Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar [2023] FCA 1529 | Case summary

The second basis - judgment obtained by fraud 26 I turn then to the second ground upon which Mrs Stolyar seeks a stay of the September 2022 Orders, namely on the basis of her intention to bring an application to set aside the judgment in Scott v Stolyar because it was obtained by fraud. 27 It is convenient, before considering this ground, to set out the principles relevant to the question of when a judgment will be set aside because it was obtained by fraud. Those principles were recently and conveniently summarised by Perry J in Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617, commencing at [57]. They relevantly include: 57 First, the Federal Court has implied jurisdiction to set aside orders procured by fraud: Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd [1986] FCA 248; (1986) 12 FCR 14 at 15 (Morling J) and the authorities cited therein. This is reflected in r 39.05(b) of the Federal Court Rules 2011 (Cth) (FCR) which provides that the Federal Court may set aside or vary any judgment or order after it has been entered if it was "obtained by fraud". … 62 Thirdly, as the Commissioner has done in these proceedings, it is generally appropriate for a party wishing to impeach a judgment on the ground of fraud to institute independent proceedings for that purpose … 63 Fourthly, the High Court in Clone held (at [55] and [69]) that the power to set aside a judgment on the ground of fraud requires actual fraud, reflecting the public interest in the finality of litigation. In so holding, their Honours at [55] approved inter alia the statement by Sir John Rolt LJ in Patch v Ward (1867) LR 3 Ch App 203 at 212-213 that: … the fraud must be actual positive fraud, a meditated and intentional contrivance to keep the parties and the Court in ignorance of the real facts of the case, and obtaining that decree by that contrivance. Mere constructive fraud not originating in actual contrivance, but consisting of acts tending possibly to deceive or mislead without any such intention or contrivance, would probably not be sufficient … What, therefore, the Appellant has to do is to satisfy the Court that the decree was obtained by the positive and actual fraud and contrivance of the party obtaining it. … 71 In the fifth place, as the essence of the action is fraud, it "must be pleaded distinctly and with particularity and clearly proved": Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 at 573; Clone at [62]; see also r 16.42 of the FCR. Furthermore, where a condition of mind such as a fraudulent intention is alleged as part of the fraud, this must also be properly particularised: r 16.43 of the FCR. Thus, as Wright J held in Dickson v Commissioner of Australian Federal Police [2019] NSWSC 1293 at [124] (upheld on appeal in Dickson v The Queen [2020] NSWCA 125): … in order properly to plead and particularise the fraud alleged fraud sufficient to provide a basis for setting aside the restraining orders, Mr Dickson [the plaintiff] had to identify each person who allegedly engaged in a meditated and intentional contrivance to keep the Court in ignorance of the real facts of the case, what the contrivance was, what the real facts of the case were and how the contrivance was alleged to be meditated and intentional. 72 Sixthly, the circumstances in which a judgment may be set aside for fraud were considered by the NSW Court of Appeal in Wentworth (No 5) by Kirby P (with whose reasons Hope and Samuels JJA agreed) (approved, eg. in Spalla v St George Motor Finance Limited (No 5) [2004] FCA 1262 at [60]-[61] (French J (as his Honour then was)). In Wentworth (No 5) at 538-539, Kirby P (as his Honour then was) identified a number of principles governing proceedings in which it is sought to set aside a judgment on the basis of fraud. These may be summarised as follows (per French J in Spalla at [60]): (1) as the essence of the action is fraud, "particulars of the fraud claimed must be exactly given and the allegations established by the strict proof which such a charge requires"; (2) given the public interest in the finality of litigation, "it must be shown, by the party asserting that the judgment was procured by fraud, that there has been a new discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment"; (3) "mere suspicion of fraud, raised by fresh facts later discovered, will not be sufficient to secure relief … The claimant must establish that the new facts are so evidenced and so material that it is reasonably probable that the action will succeed. This rule is founded squarely in the public interest in finality of public litigation and in upholding judgments duly entered at the termination of proceedings in the courts" (emphasis added); (4) "although perjury by the successful party or a witness or witnesses may, if later discovered, warrant the setting aside of a judgment on the ground that it was procured by fraud, and although there may be exceptional cases where such proof of perjury could suffice, without more, to warrant relief of this kind, the mere allegation, or even the proof, of perjury will not normally be sufficient to attract such drastic and exceptional relief as the setting aside of a judgment …" (emphasis alleged). This stringent requirement also flows from the public interest in the finality of litigation given the frequency, in hard fought litigation, of instances in which litigants consider that they were unsuccessful because the decision was procured by false evidence; (5) as emphasised by Rawson, "it must be shown by admissible evidence that the successful party was responsible for the fraud which taints the judgment under challenge"; and (6) "the burden of establishing the components necessary to warrant the drastic step of setting aside a judgment, allegedly affected by fraud or other relevant taint, lies on the party impugning the judgment. It is for that party to establish the fraud and to do so clearly." 28 What is clear from the principles set out by her Honour is that in order to establish that the September 2022 Orders should be set aside for fraud, Mrs Stolyar, must prove actual fraud. That is a high bar. 29 While this is not the hearing of Mrs Stolyar's intended application to set aside the judgment, in my view, having regard to the principles at [27] above and the need to show a proper basis for a stay, I must at least be satisfied that her proposed application has some prospects. 30 In support of this basis for her application for a stay, Mrs Stolyar relies on an affidavit in which she points to and annexes material which she says was not before me at the time of the final hearing but should have been because: either the trustee was aware of the material and did not bring it before the Court; or the trustee did not make an argument that he should have made based on the material that was available to the Court. In submissions made on behalf of Mrs Stolyar by Ian, who with leave made submissions on behalf of Mrs Stolyar, I was taken to six instances where it was said that occurred. 