Stankovic v Van Der Velde

REASONS FOR JUDGMENT 1 On 12 May 2009, a sequestration order was made in respect of the estate of Mr Stankovic ("the sequestration order"). The first and second respondents ("the Trustees") were appointed trustees in bankruptcy of Mr Stankovic's estate. At the time of the making of the sequestration order, Mr Stankovic and the third respondent were the joint owners of a property situated at President Avenue, Kellyville, New South Wales ("the Kellyville property"). The third respondent and the Trustees were appointed as trustees for sale of the Kellyville property, which was subsequently sold. Net of commission and costs, the proceeds of sale are held by the Trustees and the third respondent. 2 The proceeding before the primary judge was commenced by an application made by Mr Stankovic at a time when he was legally represented. That application sought an order under s 178(1) of the Bankruptcy Act 1966 (Cth) ("the Act") and declaratory relief. The application did not raise any issue as to the validity of the sequestration order or the appointment of the Trustees. The application sought to contest a decision made by the Trustees on 6 March 2012 ("the 6 March 2012 decision") that no 'protected money' formed part of the outlay for the Kellyville property so as to require any payment to Mr Stankovic under s 116(4) of the Act. 3 The term 'protected money' is defined by s 116(2)(D) of the Act and includes 'exempt money' which, in turn, is defined to include damages or compensation of the kind referred to in s 116(2)(g). Section 116(2)(g) includes damages or compensation for personal injury or wrong done to the bankrupt. 4 It was common ground before the primary judge that between 1989 and 1991, Mr Stankovic received the sum of $250,000 by way of compensation for personal injury ("the compensation monies") and that the compensation monies were protected money. The question raised by the proceeding before the primary judge was whether any part of the proceeds from the sale of the Kellyville property: is subject to s 116(2)(n) of the Act and thus not divisible to creditors, on the basis that the compensation monies (as 'protected money') constituted the whole, or substantially the whole, of the money paid for the purchase, or used in the acquisition, of the Kellyville property; or should be paid to Mr Stankovic under s 116(4), on the basis that such part can fairly be attributed to that protected money. 5 The primary judge determined that 15.05% of the net proceeds from the realisation of the Kellyville property can fairly be attributed to the compensation monies. As a result, on 14 December 2012 the primary judge set aside the 6 March 2012 decision made by the Trustees. The primary judge also made declarations in relation to the beneficial ownership of the net proceeds of the sale of the Kellyville property. The primary judge's reasons for judgment are published as Stankovic v Van Der Velde [2012] FCA 1436. 6 Mr Stankovic appeals from the judgment of the primary judge. At the time his Notice of Appeal was filed, Mr Stankovic was legally represented. The Notice of Appeal raised three grounds as follows: the primary judge failed to take into account relevant matters of law and fact ("the first ground"); the primary judge incorrectly accepted the arithmetic submissions of the Trustees without due and proper consideration ("the second ground"); and the primary judge took into account irrelevant considerations ("the third ground"). 7 On the hearing of the appeal, Mr Stankovic was not legally represented. He made oral submissions and relied on written submissions filed on 16 May 2013. He also sought leave to rely upon two affidavits made by him on 9 May 2013 and 14 May 2013. The question of leave was deferred and we indicated that we would determine whether leave should be granted with the delivery of our judgment. 8 On 31 January 2013 an interlocutory application was filed by Rodney Kent and Tim Orlizki for an order that leave be granted to those persons to intervene in the appeal. That application was returnable on 6 February 2013 but was stood over to the hearing of the appeal. 9 The application for intervention was accompanied by a supporting affidavit made by Mr Orlizki. Mr Orlizki appeared at the hearing before the primary judge and was permitted to provide written submissions and make short oral submissions. Mr Orlizki's affidavit refers to a related judgment of the primary judge in which reasons were published as Kent and Orlizki, in the matter of the Bankrupt Estate of Milovan Stankovic [2012] FCA 333. In those reasons for judgment, the primary judge identified Messrs Kent and Orlizki as creditors of Mr Stankovic. By orders made on 16 March 2012, the primary judge ordered that in respect of the proof of debts submitted by Messrs Kent and Orlizki, the decision of the Trustees in relation to that proof of debt be varied so as to allow the proof of debt in the amount of $246,677.68 (exclusive of interest). 10 We determined that we would decide the application of Mr Kent and Mr Orlizki to intervene with the delivery of our judgment, but gave Mr Orlizki leave to make submissions. 