Tov-Lev v Lowbeer

BETWEEN: RABBI DR SAMUEL TOV-LEV, DAVID CLIFFE AND JOSEPH DE VARDA

JUDGE: RARES J DATE OF ORDER: 11 MARCH 2014 WHERE MADE: SYDNEY

1. The application be dismissed.
2. The applicants pay the respondent's costs. 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 84 of 2014 NSD 130 of 2014

ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA

BETWEEN: RABBI DR SAMUEL TOV-LEV, DAVID CLIFFE AND JOSEPH DE VARDA

JUDGE: RARES J DATE: 11 MARCH 2014 PLACE: SYDNEY

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 Rabbi Dr Samuel Tov-Lev, David Cliffe and Joseph de Varda, the appellants, have filed two proceedings against John Lowbeer, the respondent. The first, an appeal against orders made by the Federal Circuit Court on 20 December 2013 making sequestration orders against each of the appellants: Lowbeer v Tov Lev [2013] FCCA 1813; and the second, an originating application that seeks the annulment of those sequestration orders under s 153B of the Bankruptcy Act 1966 (Cth). 2 The trial judge ordered stays for 21 days of each sequestration order under s 52(3) of the Act. On 5 February 2014, a judge of the Court ordered a further stay pending determination of the appeal. On 14 February 2014, I ordered, among other things, that: the appellants file, in the annulment proceedings, an amended application joining, as a respondent, their trustee in bankruptcy, and serve the same on or before 18 February 2014; the appeal and the annulment application be heard together, and that evidence in one be evidence in the other. 3 The appellants ignored the order to join and serve their trustee, and there is no evidence that they have even informed their trustee of the annulment proceedings. On 18 February 2014, the appellants also filed an interlocutory application in the annulment application seeking the substantive relief they sought. The interlocutory application added nothing to the content of the annulment application. 4 There was very little in the appeal or application papers that could be characterised as evidence, but there are many assertions in those materials. The solicitor for the respondent prepared a bundle of further documents, some of which consisted of judgments involving the parties in other proceedings in the Supreme Court of New South, and evidence that had been filed in those proceedings. I have tried to ascertain the areas of common ground from this material, together with the matters that have been proved in evidence at the hearing, in the account of the facts that follows.

The legislative scheme 5 Relevantly, ss 40(1)(g), 52(1) and (2) and 153B(1) of the Bankruptcy Act provide: "40 Acts of bankruptcy (1) A debtor commits an act of bankruptcy in each of the following cases: ... (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not: (i) where the notice was served in Australia - within the time specified in the notice; comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained; … 52 Proceedings and order on creditor's petition (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. … (2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition. … 153B Annulment by Court (1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy."