31 Before I turn to each of those instances, I note that there is nothing before me to indicate what stage of preparation Mrs Stolyar's proposed application is at, by when it would be brought and what steps have been taken to gather the necessary evidence and prepare the necessary pleading, including whether solicitors would be retained to act for Mrs Stolyar in the new proceeding. Indeed, at one stage in submissions, Ian said on behalf of Mrs Stolyar that a period of up to four to six months would be required, I apprehend, to commence the proceeding. 32 I turn to the particular matters relied on by Mrs Stolyar. 33 The first was a document from CommSec addressed to Ian ATF Canchel Ltd Partnership titled "margin loan statement" relating to loan number 308021 (CommSec Loan Statement). Mrs Stolyar submitted that this document was available to the trustee, that it should have been brought to the Court's attention and, had it been, a different result would have ensued in relation to aspects of the judgment. 34 However, it became apparent that the CommSec Loan Statement was in fact relied on at the hearing. It was included in the court book and Ian, who gave evidence for Mrs Stolyar and Fanchel at the hearing, was cross-examined on it. 35 The trustee referred me to the transcript (at pages 503 to 505) where it was apparent that Ian had, in fact, been cross-examined on the CommSec Loan Statement. Therefore, no case can be made that the trustee failed to bring this document to the attention of the Court or that he failed to develop a case based on it which might have suited Mrs Stolyar. As I have said, that document was before the Court. 36 The next set of documents were Commonwealth Bank statements for a premium business account in the name of Canchel dated as at March 2009. These documents were said to relate to findings made in the judgment about the Campbell Parade Property. Mrs Stolyar submitted that they falsified a part of the trustee's case at trial and that their non-disclosure constituted a fraud. 37 There are two problems with those submissions. First, the documents do not falsify the conclusion to which I came at [279] and [479] of Scott v Stolyar. They simply show that as at the date from which those statements speak, an amount of $3.5 million was available in the account. They are, as senior counsel for the trustee submitted, consistent with the trustee's case that about $3.2 to $3.3 million was available to Ian at the time. That being so, the document, of itself, cannot satisfy the test of materiality required to establish fraud. 38 Secondly, even if I was satisfied that there had been non-disclosure and that those statements of account could have made a difference, there was no evidence that the documents were available to the trustee. 39 Thirdly, complaint was made about evidence in the trustee's affidavit sworn on 17 April 2020, in particular, at [59] thereof. In that paragraph, the trustee deposes to what he considers to be the effect of certain deposits made in July 2012 into a bank account, namely to repay Mrs Stolyar and, ultimately, to repay $1 million which had been withdrawn from a mortgage facility account. In doing so the trustee does no more than express his own opinion of the effect of certain documents which he describes in the preceding paragraphs of his affidavit, at [57] and [58], being bank statements that were available to the trustee as a result of his investigations. It is a statement of conclusion by the trustee based on the material that was available to him at the time and his own investigations. Even if that evidence was not accepted, that does not make it false as alleged by Mrs Stolyar. It is simply an opinion that could be accepted or rejected by the Court. 40 The fourth category concerned the trustee's affidavit sworn on 31 May 2019 at [44]-[45] where he described evidence given by Ian in an affidavit he had sworn on 29 October 2012 and relied on in a different proceeding in the Supreme Court. Mrs Stolyar's criticism made of that evidence was that it was not a fulsome description of Ian's affidavit in the Supreme Court proceeding. Once again, this is only a recitation by the trustee of a document that was before him. 41 The highest the submission goes is the evidence or the description given by the trustee in that part of his affidavit was not complete or as fulsome as it could have been or was not accurate in parts. But that cannot be said to amount to a falsification, particularly where the affidavit itself was exhibited to the trustee's affidavit, available to the Court and to both parties to examine and the trustee could be cross-examined on his recitation of those facts if they were thought to be incorrect. 42 The fifth category of documents is an extract from a ledger maintained by Shaw and Partners. It was submitted that this document showed additional transfers of funds which had not been identified by the trustee and brought to the Court's attention. Mrs Stolyar said that those funds would have been available as part of the moneys used for the purchase of 27/26 Ocean Street: see Scott v Stolyar commencing at [176]. In particular, Ian, on behalf of Mrs Stolyar, directed my attention to Scott v Stolyar at [184]-[185]. 43 However, the Shaw ledger was included in the court book, was before the Court at the hearing and available for consideration by both parties. If there was an argument to be made in relation to it or an alternative hypothesis which might provide some exculpatory explanation on the part of Mrs Stolyar and Fanchel in answer to the claims made by the trustee about the source of the funds for the acquisition of 27/26 Ocean Street, then it was not up to the trustee to make that argument. Mrs Stolyar and Fanchel were represented by senior and junior counsel and solicitors at the hearing and it was open to them to put any alternative hypothesis to the Court based on that document. 44 In any event, it cannot be suggested that the trustee fraudulently concealed that document such as to establish any arguable case of fraud that would lead to setting aside the judgment on its basis. 45 The final document relied on by Mrs Stolyar was a Commonwealth Bank statement for a streamline account in the names of Ian and Beth. Attention was drawn to four transfers made on 28 October 2010 included in that statement. Once again, this statement was said to be relevant to the findings made about the source of the funds for the acquisition of 27/26 Ocean Street. As senior counsel for the trustee submitted, there was no evidence that this document was in the possession of the trustee at any time such that it could be said that he intentionally withheld it from the Court. In any event, it is, on my review of the document, difficult to see how it could have made a difference to the outcome of the hearing. 46 It follows from the above that I am not satisfied that there is an arguable basis for an application to set aside the judgment on the basis of fraud based on the material to which I was taken by Mrs Stolyar such that I would grant a stay of the September 2022 Orders on that basis.

Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar

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