Talacko v Talacko

REASONS FOR JUDGMENT 1 The applicants, Helena Talacko, Alexandra Bennett, Martin Talacko, Rowena Talacko and Margaret Talacko, by an application filed pursuant to ss 30, 50 and 78 of the Bankruptcy Act 1966 ("the Act") sought orders that: (a) The Official or a Registered Trustee take control of the property of the respondent, Jan Talacko, from the date of the order until a date specified by the Court. (b) The respondent and his solicitor, Michael Witt of Finlay Arthur Phillips, deliver up to the District Registrar all the respondent's passports. (c) Alternatively, that Mr Witt (on provision of a suitable undertaking to the Court) hold the respondent's passport until further order. (d) That the respondent be ordered: (i) not to leave the State of Victoria; (ii) not to attend any point of international departure; and (iii) not to apply for any other passport. (e) That the time for service of the application be abridged. 2 The application is supported by: (a) the affidavit of Howard Rapke of the solicitors for the applicants, sworn 4 March 2010 ("first Rapke affidavit"); (b) the supplementary affidavit of Howard Rapke sworn 5 March 2010 ("second Rapke affidavit); and (c) the third affidavit of Howard Rapke sworn 5 March 2010 ("third Rapke affidavit"). 3 It was not disputed that the application was not filed or served until late yesterday. Counsel for the respondent did not, however, seek an adjournment and was content for the hearing of the application to proceed. The application was a matter of some urgency, as orders made in the Supreme Court restraining the debtor from departing from Victoria would expire at 5.00pm today. 4 Despite the reference in the application to s 78 of the Act, before me, counsel for the applicants made clear that the applicants sought orders only under s 50 and s 30 of the Act. The orders ultimately sought were as follows: (a) Until further order, the respondent, Jan Emil Talacko, be restrained from taking any further steps by himself or by his employees, agents or attorneys for the purpose of or in furtherance of selling, transferring, donating or otherwise dealing with any of the properties listed in Attachment A. (b) The Court directs that James Stewart, a registered trustee, take control of the respondent's property from the date of this order until a date specified by the Court. (c) The respondent and Michael Witt of Finlay Arthur Phillips forthwith deliver up to the District Registrar all passports of the respondent. (d) In the alternative to (b), upon provision of a suitable undertaking to the Court, Michael Witt of Finlay Arthur Phillips hold the respondent's passport until further order. (e) The respondent be ordered not to leave the State of Victoria until further order. (f) The respondent be ordered not to attend any point of international departure until further order. (g) The respondent be ordered not apply for any other passport until further order. (h) Liberty to apply be reserved. (i) The time for service of this application be abridged. (j) Costs reserved.

Taking control of debtor's property before sequestration

(1) At any time after a bankruptcy notice is issued, or a creditor's petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may: (a) direct the Official Trustee or a specified registered trustee to take control of the debtor's property; and (b) make any other orders in relation to the property. (1A) The Court may give a direction or make an order only if: (a) a creditor has applied for the Court to make a direction; and (b) the Court is satisfied that it is in the interests of the creditors to do so; and (c) the debtor has not complied with the bankruptcy notice. (1B) If the Court directs a trustee to take control of the debtor's property, the Court must specify when the control is to end. (2) Without limiting the generality of subsection (1), the Court may, at any time after giving a direction under subsection (1), summon the debtor, or an examinable person in relation to the debtor, for examination under this section in relation to the debtor. (3) A summons to a person under subsection (2) shall require the person to attend: (a) at a specified place and at a specified time on a specified day; and (b) before the Court, the Registrar or a magistrate, as specified in the summons; to be examined on oath under this section about the debtor and the debtor's examinable affairs. (4) A summons to a person under subsection (2) may require the person to produce at the examination books (including books of an associated entity of the debtor) that: (a) are in the possession of the first‑mentioned person; and (b) relate to the debtor or to any of the debtor's examinable affairs. (5) For the purpose of the examination under this section of a person summoned under subsection (2), subsections 81(2) to (17), inclusive, apply, with any modifications prescribed by the regulations, as if: (a) a sequestration order had been made against the debtor when the Court gave the direction under subsection (1) of this section; (b) the examination were being held under section 81; and (c) a reference in those subsections to a creditor were a reference to a person who has a debt that would be provable in the debtor's bankruptcy if a sequestration order had been made as mentioned in paragraph (a) of this subsection. 6 Section 30 of the Act provides: General powers of Courts in bankruptcy (1) 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. (2) The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched. (3) If in a proceeding before the Federal Court under this Act a question of fact arises that a party desires to have tried before a jury, the Federal Court may, if it thinks fit, direct the trial of that question to be had before a jury, and the trial may be had accordingly in the same manner as if it were the trial of an issue of fact in an action. (5) 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. (6) The power conferred on the Court by subsection (5) is in addition to, and not in substitution for, any other right or remedy in respect of the failure to comply with the order, direction, requirement or request, as the case may be.