11 The written submissions filed by Mr Stankovic do not address the grounds of appeal at all. By his oral submissions, and despite being taken to his grounds of appeal by the Court, Mr Stankovic did not make any submissions directed to them. 12 Mr Stankovic's submissions and the material in the affidavits that he sought leave to rely upon, were directed to establishing that the sequestration order was invalidly made and that the Trustees were invalidly appointed. It is not necessary to set out in detail the matters upon which Mr Stankovic relied to impugn the sequestration order and the appointment of the Trustees. In summary and by reference to both his written and oral submissions, Mr Stankovic contended that: he was never indebted to the petitioning creditor, The Hills Shire Council; he was not insolvent at the time that the sequestration order was made; when the sequestration order was made, an order was also made that all proceedings under the sequestration order be stayed for a period of 21 days and that prior to the expiry of that period he paid The Hills Shire Council the debt claimed by it; at that time he had no other creditors; and that prior to a sequestration order being made in relation to someone who is mentally incompetent, a Court had to determine that the person was mentally incompetent and that only then could a trustee be appointed. 13 Additionally, Mr Stankovic attacked the validity of the appointment of the Trustees on the basis that the appointment was made during the period in which the sequestration order was subject to a stay of all proceedings under the sequestration order. Mr Stankovic also asserted that a number of lawyers involved in the bankruptcy proceedings, including his former lawyers, had conspired to defraud him including by concealing the falsity of the instrument by which the Trustees were appointed. 14 Mr Stankovic's submissions invited the Court to inquire into and determine the validity of the sequestration order and the validity of the appointment of the Trustees. Those issues do not arise on the appeal. The issues raised by the appeal are whether the primary judge erred in the manner contended for by Mr Stankovic's grounds of appeal. 15 The appeal may not be used as a vehicle for Mr Stankovic to effectively seek an annulment of the sequestration order. The appeal is from a specific determination made by the primary judge upon the foundation that a sequestration order had been validly made against Mr Stankovic's estate and that all property held by Mr Stankovic at the time he became a bankrupt vested in the Trustees. 16 Those foundational matters are not open to a collateral challenge upon this appeal. 17 The material before us does not establish that Mr Stankovic raised before the primary judge any of the matters upon which he now seeks to rely to challenge the validity of the sequestration order and the appointment of the Trustees. Mr Stankovic contended that he had raised those matters and submitted that the primary judge had erred in not considering them. However, even if we were to take a broad view of Mr Stankovic's first ground of appeal and presume that the matters now agitated were also agitated at the hearing before the primary judge, we would nevertheless dismiss the appeal. If the primary judge had refused to take into account the matters upon which Mr Stankovic now seeks to rely, he was right to do so. The primary judge was not dealing with a challenge to the validity of either of the sequestration order or the appointment of the Trustees, he was dealing with an application seeking relief pursuant to s 178(1) of the Act. 18 If the matters sought to be agitated by Mr Stankovic are to be agitated, they needed to be the subject of an application made by Mr Stankovic under s 153B(1) of the Act seeking an order annulling the bankruptcy. In fact a proceeding seeking such relief was instituted by Mr Stankovic in October 2012. That proceeding, which raises the same factual matters that Mr Stankovic sought to agitate on the appeal, is listed to be heard for a strike out motion on 5 June 2013 before Foster J. 19 The grounds of appeal raised by Mr Stankovic are unsubstantiated and the matters otherwise sought to be agitated by him are not open to be dealt with on this appeal. It follows that the appeal should be dismissed with costs. Leave for Mr Stankovic to rely upon his affidavits made on 9 and 14 May 2013 should be refused. 20 The intervention application of Mr Kent and Mr Orlizki should also be dismissed. Mr Orlizki accepted that if the Court was disposed to dismiss the appeal, the application for intervention should also be dismissed. 21 Late in the hearing, Mr Stankovic made an oral application for a stay of the orders made by the primary judge on 14 December 2012. In circumstances where no distribution of the funds held by the Trustee has been made and none is intended to be made prior to 5 June 2013 (when the s 153B(1) proceeding comes before Foster J), we made an order that the judgment of the primary judge of 14 December 2012 be stayed until 5 pm on 5 June 2013. That order has the intended effect of staying the order made on 14 December 2012 discharging the undertaking proffered by the Trustees on 1 December 2011 to the Family Court of Australia, that they would not distribute any part of Mr Stankovic's estate without the leave of the Family Court or the Federal Court. Any application by Mr Stankovic to extend any restriction upon the distribution of those funds beyond 5 June 2013 should be made to Foster J on 5 June 2013. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds, Jagot and Bromberg.