Background 6 The appellants and the respondent were all associated with a company limited by guarantee, The Strathfield and District Hebrew Congregation (the company), which owned the land and buildings known as the Holocaust and War Memorial Synagogue at Strathfield. Dr Tor-Lev was the Rabbi at the synagogue and lived in the associated rabbinical residence. Mr Lowbeer was the auditor of the company, in his capacity of being a director of Caunt and Lowbeer Audit Pty Ltd, or Caunt and Lowbeer Pty Ltd, or a partner with Mr Caunt. The peaceful purpose of the Synagogue failed to prevent the unfortunate dispute that developed in around April 2011 within the company and its members. 7 The company's memorandum and articles of association comprised its constitution. Relevantly, the memorandum provided that the objects for which the company was established included cl 20, namely: "In furtherance of the objects of the Association and subject to the provisions of this Memorandum to indemnify any person firm or corporation against any liability loss or damage whatsoever." 8 Article 82 provided that: "Without in any way restricting the generality of the powers conferred by Article 81 or any other powers conferred by these Articles it is hereby expressly declared that the Board of Management shall have the following powers that is to say: (6) In furtherance of the objects of the Association to give indemnities by the Association to any person against any liability loss or damage." 9 Article 116 was a standard form article providing for indemnity of officers in the following terms: "Every member of the Board of Management or officer of the Association, or any person (whether an officer of the Association or not) employed by the Association as Auditor shall be indemnified out of the funds of the Association against all liability incurred by him as such member or officer or Auditor in defending proceedings whether civil or criminal in which judgment is given in his favour or in which he is acquitted or in connection with any application under Section 361 of the Companies Act 1936 in which relief is granted to him by the Court." 10 The appellants alleged that the company had not held any annual general meetings for many years, perhaps as far back as 1996. They appear to have called an extraordinary general meeting that occurred on 17 April 2011. There was an issue as to whether that meeting was properly convened. The business of that meeting was to remove the existing board and auditor (Mr Lowbeer), and to elect new persons as directors. That meeting appeared to have resulted in the election of eight persons associated with the appellants, including Mr de Varda and Mr Cliffe, as directors of the company (the new board) to replace the old board comprised of those who had been acting as its directors. 11 On 18 April 2011, the appellants or their associates lodged a form notifying changes to company details with the Australian Securities and Investments Commission (ASIC). That form included the appointment of Mr de Varda and Mr Cliffe as directors of the company. They also lodged a form with ASIC recording the purported removal of Mr Lowbeer as auditor. 12 On 18 April 2011, the appellants requested Mr Lowbeer to resign as the company's auditor and agent for dealing with ASIC on behalf of the company, and to hand over its corporate key. He refused to do so, and wrote to ASIC in terms that did not find favour with the new board and those associated with the appellants. 13 I accept Mr Lowbeer's evidence that he did not receive any, let alone the nearly two months' notice to which he was entitled, of the appellants' proposal for his removal as auditor of the company, in accordance with s 329 of the Corporations Act 2001 (Cth), and so his tenure in that office continued by force of s 327B(2) of the Act. 14 The associates of the old board convened their own annual general meeting of the company and elected other directors, or re-elected the old board, on 1 May 2011. I will continue to call the directors elected on 1 May 2011 the "old board" for convenience in referring to the present board which is opposed to the new board associated with the appellants. Mr Lowbeer promptly lodged, on 2 May 2011, a new form notifying a change to the company with ASIC. That appears to have caused ASIC to record the removal of the new board and their replacement by the old board. 15 These occurrences led the parties and their associates into an imbroglio of bitterly-fought litigation and administrative proceedings in which the appellants have not fared well to date. The rabbi has had to leave the rabbinical residence associated with the Synagogue, and the appellants have all been made bankrupt. 16 The accounts of the company in evidence begin with a profit and loss statement for the year ended 30 April 2011, with comparative figures for the preceding 2010 year. The item for accountancy fees recorded an expense of $253 in each year. A tax invoice addressed to the company by Caunt and Lowbeer Pty Ltd dated 12 April 2011 required payment of $253 for professional accountancy and secretarial services, rendered for the period ended 12 April 2011. It specified the work performed as maintenance of the corporate register system, review of an ASIC company statement, preparation of declaration of solvency and attendance to other corporate matters as required. That invoice appears to have been paid on 26 April 2011. 17 The appellants contended that, on about 1 May 2011, the old board agreed to pay Mr Lowbeer $7,500 for his efforts in securing the new board's removal from ASIC's registers and its replacement by the old board. The appellants contended that this payment was a bribe to Mr Lowbeer. They asserted that, on 8 November 2011, two members of the old board wrote a company cheque for $7,500 in favour of Mr Caunt, who endorsed it on 14 November 2011 to Caunt and Lowbeer Audit Pty Ltd. Mr Cliffe claimed that the cheque was made out to Mr Caunt to obfuscate forensic examination of the payment of the $7,500 as a bribe, and somehow to avoid investigation into Mr Lowbeer's conduct when he attended the 1 May 2011 meeting and secured the arrangements for the payment. The appellants also asserted that the 1 May 2011 annual general meeting of the company convened by the old board was for the 2010, and not 2011, year, and that the old board had fabricated company records for the preceding 14 annual general meetings. 18 Mr Lowbeer gave evidence, which I accept as truthful. He said that he attended the annual general meeting on 1 May 2011 as auditor. He and his firm had performed the auditor's role for many years on an honorary basis, and the $253 charge represented annual fees for lodgement of statutory returns. At the 1 May 2011 meeting, he was surprised to hear a proposal that a fee of $7,500 be paid to his company for audit work. That proposal became a resolution that was passed. Mr Lowbeer knew that, on 30 June 2011, he would be retiring from active practice with Caunt and Lowbeer Pty Limited and its associated companies. He denied that he was paid or received any part of the $7,500 fee. He also denied the appellants' accusations that he was paid, or it was proposed that he be paid, $7,500 or any part of it in cash and that the payment was a bribe. I accept his evidence and denials.