the evidence 7 The materials exhibited to the first Rapke affidavit relevantly include two bankruptcy notices issued by the first applicant, Helen Talacko, and the second to fifth applicants respectively, against the respondent dated 1 March 2010, each for a total debt of $7,569,482.50. 8 Also exhibited is an email of one Cathy Hallis to Mr Rapke stating that she served the bankruptcy notices on 3 March 2010 at 1.07pm and would provide affidavits of service. (It was not disputed that the bankruptcy notices had been served). 9 The additional materials comprise reasons for judgment of Kyrou J of the Supreme Court of Victoria given 24 November 2009, and Habersberger J of the Supreme Court of Victoria given on 13 October 2009, and various orders, including freezing orders, made in the course of complex litigation recently conducted between the parties in that Court. 10 The judgment debt on which the bankruptcy notices are based is founded on the orders of Kyrou J made on 11 December 2009 that the respondent pay the first applicant and the second to fifth applicants jointly a sum of approximately EUR 4 million and EUR 300,000 in interest, which translates into the amount of judgement debt. 11 Kyrou J's orders were broadly based on his findings that the respondent, who is now aged approximately 80, was liable to pay equitable compensation to the applicants (his sister and the children of a deceased sibling respectively) for breach of terms of settlement dated 28 February 2001 of their proceeding against the respondent for breach of fiduciary duty in relation to, broadly, a family arrangement formed in about 1990 whereby the respondent and his siblings proposed to obtain restitution of a large number of properties formerly confiscated from their parents in Germany, the Czech Republic and the Slovak Republic. 12 Kyrou J found that the respondent breached the terms of settlement and was liable to pay equitable compensation in the above quantum. 13 While the judgment in the breach of settlement proceeding was pending, the respondent and two of his sons resident in Prague were subject to a freezing order made by Kyrou J, and it would appear, various other orders. 14 Mr Rapke deposed that the respondent was, from 14 July 2009, restrained from leaving Victoria and or Australia by a number of judges of the Supreme Court of Victoria. 15 Mr Rapke referred to an application to restrain the respondent on 13 July 2009, when Bongiorno J ordered the issue of an arrest warrant pending a contempt hearing, upon evidence of the respondent's intention to leave the country. The respondent was briefly taken into custody. 16 On 14 July 2009, Byrne J, on the respondent delivering his passports to his solicitor and being ordered not to leave the State of Victoria, ordered that the respondent be released from custody. 17 In October 2009, Habersberger J ordered that the travel restrictions on the respondent be extended and gave reasons. On 13 October 2009, his Honour ordered that unless the respondent paid $2.1 million into court as security for compliance with Kyrou J's freezing orders, the travel restrictions be continued. 18 On 17 December 2009, Kyrou J extended the travel restrictions until 5.00pm on Friday, 5 March 2010. 19 An application to Beach J for an extension of the travel restriction was, however, dismissed on 4 March 2010. 20 In his reasons for judgment given on 13 October 2009, Habersberger J found that: (a) the respondent had a connection with Australia with family members, a wife, children and grandchildren in Melbourne and had access to his former residence, now owned by his wife; (b) there was an unacceptable risk that if the respondent left Australia and returned to the Czech Republic, he would ignore the freezing orders and deal with properties remaining in his name in Slovakia and Dresden, Germany; (c) the respondent had given certain other properties to his two sons resident in the Czech Republic, despite a previous denial of intention to do so; (d) the respondent had transferred certain land, having misled the applicants and his own legal representatives about that matter; and (e) the respondent gave no credible explanation for giving away most of the properties at the time and in particular, giving them to his two children overseas, to the exclusion of his children resident in Australia. 21 Habersberger J concluded that the respondent had demonstrated "that he is determined not to allow the plaintiffs to enjoy the fruits of any legal victory against him" and that "if the no departure injunction is not made the defendant will leave Australia sooner rather than later" [2009] VSC 444, [65]. 22 In his second affidavit, Mr Rapke deposed to an oral examination of the respondent by Associate Justice Daly of the Supreme Court as follows: 4. On 19 February 2010 and 22 February 2010 the Respondent was orally examined before Associate Justice Daly in the Supreme Court of Victoria as to:

