Smith v Jarvie

Judgment 1HER HONOUR: Michael Smith is an official liquidator. On 3 October 2012, Mr Smith was appointed by the Federal Court as the liquidator of HWY Rentals Pty Ltd (in liquidation). The sole director of that company at the time was Mr Russell Jarvie. Since Mr Smith's appointment as liquidator, Mr Jarvie has instituted a number of proceedings against him. The liquidator claims that those proceedings are vexatious and seeks an order under the Vexatious Proceedings Act 2008 prohibiting Mr Jarvie from instituting proceedings in New South Wales without leave of the Court. A similar order has already been made by the Federal Court preventing Mr Jarvie from instituting proceedings in that Court without leave. 2Mr Jarvie is an undischarged bankrupt. His trustee in bankruptcy, Mr Mark Roufeil, has been joined as the second defendant in the proceedings. The reason for joining the trustee is that the liquidator seeks his costs of the present application. The liquidator seeks an order restraining the trustee from distributing any surplus of the estate until his costs are paid. There is no impediment to the institution of the present proceedings against a bankrupt: cf s 58(3) of the Bankruptcy Act 1966 (Cth). 3The final relief sought in the proceedings is an order under the Vexatious Proceedings Act 2008. By way of interlocutory relief, the liquidator seeks an order restraining Mr Jarvie from instituting or maintaining any proceedings in New South Wales without leave of a judge of the court. 4The proceedings came before me as duty judge last Monday, 8 December 2014. The urgency apprehended by the liquidator is that the trustee in bankruptcy has recently sold, at auction, a property at North Richmond which is Mr Jarvie's major asset. It is apprehended that the completion of the sale of that property will provoke a reaction from Mr Jarvie which may include the commencement of further legal proceedings, including proceedings against either the trustee or the liquidator. I abridged the time for service of the summons and supporting affidavits. I also made an order for substituted service which required those documents to be served by email and at three different premises (one commercial and two residential). I was satisfied on the strength of the material presented to me at the hearing that those were the methods of service most likely to bring the existence of the proceedings to Mr Jarvie's attention. 5When the proceedings came back before me last Thursday, 11 December 2014, there was no appearance by or on behalf of Mr Jarvie. Mr Jarvie's trustee in bankruptcy, Mr Roufeil, filed a submitting appearance submitting to the making of all orders sought save as to costs. On that occasion, on the strength of the evidence relied upon by the liquidator, I was satisfied that it was appropriate to make an interlocutory order restraining Mr Jarvie from instituting or maintaining any proceedings in New South Wales without leave of a judge of the court. I did not consider it appropriate to proceed to make a vexatious proceedings order at that point. Although there was proof of service in accordance with the orders made on 8 December 2014, there was no evidence before the Court to establish whether the documents had in fact come to Mr Jarvie's attention. Further, I considered that, even if they had, the period that had elapsed between the commencement of the proceedings and the return of the summons was inadequate to afford Mr Jarvie an opportunity of being heard: cf s 8(3) of the Vexatious Proceedings Act. 6I stood the proceedings over to today (18 December 2014) and directed the plaintiffs to serve the interlocutory order by the same methods as before (excluding the commercial premises, with which it is now clear Mr Jarvie no longer has any connection). I also directed the plaintiffs to notify Mr Jarvie that their application for final relief would be considered today. 7When the proceedings came before me this morning there was again no appearance by Mr Jarvie. The plaintiffs filed evidence to confirm that the directions made on 11 December 2014 as to further service of documents were complied with. There is also some information available to the plaintiffs' solicitor to suggest that Mr Jarvie is avoiding service but I cannot be sure of that as a fact. 8On the strength of the material put before the Court in support of the application for interlocutory relief, I am satisfied that Mr Jarvie has frequently instituted vexatious proceedings in Australia and that, subject to anything he might wish to put before the Court, this is an appropriate occasion for the exercise of the Court's discretion to make such an order. However, the Vexatious Proceedings Act prohibits the making of a vexatious proceedings order without hearing the person against whom the order is to be made or giving the person an opportunity of being heard. 