The Supreme Court proceedings 19 On 30 June 2011, the appellants and some of their associates, as plaintiffs, filed a summons in the Supreme Court of New South Wales to begin proceedings against, first, the old board as the first defendants, and Mr Lowbeer as the second defendant. The reasons of Nicholas J, given on 16 February 2012, provide the history of the next stages of that litigation. The plaintiffs represented themselves throughout most of those proceedings, as they represented themselves in the proceedings in the Federal Circuit Court and here. 20 A consent order made on 4 November 2011 provided for the matter to proceed by way of pleadings. The defendants obtained orders from Hallen AsJ striking out the amended statement of claim and requiring the plaintiffs to pay the defendants' costs of the notices of motion, with costs to be assessed and payable forthwith. He directed that no further statement of claim be filed without either the consent of each defendant or the leave of the Court and that any application for such leave be filed and served on or before 1 December 2011. The plaintiffs did not make any such application within that time. The plaintiffs sought to set aside those orders and, on 9 December 2011, Bergin CJ in Eq encouraged Mr de Varda, who was apparently representing the plaintiffs at that point, to obtain legal representation. That did not happen. 21 On 15 February 2012, Nicholas J dismissed both the plaintiffs' motion seeking to set aside Hallen AsJ's order and the proceedings. On 16 February 2012, his Honour also dismissed the plaintiffs' motion seeking to have the proceedings referred to the Director of Public Prosecutions. His Honour also ordered that the plaintiffs pay the defendants' costs that were to be assessed and payable forthwith. 22 Next, on 11 October 2012, the plaintiffs filed a notice of motion seeking an extension of time to comply with Hallen AsJ's earlier orders so that they could file an amended pleading. On 15 November 2012, Black J dismissed that motion in a reserved judgment: De Varda and Tov-Lev v The Board of Directors of The Strathfield and District Hebrew Congregation Ltd [2012] NSWSC 1377. As McDougall J subsequently recorded later in his reasons of 5 July 2013 (De Varda and Tov-Lev v The Board of Directors of The Strathfield and District Hebrew Congregation [2013] NSWSC 920), Black J later ordered the plaintiffs to pay the costs of the motion he had dismissed, and noted that the effect of Nicholas J's order was that the proceedings in the Supreme Court had been dismissed. 23 On 23 April 2013, Mr Lowbeer obtained the benefit of a costs assessment that was entered as an order of the Supreme Court on 24 April 2013. That order required the plaintiffs, including the appellants, to pay Mr Lowbeer $48,212.62 (the 2013 costs order). 24 On 21 May 2013, at the respondent's request, the official receiver issued a bankruptcy notice addressed to the plaintiffs in the Supreme Court proceedings, including the appellants. The notice was based on the 2013 costs order and required the judgment debtors to pay the respondent the sum of $48,212.62, or to make arrangements to his satisfaction for the settlement of that debt. Each appellant was served with the bankruptcy notice and each failed to comply with it within the time limited for compliance. The acts of bankruptcy of Mr Cliffe occurred on 13 June 2013, of Mr de Varda on 15 July 2013, and of the Rabbi on 12 August 2013. 25 On 14 June 2013, the Supreme Court entered an order in favour of the old board that the plaintiffs pay them $84,478.85. 26 At the hearing on 5 July 2013, the appellants asked McDougall J to set aside the earlier orders of Nicholas J and Black J on the basis the respondents had procured them by fraud. The fraud alleged was that the defendants' lawyers had given Nicholas J, in the course of the hearing on 16 February 2012, an inaccurate version of the plaintiff's amended statement of claim under review by his Honour, the original having disappeared from the file that was before Hallen AsJ. The plaintiffs alleged that an accurate and inaccurate versions of that pleading had been put before both Black J and McDougall J. Each of their Honours concluded that the somewhat different form of two of the 14 pages of the supposedly inaccurate versions were likely to have been included as the result of a collation error, and that the 12 other pages were identical. 27 The appellants tendered in evidence before me four versions of what they said was the amended statement of claim. However, there was no verification of which of those four was said to be the accurate version. 28 Black J, whose view was independently endorsed by McDougall J, said of the versions of the amended statement of claim before their Honours: "The remaining 12 pages of those documents are identical and the more likely explanation for the difference between those documents is human error in collating the document rather than fraud. It is apparent from the 12 pages of those documents that are identical that the pleading manifestly fails to comply with the requirement for a proper pleading. In particular, those documents contain numerous claims for relief which are scattered without apparent logic within that part of the Statement of Claim which ought to be pleading the material facts relied upon, and, to the extent that material facts are identified, this is typically done by way of particulars rather than by pleading them in a manner to which the Defendants could properly respond by way of defence. It would, in my view, have been impossible for the Defendants to file a coherent defence to the then Statement of Claim, given the manner in which it was structured, and that conclusion would have followed irrespective of any error in the two pages of that document in the exhibit placed before Nicholas J." 29 The position has not been improved by the multiplication of documents tendered in evidence before me. McDougall J concluded ([2013] NSWSC 920 at [26]) that the material relied on by the appellants "goes nowhere near showing irregularity or want of good faith, let alone fraud". He dismissed the appellants' motions.