(a) whether, and if so what debts are owing to the Respondent;

(b) whether the Respondent has any, and if so, what other property or other means of satisfying the Judgment;

(c) why the Respondent has failed to satisfy the Judgment;

(d) the steps taken by the Respondent to transfer the properties in the Czech Republic to his sons, David Talacko and Paul Anthony Talacko;

(e) the steps taken by the Respondent to withdraw the transfers of the properties in the Czech Republic to his sons David Talacko and Paul Anthony Talacko, as ordered by Justice Kyrou on 11 June 2009, 23 June 2009, 16 July 2009, 24 July 2009 and 10 August 2009; and

(f) any other questions concerning or in aid of enforcement or satisfaction of the Judgment.

5. I am informed by Stephen Howells, the Counsel I retained to appear at the oral examination and verily believe that the evidence given at the oral examination revealed that the Respondent does not hold any assets in Australia capable of satisfying the Judgment. 23 Mr Rapke also deposed to the respondent's notice of appeal from a preliminary judgment of Osborn J and from the judgment of Kyrou J dated 11 January 2010 and the respondents' notice of cross appeal dated 25 January 2010. 24 The third Rapke affidavit deposed to orders made by Kyrou J on 11 June 2009 restraining the respondent from dealing with properties located in the Czech Republic. It exhibited two unwitnessed affidavits of the applicants' Czech attorney outlining events which he believed had occurred in relation to them. 25 At the hearing, the respondent sought and obtained leave to file and serve: (a) the first affidavit of Michael Witt sworn 5 March 2010; and (b) the second affidavit of Michael Witt sworn 5 March 2010. 26 In his first affidavit ("the first Witt affidavit"), Mr Witt, of the solicitors for the respondent deposed that Kyrou J had found that the respondent spent approximately six months of every year in the Czech Republic and six months in Australia. 27 Mr Witt also deposed to the cross appeal and to the hearing on 4 March 2010 before Beach J in the settlement proceeding, in which his Honour dismissed the applicants' summons seeking to extend the travel restraint orders and dismissed all but order 7 of the applicants' summons seeking enforcement orders. 28 Mr Witt set out notes he made which indicated that Beach J concluded that the applicants had demonstrated no more than a possibility that the respondent's continued detention might assist in enforcing the judgment. 29 The second Witt affidavit referred to matters deposed to in the first Rapke affidavit and to the oral examination of the respondent before Daly AsJ on 19 and 23 February 2010, in which he produced copy bank accounts and tax returns, which disclosed that he had, in essence, no real or personal assets in Australia and no personal assets in the Czech Republic or elsewhere, other than for the relatively modest bank balances disclosed.