9I am satisfied on the balance of probabilities that the documents served on Mr Jarvie by the methods allowed by my previous orders have come to his attention. In the circumstances the appropriate course, in my view, is to continue the interlocutory injunction until the middle of February 2015 so as to be confident that Mr Jarvie has had every opportunity to be heard as to the final relief claimed. If, on the adjourned date, Mr Jarvie does not appear and seek to be heard, and subject to anything further the liquidator may see fit to put before the court, a vexatious proceedings order will be made on that occasion. 10These are my reasons for reaching that conclusion. 11The Vexatious Proceedings Act creates a discretionary statutory remedy against a person who has "frequently instituted or conducted vexatious proceedings in Australia". Upon being satisfied in those terms, the Court has power to stay any existing proceedings already instituted by the person and to prohibit the person from instituting any further proceedings. 12The effect of such an order is that the person cannot prosecute any legal claim without leave of the Court. It does not preclude the person absolutely from ever pursuing any claim: see s 14 of the Act. Nonetheless, an order of the kind sought by the liquidator represents a substantial curtailment of the ordinary right of any citizen to be heard as to any business he or she may have before the Court. It should be regarded as an extreme remedy. 13Section 6 of the Act defines "vexatious proceedings" to include: (a) proceedings that are an abuse of process of a court or tribunal, and (b) proceedings instituted to harass or annoy, to cause delay or detriment, or for another wrongful purpose, and (c) proceedings instituted or pursued without reasonable ground, and (d) proceedings conducted in a way so as to harass or annoy, cause delay or detriment, or achieve another wrongful purpose 14Prior to the appointment of Mr Smith as the liquidator of HWY Rentals Pty Ltd, that company carried on a car and truck rental business in North Richmond. From the date of registration of the company until 24 August 2006, Mr Jarvie was the sole director and the company secretary. On 24 August 2006, Mr Jarvie was declared bankrupt. His bankruptcy was annulled in July 2010 and he became a director of the company again on 7 February 2012. 15In the meantime, Mr Jarvie had established what appears to have been intended for use as a phoenix company. On 30 December 2010, a new company, HWY Rent Pty Ltd, was registered. It is convenient to refer to that company as HWY No 2. 16On 10 May 2010, the Deputy Commissioner of Taxation served on the original company a creditor's statutory demand for payment of a tax debt of just over $130,000. The non-payment of that debt was the basis for the winding up order. 17Following his appointment, Mr Smith was successful in obtaining a mandatory injunction against Mr Jarvie for delivery up of motor vehicles that were the property of the original company. The orders were served on Mr Jarvie but were never complied with. Mr Smith has attempted to have Mr Jarvie dealt with for contempt of court for his failure to comply with the orders but has been unsuccessful in his attempts to serve the relevant documents. 18In early 2013, the liquidator expanded his claims to include a claim against Mr Jarvie's mother, Mrs Jarvie, for breaches of directors' duties and insolvent trading. She was a director of the original company for much of the period during which Mr Jarvie was bankrupt. 19On 8 August 2013, Jacobson J made declarations that Mr and Mrs Jarvie had each breached their fiduciary duty to the company by permitting the company's property to be adopted by or transferred to HWY No 2. His Honour ordered each of them to pay equitable compensation to the company in the amount of $232,800. His Honour also made orders relating to Mr Jarvie and Mrs Jarvie's conduct in failing to prevent the company from incurring debts due to the Deputy Commissioner of Taxation. Finally, his Honour ordered Mr Jarvie and Mrs Jarvie to pay the Deputy Commissioner's costs of the proceedings up to and including 8 February 2013. 20Mr Jarvie sought an extension of the time within which to appeal against the orders of Jacobson J. The making of that application (which was unsuccessful) delayed the enforcement of judgment by about six months. 21In February 2014 the liquidator became aware that Mr Jarvie had purportedly sued him in Parramatta Local Court to recover an alleged debt of approximately $8,600 and had obtained a purported default judgment against him. The liquidator obtained an urgent stay of that judgment. After obtaining the stay, liquidator found documents in his front yard purporting to be bankruptcy notices issued against him at the request of Mr Jarvie. It transpired that Mr Jarvie had filed a statement of claim on 5 December 2013 claiming fees from the liquidator for storage of the very motor vehicles Mr Jarvie had been ordered by the Federal Court to deliver up to the liquidator (which he had failed to do). There can be no doubt that those were vexatious proceedings instituted by Mr Jarvie. 