The subpoenas issued in the proceedings in the Federal Circuit Court 30 Mr Lowbeer presented creditor's petitions against each of the appellants in the Federal Circuit Court, and they proceeded together to trial before the trial judge. 31 In the meantime, on 30 September 2013, the appellants issued four subpoenas to attend court to give evidence and produce documents, and one subpoena just to give evidence. The subpoena to Mr Lowbeer sought production of the company's accounts lodged by him and Caunt and Lowbeer Pty Ltd with ASIC from 1998 to 2013, all tax invoices issued by them to the company, payments made to them by the company in the period 1998 to October 2013, payment of the $7,500 and its related tax invoices, and their correspondence with ASIC as well as the old board in relation to the company, including the removal of the new board and its replacement on 1 May 2011. The subpoena to one of the plaintiffs, Beth Lipovic, sought documents including correspondence between her and the old board relating to agreements about the costs orders in the Supreme Court in relation to the plaintiffs other than the appellants. The subpoena to Eddy Neumann, who appears to be the president or chairman of the old board, sought minute books of the company from 1998 to 2011, the minutes of the annual general meetings produced to the Supreme Court and the Consumer, Trader and Tenancy Tribunal for the period 1998 to 2011, annual financial statements of the company, its registers of members, tax invoices issued by Mr Lowbeer and Caunt and Lowbeer Pty Ltd to the company, payments made by the company to Mr Lowbeer and Caunt and Lowbeer Pty Ltd, all in the period from 1998 to 2011, documents relating to the payment of $7,500, and documents relating to the removal of the new board and its replacements that were lodged with ASIC by Mr Lowbeer and his company. Another subpoena, addressed to Adolf Schneider, required him to produce all tax invoices and payments [sic] made by the company to Mr Lowbeer and Caunt and Lowbeer Pty Ltd, and documents relating to the $7,500, together with documents relating to membership of the company. A further subpoena was issued to Samuel Steif to give evidence. 32 On 15 October 2013, the solicitor for Mr Lowbeer and Mr Neumann applied to the Federal Circuit Court to set aside those subpoenas. A registrar made an order setting the subpoenas aside on 22 October 2013. The appellants sought review of that decision by the trial judge at the hearing of the petitions.

The proceedings before Garling J 33 In the meantime, the new board moved to evict the Rabbi from his rabbinical residence. He failed in his challenge to that eviction in the Tribunal. 34 On 30 October 2013, the appellants were before Garling J in new proceedings in the Supreme Court that they had commenced against the solicitor who had acted for Mr Lowbeer, David Austin of Austin Legal Solicitors. Initially, the appellants claimed against Mr Austin in negligence. At the hearing, the appellants informed his Honour that they wished to amend the statement of claim in some way, apparently to allege fraud in procuring the 2013 costs order and the decision of the Tribunal. 35 His Honour struck out the statement of claim. He then ordered that, on or before 9 December 2013, the appellants were to file and serve any notice of motion for leave to file an amended statement of claim with the proposed amended statement of claim annexed, and directed them to file an affidavit or affidavits setting out all facts, matters and circumstances upon which they relied to support the proposed amended statement of claim by that time: De Varda v Austin Legal Solicitor [2013] NSWSC 1919. His Honour had regard to the history of the earlier proceedings in the Supreme Court against the old board and Mr Lowbeer, and those in the Tribunal. He observed that the proceedings against Mr Austin, while ever he remained a defendant, necessarily represented a collateral attack on the earlier decisions. He said that the principle of finality in litigation was a basal principle of law and that parties were not able to continue to litigate matters that had already been decided against them. He said that there was one exception to that principle of finality, being that within very limited circumstances such litigation may be permissible where fraud can be demonstrated. Garling J said at [13]: "I emphasise that those circumstances are limited, and the fraud [must be] capable of being pleaded and proved." 36 His Honour observed that he very much doubted whether there was any basis upon which the appellants could propound such a case but that he would await the appearance of the proposed pleading before making a determination as to whether they could succeed.

The hearing of the creditor's petitions 37 The appellants relied on a number of grounds of opposition to the bankruptcy petitions which were all heard together by the trial judge. They filed in the Court below on 6 November 2013 a further amended notice of grounds of opposition which, among other matters, asserted that Mr Lowbeer had been paid his costs out of the company's funds and that the appellants had a right of indemnity, as protectors of the Synagogue, to be paid costs to meet any claim by Mr Lowbeer against them under the 2013 costs orders. That further amended notice of grounds of opposition was superseded by a second further amended notice of grounds of opposition filed in the Court below on 15 November 2013. Those grounds again relied on the assertion that Mr Lowbeer had been paid his costs out of the company's funds. The appellants relied on the rights of indemnity of both themselves and Mr Lowbeer under cl 20 of the memorandum and Art 116 of the company's constitution. They said that they had incurred the costs for which they had been found liable in the Supreme Court for the benefit of the company. They contended that Mr Lowbeer had been paid his costs by the company pursuant to Art 116. They asserted that there were irregularities in the appointment of the old board both before and after 1 May 2011, and that the old board and Mr Lowbeer had acted in breach of the Corporations Act by removing the new board as directors of the company.

