing to assist in this process. The order the trustee seeks is the least of the orders potentially available to ensure that their bankrupt estates are administered according to law. 40 Pending compliance with the orders to be made, it is considered that the examinations of Mr de Varda and Mr Tov-Lev, presently before a Registrar of this Court, should not continue. 41 The trustee does not seek any order in respect to costs in the present proceedings. Such costs as have been incurred will be payable out of the bankrupt estates.

THE ORDERS OF THE COURT ARE:

1. Mr Joseph de Varda is to file a statement of affairs in accordance with s 54 of the Bankruptcy Act 1966 (Cth) on or before 3 April 2015.
2. Mr Samuel Tov-Lev is to file a statement of affairs in accordance with s 54 of the Bankruptcy Act 1966 (Cth) on or before 3 April 2015. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.