22On 15 January 2014, Mr Jarvie obtained default judgment against the liquidator on the strength of an affidavit falsely deposing that he had served the statement of claim on the liquidator personally on 9 December 2013 at his office. There can be no doubt that the application for default judgment was also a vexatious proceeding within the meaning of the Act. 23On 20 January 2014 a bankruptcy notice was issued against the liquidator at Mr Jarvie's request based on the fraudulently obtained default judgment. I am satisfied that the issue of the bankruptcy notice also amounted to a vexatious proceeding instituted by Mr Jarvie. 24On the strength of the judgment obtained in the Local Court, Mr Jarvie appears to have made an adverse credit listing against the liquidator as a result of which transactions on his credit card were declined. That is not a vexatious proceeding within the meaning of the Act but it demonstrates the harm and inconvenience done to the liquidator by the proceedings instituted up to that point in time. 25The liquidator also relies upon the application to extend the time within which to appeal against the orders of Jacobson J as a vexatious proceeding. The application was dismissed by Perry J: HWY Rent Pty Ltd v HWY Rentals (in liquidation) (No 2) [2014] FCA 449. Her Honour found (at [108]) that the proceedings were vexatious proceedings within the meaning of the Federal Court of Australia Act 1976, saying: "In so finding, I am not only satisfied that the application for an extension of time was not instituted or prosecuted in good faith but for an improper purpose. I also consider that the application for an adjournment made on 12 December 2013 and the application for the Court to issue the subpoena were sought for improper purposes, the former to delay and the latter to harass and intimidate Mr Smith." 26Her Honour also found that the institution and conduct of the proceedings against Mr Smith in the Local Court were vexatious. I am satisfied that the application to extend time to appeal against the final orders of Jacobson J was vexatious, as held by Perry J. 27On the strength of those findings, Perry J exercised the discretion under s 37AO of the Federal Court of Australia Act 1976 to make a vexatious proceedings order against Mr Jarvie. 28Since the making of that order, sequestration orders have been made against the estates of Mr Jarvie and Mrs Jarvie to enforce the orders of Jacobson J made on 8 August 2013. Pursuant to warrants issued under the Bankruptcy Act, 31 motor vehicles have been seized, together with books and records of HWY No 2. 29On 25 July 2014, Mr Jarvie instituted proceedings against Mr Roufeil, his trustee in bankruptcy. Those proceedings were instituted without the leave required in accordance with the vexatious proceedings order in the Federal Court made by Perry J. The proceedings were dismissed by Foster J on 20 August 2014. 30It is necessary to determine whether Mr Jarvie has "frequently instituted or conducted" vexatious proceedings. The number of proceedings is small. However, it is accepted that the term "frequently" in the Act is a relative term: Jones v Cusack [1992] HCA 40; [1992] 109 ALR 313. Whether that requirement is fulfilled must be judged in the context of the litigation being considered. 31I had occasion to consider a similar issue in Luke v Kwon [2011] NSWSC 36. In that decision, I relied on the remarks of Ball J in Siteberg Pty Ltd v Maples [2010] NSWSC 1344, where his Honour said: For example, it might be said of someone who goes overseas 4 times a year that the person does so frequently. The same could not be said of someone who walks to work 4 times a year. It is uncommon for most individuals to be involved in court proceedings. Consequently, it is not necessary for a person to commence a large number of proceedings in order for it to be said that the person has done so frequently. 32Ball J noted further that it is necessary for the court to examine the nature of the applications or proceedings brought. In the present case, the vexatious proceedings appear to have been brought by Mr Jarvie to stymy the attempts of an official liquidator appointed by the Federal Court to fulfil his statutory obligations and to cause the liquidator intense vexation and inconvenience along the way. In the circumstances, I am satisfied that Mr Jarvie's institution of vexatious proceedings has been "frequent" in the sense contemplated in the Act. 33It is important that an official liquidator be protected from such vexation in the discharge of his statutory duties. I am satisfied that, subject to anything Mr Jarvie might put before the Court, this would be an appropriate occasion for the exercise of the court's discretion to make the orders sought. 34The orders sought by the liquidator which are to be considered on the next occasion are: (1)pursuant to section 8(7)(b) of the Vexatious Proceedings Act 2008, that the first defendant be prohibited from instituting proceedings in New South Wales; (2)that the first defendant pay the plaintiffs' costs on the indemnity basis as agreed or assessed; (3)until further order, that the second defendant be restrained from distributing the surplus of the first defendant's bankrupt estate until the plaintiffs' costs of these proceedings are paid. 35The only orders made today were: (1) That the interlocutory injunction granted on 11 December be continued up to and including 12 February 2015.