The trial judge's reasons 38 Following hearings on 6 and 15 November 2013, and further submissions the last of which was received on 11 December 2013, the trial judge delivered reasons for judgment and made the sequestration orders on 20 December 2013. He held, and there is no suggestion that he was in error, that the three petitions had been supported by the affidavits of Mr Austin verifying their service, affidavits of debt and of search of the National Personal Insolvency Index. His Honour said that prima facie the petitioning creditor, Mr Lowbeer, was entitled to the sequestration orders. He recorded the basis on which the grounds of opposition filed on 15 November 2013 had proceeded. He referred to the numerous allegations made by the appellants arising out of the dispute between members of the company, and to the proceedings in the Supreme Court and the Tribunal. 39 His Honour recorded that the appellants were inviting him to look behind the judgment debt on the basis that it had been obtained by fraud and that the wrongdoing that they alleged justified dismissal of the petitions. He noted that, alternatively, the appellants had sought that the Court refrain from making sequestration orders until all issues in the Supreme Court proceedings before Garling J had been resolved. His Honour referred to the appellants' assertions against Mr Lowbeer in relation to the $7,500, that Mr Austin provided false company records to the Tribunal in the proceedings that had been instituted to gain possession of the rabbinical residence and that they had the rights of indemnity as protectors of the Synagogue in the earlier Supreme Court proceedings as a result of the provisions in the memorandum and articles of association of the company to which I have referred. 40 His Honour considered the appellants' argument to support review of the orders made by the registrar setting aside the subpoenas. He found that the documents sought by the subpoenas had been sought for the purposes of agitating the issues of alleged malfeasance, the subject of the new Supreme Court proceedings before Garling J, and that if the documents were required for those proceedings, they could be sought by a process issued by the Supreme Court. Accordingly, he refused to interfere with the registrar's orders setting aside each of the subpoenas. 41 Next, his Honour found that the appellants' claim for indemnity under Art 116 failed because that provided only for costs incurred by a person as a respondent to legal proceedings concerning the affairs of the company and so could not apply to the appellants because they were the plaintiffs in the Supreme Court proceedings. His Honour construed cl 20 of the memorandum as being expressly subject to the provisions of Art 116 and so held that cl 20 was not applicable. 42 The trial judge found that the claim that Mr Lowbeer had been bribed by a payment of $7,500 had been raised in the Supreme Court proceedings but had been dismissed for want of pleadings. He found that further articulation of that claim in the Supreme Court had been stayed until the appellants paid the costs of the earlier proceedings, part of which supported the creditor's petitions. 43 The trial judge referred to the proceedings before Garling J, noting that the appellants had informed the Federal Circuit Court by letter that they had complied with Garling J's orders and the matter was relisted for further directions on 7 February 2014. The trial judge noted that the appellants had sought an extension of time until 14 February 2014 in the creditor's petitions proceedings to make further submissions. 44 His Honour found that, on 11 December 2013, Mr Lowbeer's solicitor had provided copies of the latest documents that the appellants had filed in the Supreme Court. Those included an amended statement of claim that was not filed as an attachment to a notice of motion in accordance with Garling J's orders. Mr Lowbeer submitted to the trial judge that there was no reason to delay further the decision on the creditor's petitions. His Honour set out remarks by Black J ([2012] NSWSC 1377 at [16]-[17]) in his reasons where he had struck out the further amended summons or further amended statement of claim relied on by the plaintiffs and dismissed their notice of motion seeking an extension of time for compliance with the Supreme Court's earlier procedural orders. The trial judge said that he had no confidence that the appellants would have any more success in the latest proceeding in the Supreme Court than they had previously. He then rejected the grounds of opposition. 45 The trial judge said that none of the appellants had raised an issue of solvency and that he knew nothing of their financial circumstances. He found that he was unable to say whether the sequestration of the estate of any of them would be sufficient to deal with the debts that they owed jointly and severally. He observed that it was unfortunate he had been left in that position, where he did not know whether sequestration orders were necessary. He had invited the appellants to make submissions on the question of whether, if he were persuaded that a sequestration order ought be made, it ought be made against only one of them, but they declined that opportunity. Accordingly, he ordered that each of their estates be sequestrated.