The Parties' Principal Contentions 30 The respondent objected to the admission of all the principal parts of the Rapke affidavits, submitting that they contained or constituted tendency evidence of which (irrespective of whether the Court thought that it would have significant probative value) reasonable notice had not been given, as required by s 97(1)(a) of the Evidence Act 1995 (Cth). Further, the failure to give such notice had not been explained. 31 The respondent also relied on s 91(1) of the Evidence Act, which provides: Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding. 32 In relation to the unsworn affidavits of the applicants' Czech attorney exhibited to the third Rapke affidavit, counsel for the respondent submitted that he was not in a position to cross‑examine the maker, and the evidence should be excluded under s 135 of the Evidence Act. 33 The respondent submitted that there was no clear case sufficient to justify the imposition of restraints on the respondent's liberty. There was no rationally probative evidence that his presence in Australia was necessary to the administration of the estate. 34 Senior counsel for the respondents contended that even if the hearsay or tendency evidence were admitted, it did not establish that the respondent might abscond in the sense of permanently absenting himself, but rather, suggested that he had returned to Australia on previous occasions. Further, it did not establish that the respondent's physical presence in Australia was necessary for, or would assist in, the administration of the estate. 35 Counsel also submitted that the applicants had, by their application to this Court, engaged in "forum shopping", as in substance, they sought the same relief recently refused by Beach J. 36 The applicant, while conceding that notice had not been given in relation to tendency evidence, sought a dispensation pursuant to s 100(1). Senior counsel submitted that applications under s 50 of the Act were interlocutory and typically made ex parte, and, as provided by s 75 of the Evidence Act, the hearsay rule did not apply if the party adducing it gave evidence of its source. That condition had been satisfied. 37 Further, in the circumstances of the case, where the relevant materials such as orders and judgments were familiar to the respondent and the applicants' intention to refer to them could be readily inferred, a notice under s 97(1)(a) could properly be dispensed with. 38 In my view, the Rapke affidavits were admissible in the context of an interlocutory application pursuant to s 50 of the Act. I was not persuaded that the material exhibited to the third Rapke affidavit should be excluded. 39 The applicants submitted that orders pursuant to s 50 and incidental relief under s 30 of the Act were necessary in order to ensure the effective administration of the estate, in circumstances where: there was an unsatisfied judgment for a very large sum; the tendency evidence demonstrated that, absent such orders, the respondent would be likely to leave Australia and deal with or dispose of remaining properties; the respondent's presence overseas and his concomitant absence from Australia would create a significant impediment to the investigation, preservation and protection of the estate; the Czech Republic had not enacted the United Nations Commission of International Trade Law Model Law on Cross-Border Insolvency; the debtor had not demonstrated any ability to pay the debt and a sequestration order was likely; and, irrespective of the notice of appeal, the judgment debt was not stayed and no application to set aside the bankruptcy notice had been made or foreshadowed. 40 Senior counsel for the applicants submitted that the applicants' reliance on the relevant evidence was explicable, given the unusual circumstances, including the prior litigation.

discussion 41 In Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118 at 123, Neaves J stated: Amendment of s 50 effected by the Bankruptcy Amendment Act 1987 "The section [s 50] is clearly a provision in aid of the creditors of a debtor who has already committed an act of bankruptcy and has a creditor's petition pending against him. It is a necessary and ancillary provision designed to enable appropriate steps to be taken to preserve and protect the property of a debtor so that, in the event of a sequestration order being made, that property will be available for distribution equitably amongst them in accordance with the statutory provisions contained elsewhere in the Bankruptcy Act 1966. That this is its purpose is reinforced by consideration of the provisions contained in s 50(2) with their emphasis on obtaining information concerning the debtor or his trade dealings, property and affairs."

42 In Tasman KB Pty Limited v Watkins [2004] FCA 1190, Allsop J made orders under s 50 of the Act appointing a registered trustee of the respondent debtor's property and restraining the debtor from transferring, disposing of or dealing with assets in circumstances where the debtor appeared to have altered cheques, defrauded the applicant of moneys and attempted to use bank accounts contrary to Mareva injunction orders.