The appeal and annulment application 46 The appellants filed a notice of appeal in this Court. They also sought an order under s 153B of the Bankruptcy Act, as I have said, in separate proceedings commenced on 7 February 2014, for an annulment of the sequestration orders made by the trial judge. The basis of the claim for annulment was substantively the same as their grounds of opposition below, and referred, among other things, to their notice of appeal, making observations about how the trial judge had made errors in his reasons for granting the sequestration orders. 47 The appellants filed affidavits in the annulment proceedings that were a mixture of submissions, repetitions of earlier arguments and affidavits made in the Supreme Court proceedings. They asserted that, because of the sequestration orders, Mr de Varda had not been able to sign an investment agreement with an investor that was worth $180 million in respect of his solar energy invention to build a solar photovoltaic and nanotechnology laboratory. 48 I have extracted already, in the account set out above, the substantive evidentiary matters that emerged from those affidavits. The basis of the interlocutory application in the annulment proceedings was the need for urgent relief so that Mr de Varda could enter into the $180 million agreement. No evidence of any such draft agreement, or even the identity of the company, person or the firm with whom he claimed to have made the arrangement, or otherwise, was produced by Mr de Varda or the other appellants. 49 During the course of the hearing before me, the appellants tendered a cheque dated 30 April 2013 in favour of Caunt and Lowbeer drawn by the company for $13,635.12. That appeared to suggest that there may have been payments of the kind alleged by the appellants for which they had sought evidence through the subpoenas. I admitted that cheque into evidence. 50 Mr Lowbeer then tendered correspondence entered into between himself and Mr Neumann in early May 2013. Mr Lowbeer wrote, in an email of 2 May 2013, that he was very disappointed that the old board had not sent a cheque for the whole of the legal costs that Caunt and Lowbeer had incurred, having previously been advised that the old board had approved full payment of those costs. He inquired whether Mr Neumann would give Mr Austin instructions to commence bankruptcy proceedings since no one had responded to letters of demand for the payment of the 2013 costs order sent to "everyone (except the Rabbi ???) [sic]" so that the appellants could be made bankrupt as soon as possible. Mr Neumann responded the next day saying that he had not been able to get consensus without a face to face board meeting, other than to pay the difference between the party/party and solicitor/client costs, being $13,635.12. He observed that, since Mr Austin was acting for Mr Lowbeer in the enforcement of the 2013 costs order and the time given in the letters of demand had expired, Mr Lowbeer could instruct Mr Austin to commence bankruptcy proceedings against such persons as Mr Lowbeer chose to sue, whom he said should include Mr de Varda and Mr Cliffe. Mr Neumann wrote that Mr Lowbeer could then look to the company for the costs that had not been recovered and that Mr Austin would be put in the funds necessary for issuing and serving bankruptcy notices. On 6 May 2013, Mr Lowbeer responded, voicing his disappointment, but accepting the interim payment. He noted that Caunt and Lowbeer did not have any cost agreement with Mr Austin, and sought confirmation that the company would cover the costs of recovery from all the people that his company decided to sue. 51 Mr Lowbeer gave evidence that he had not been paid any money, and that Caunt and Lowbeer had only received the $13,635.12 in respect of the costs. He understood that Caunt and Lowbeer, from which he had retired in mid-2011, had incurred all of the legal costs the subject of the assessment under which the 2013 costs order had been assessed. I accept Mr Lowbeer's evidence.

Consideration - should the trial judge have restored the subpoenas? 52 The trial judge made an error in dismissing the application to review the registrar's orders setting aside the subpoenas on the basis that he found. I am satisfied that the subpoenas were sought for the purposes of obtaining evidence to support the appellants' notices of opposition, which his Honour was determining. However, in my opinion, the subpoenas were incapable of achieving that result. 53 It is not a legitimate forensic purpose to allow a subpoena to be issued or called on in the speculative hope that they could prove an unparticularised claim. It is not appropriate for a subpoena to be used to support a mere fishing expedition: Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250 at 254 per Owen J, with whom Street CJ and Herron J agreed. But it may be that where it appears to be "on the cards" that documents would materially assist a person in the litigation, a proper and sufficient forensic purpose for allowing the subpoena to be called on can be established: see R v Saleam (1989) 16 NSWLR 14 at 18A-B per Hunt J, with whom Carruthers and Grove JJ agreed; Alister v The Queen (1984) 154 CLR 404 at 414 per Gibbs CJ: and see also at 454-456 per Brennan J. 54 Ordinarily, where documents of a corporation are sought in a subpoena to produce documents, the subpoena should be addressed to its proper officer: Rochfort v Trade Practices Commission (1982) 153 CLR 134 at 139-140 per Gibbs CJ, 146 per Mason J (applying Penn-Texas Corporation v Murat Anstalt (No 2) [1964] 2 QB 647 at 661-664 per Lord Denning MR), 151 per Wilson J. That did not occur here. Rather, the persons to whom the four subpoenas to produce were issued were not persons who ordinarily would have possession of the documents sought, although that was a possibility. 55 Mr Lowbeer said that all of Caunt and Lowbeer's records had been subpoenaed in the Supreme Court proceedings in 2011. Those records may or may not have produced some of the material related to company records and payment for audit or other work in the lengthy period concerned. However, it is unlikely that that subpoena would have picked up any payment in respect of the 2013 costs orders, which were assessed after the subpoenas were issued. 56 The form of the subpoenas issued in the Federal Circuit Court was defective. At no point did the appellants subpoena either of the companies, Caunt and Lowbeer Pty Ltd or Caunt and Lowbeer Audit Pty Ltd, in whose possession one might have expected any relevant documents to be found that may have related to payment in respect of the costs the subject of the 2013 costs order. Instead, they subpoenaed Mr Lowbeer, who had retired from his employment with those companies in June 2011. The appellants made no attempt to explain, and gave no explanation for, their failure to subpoena those two companies for the relevant records. Presumably those companies would have been able to produce any documents that might have supported the case of the appellants. 57 The appellants did not demonstrate any basis for suggesting that a subpoena directed to proving bribery of Mr Lowbeer could conceivably be justified. I do not think that it could be said that the material sought in relation to an assertion that he was paid cash as a bribe was, relevantly, "on the cards", or that it otherwise had a legitimate forensic purpose. 58 I am of opinion that the subpoenas directed to the individuals for the production of the documents recording payments by the company amounted to a mere fishing expedition. There was no basis to suggest the probability that any of the three persons associated with the old board who had been subpoenaed to produce documents would have any of the documents called for in their possession, custody or power, as opposed to the documents being held by the company with which those persons might have been associated: Rochfort 153 CLR 134. 59 There is no suggestion that Ms Lipovic's subpoena to produce required production of documents had any relevance at all to the issues in the notices of opposition or that bore on the question whether the appellants should have been made bankrupt by the trial judge. 60 Mr Cliffe asserted in his affidavit of 12 August 2013 that Mr Steif said to him that: "We paid him [Mr Lowbeer] $7500 back in May or June before he retired from Caunt and Lowbeer. He has gone overseas, spending the seven and a half thousand dollars he received from us." The subpoena to Mr Steif to give oral evidence was based on that asserted conversation. I am not satisfied that his Honour was in error in refusing to reinstate that subpoena. The appellants would have had to call Mr Steif as their own witness, contrary to their understanding that he would be exposed to their cross examination, unless, for some reason, they could demonstrate he was hostile. 61 In my opinion, there is nothing in the evidence to warrant a conclusion that any injustice has been occasioned by his Honour's refusal, albeit on erroneous grounds, to vacate the registrar's order that set aside the subpoenas. For these reasons, I am of opinion that the trial did not miscarry because of his Honour's refusal to allow the subpoenas.

Consideration - indemnity issue 62 In the Supreme Court proceedings, the old board was named as the first defendant and Mr Lowbeer, whom the appellants described in the title of those proceedings as being "of Caunt and Lowbeer Audit Pty Limited", was the second defendant. Mr Lowbeer appears to have been sued in his capacity as an officer of the company that was the auditor of the company. He succeeded in obtaining a judgment in the Supreme Court proceedings for costs in his favour. It followed that he was entitled to an indemnity from the company under Art 116. There is no evidence that Mr Lowbeer received an indemnity from the company in respect of anything other than the difference between the solicitor/client and party/party costs that had been assessed, or that any of he, or Caunt and Lowbeer Pty Ltd or Caunt and Lowbeer Audit Pty Ltd, has been indemnified for any of the costs the subject of the 2013 costs order on which the sequestration orders were based. 63 The appellants caused Mr Lowbeer to incur the costs the subject of the 2013 costs order. He obtained an assessment of those costs in his own right as second defendant. He was liable as a litigant to pay those costs, and he, in my opinion, was entitled to seek their recovery from the appellants pursuant to the 2013 costs orders. It follows that the independent existence of the right that Mr Lowbeer had against the company for indemnity under Art 116 based on his successful defence could not be a basis to deny him the right to issue a bankruptcy notice once the appellants had failed to satisfy the 2013 costs order. 64 The appellants' claim appears to have confused a fundamental distinction between Mr Lowbeer's position, as second defendant, and that of the old board, as first defendant in the Supreme Court proceedings. Mr Lowbeer was not a member of the old or new board. He was not responsible for the conduct or activities of either board. He or one of his companies or firm had audit and secretarial-type functions in filing documents with ASIC on behalf of the company, pursuant to its instructions. 65 The appellants' argument appeared to be that they are entitled to an indemnity from the company for their liability to Mr Lowbeer. That argument ignored the fundamental problem in their case, that Mr Lowbeer had a direct right to proceed against them based on the 2013 costs order made personally in his favour. The company was not a party to the proceedings in the Federal Circuit Court, the appeal or the annulment application. Nor could it have been. Whatever the rights and wrongs asserted by the appellants against the company, Mr Lowbeer was a stranger to those matters. 66 None of the appellants complied with the notice within the time for compliance under the Act. On their respective failures so to comply, each committed an act of bankruptcy. I do not see how the internecine fight between members of the company could affect Mr Lowbeer's right, as an apparently innocent bystander, to recover his costs pursuant to the 2013 costs order or to seek to obtain sequestration orders so as to have the estates of each of the appellants properly administered by an independent trustee in bankruptcy, they being unable to pay their debts as and when they fall due.