43 In Re Allan Joseph Brazell Ex parte: Royal Nominees [1995] FCA 1276 ("Brazell"), Cooper J acknowledged that s 78 of the Act dealt specifically with the case where a debtor sought to flee the jurisdiction and s 30 of the Act should not be construed so as to impinge on or reduce common law rights. His Honour did not decide whether s 30(1)(b) empowered the restraint of a person leaving the jurisdiction prior to the making of a bankruptcy order, but declined to order such restraint. 44 Cooper J nevertheless considered that the debtor's passport was in a different position. The passport was property of the Commonwealth and, as there was before the Court no specific proposal in relation to overseas travel, the passport could properly be held by the Court without imposing any present impediment to any common law right of travel. The debtor's common law rights could be protected if he were permitted to apply to the Court for delivery up of his passport in relation to a specific and identifiable journey, with evidence of a present intention to return to Australia. 45 As the authorities recognise, curial restraint and caution must be exercised in relation to curtailing or interfering with a person's travel and freedom of movement, even in a bankruptcy context. 46 In Weiss v Official Trustee in Bankruptcy (1983) 1 FCR 40, 43, Bowen CJ stated: I am conscious of the fact that the evidence revealed in his public examination suggests that he has committed various offences against the Bankruptcy Act 1966 (Cth) which have characteristics involving nondisclosure and concealment. However, these are matters to be litigated at the proper time. It is a basic principle that a resident of Australia is entitled to expect that he may travel freely notwithstanding the fact that he is a bankrupt provided it will not lead to his staying overseas in order to defeat or delay his creditors and provided it will not interfere with the due administration of his bankrupt estate (see Tyndall's case at 15). It is to secure the proper administration of bankrupt estates that bankrupts are required by the Bankruptcy Act 1966 (Cth) to give their passports to the trustee (par 77(a)) and to obtain the permission of the trustee before travelling overseas (par 272(c)). This interference with the travel of bankrupts is not for the purpose of punishing or expressing disapproval of them for offences or alleged offences against the Bankruptcy Act 1966 (Cth). 47 Finkelstein J, in ASIC v Wiggins (1998) 90 FCR 314, 320 made observations to similar effect in relation to an application to order a director to remain in Australia to assist in ASIC investigations. His Honour stated: In my view the power to restrain a person from leaving the jurisdiction or requiring a person to deliver up his passport, which would have the same effect, is a power that should be exercised with great caution. I regard any restriction on a person's individual freedom of movement from one country to another as being a sufficiently serious interference with that person's personal rights and liberties that the power to impose the restriction should be exercised only in the most clear case. Thus, in circumstances such as the present where the orders are sought for the purposes of assisting a current investigation that is being conducted by the ASIC, unless it is shown that the investigation cannot properly or effectively be conducted in the absence of the person, the orders should not be made. 48 Finkelstein J concluded that the appropriate course was to seek undertakings from the respondent's solicitor as to the control of the respondent's passport, which was currently in the solicitor's possession. 49 Section 50 of the Act is aimed at facilitating the preservation and protection of the debtor's property, so that in the event of sequestration, it will be available for equitable distribution to creditors. The considerations relevant to making an order thereunder differ from those relevant to the enforcement of a judgment and the present application differs from those recently made before the Supreme Court of Victoria.

conclusion 50 In my view, the applicants have established that orders broadly in the terms sought in paragraphs 1(a) and 1(b) of the applicants' Contentions are necessary in the interests of creditors. 51 The order in paragraph 1(a) will, however, require adjustment to reflect its application only to certain properties listed in Attachment A. 52 In my opinion, for the reasons given by Cooper J in Brazell, travel restraints should not be imposed on the respondent in the terms sought pursuant to s 30 of the Act. Rather, as in Brazell, the appropriate course is to order that the respondent's passports be delivered to the Court or his solicitor, from whom appropriate undertakings should be sought. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-streeton.