Consideration - the fraud issue 67 In my opinion, the allegations which the appellants wish to make of fraud by the old board and its associates in the obtaining of judgments against them in the Supreme Court have insufficient substance to warrant the Court going behind the judgment debt that founded the sequestration order. 68 For the purpose of s 52(1)(c) of the Bankruptcy Act, the Court must be satisfied that the debt on which a petitioning creditor relies is owing at the time of the hearing. Bankruptcy has serious consequences, not only for the debtor but also for the general body of his or her creditors. If the debtor is made bankrupt, the creditors lose their right to proceed against him or her for the full value of their debts and, in exchange, acquire rights to prove in the administration of the debtor's estate. 69 While the civil onus of proof is applicable in these proceedings, s 140(2) of the Evidence Act 1995 (Cth) requires the Court, in determining whether it is satisfied on the balance of probabilities, to take into account the nature of the cause of action, the subject matter of the proceedings and the gravity of the matters alleged. That reflects the view of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 that a tribunal of fact must feel an actual persuasion of the occurrence or existence of the fact before it can be found. And Dixon J made the well-known statement that, in such matters, reasonable satisfaction is not to be produced by inexact proofs, indefinite testimony or any indirect inferences: see too: Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 479-482 [29]-[38] per Weinberg, Bennett and Rares JJ. 70 In Wren v Mahony (1972) 126 CLR 212 at 220, Barwick CJ with whom Windeyer and Owen JJ agreed, emphasised that s 52(1)(c) of the Act required the Court to be satisfied with the proof of the fact that each debt on which the petitioning creditor relied is still owing at the hearing of the petition. He said that, where circumstances tended to show fraud or collusion or miscarriage of justice or that a compromise was not fair or reasonable in the sense that, even if not fraudulent, it was foolish, absurd or improper or resulted from an unequal position of the parties, the Court of Bankruptcy had power to inquire into the consideration of the judgment: Wren 126 CLR at 223. He emphasised that the mandatory words in s 52(1) did not concern only the immediate parties to the proceedings. The Chief Justice continued that, where reason is shown for questioning whether, behind the judgment or in consideration for it, there was in truth and reality a debt due to the petitioner, the Court could no longer accept the judgment itself as a satisfactory proof of the debt and that there was a "paramount need to have satisfactory proof of the petitioning creditor's debt" (Wren 126 CLR at 224-225). The Court has a discretion to accept a judgment as satisfactory proof of the debt, but this discretion will not be exercised where substantial reasons are given for questioning whether, behind that judgment, there is in truth and reality a debt due to the petitioner: Wren 126 CLR at 224-225. 71 Where, at the hearing of the petition, the Court is satisfied there is a real debt on which the judgment was founded, although it might have been entered for a sum greater than that truly owing to the judgment creditor, the Court is nonetheless entitled to proceed to make the debtor bankrupt: Re Bedford; Ex parte H C Sleigh (Queensland) Pty Ltd (1967) 9 FLR 497 at 498-499 per Gibbs J. There is no suggestion here that the assessment for costs was other than entirely accurate. 72 Dixon, Williams, Webb and Kitto JJ identified the principle for going behind a judgment in Corney v Brien (1951) 84 CLR 343 at 348 by citing with approval what Latham CJ had said in Petrie v Redmond [1943] St R Qd 71 at 75-76; (1942) 13 ABC 44 at 48-49, namely: "The court (that is, the Court of Bankruptcy) is entitled to go behind a judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice …" 73 Here, the appellants are faced with the judgments given by each of Nicholas, Black, McDougall and Garling JJ in the Supreme Court. Each of their Honours in one judgment after another examined the allegations of fraud and collusion that the appellants successively made around how Hallen AsJ's order came to be made. Moreover, Garling J gave the appellants an opportunity for them to seek to file a pleading that complied with the applicable principles for setting aside judgments obtained by fraud. But the appellants do not appear to have progressed that opportunity beyond the irregular filing of an amended statement of claim. They did not comply with what his Honour ordered, namely that they file a notice of motion seeking to be allowed to file the annexed draft pleading. I have not been informed, and there is no evidence, as to what happened in the Supreme Court in relation to their most recent statement of claim. 74 Importantly, the appellants had a substantive onus to discharge if they were to be given leave to file that amendment. A party who seeks to establish that a judgment ought to be set aside due to fraud, ordinarily, must establish that the claim is based on newly discovered facts, that the facts are material and such as to make it reasonably probable that the claim will succeed and go beyond mere allegations of perjury on the part of witnesses at a trial, that the opposing party took advantage of the judgment and that party is shown by admissible evidence to have been responsible for the fraud in such a way as to render it inequitable that such a party should take the benefit of the judgment: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538D-539G per Kirby P, with whom Hope and Samuels JJA agreed. 75 In my opinion, nothing put before me suggests in the slightest that the appellants have any evidence of a substantive kind with which they will be able to discharge such a burden in the Supreme Court proceedings that they seek to agitate before Garling J. Nothing that they put before the other judges in the Supreme Court suggests that they have any prospect of succeeding on such a claim. Moreover, whatever the appellants might succeed in doing before the Supreme Court in relation to that matter does not appear to affect the independent right of Mr Lowbeer to recover his costs under the 2013 costs orders. The appellants alleged that the amended statement of claim that they had filed, or claimed to have filed, before Hallen AsJ was somehow no longer in the Court file, and that copies that were provided by those acting for the defendants in the Supreme Court, including Mr Lowbeer, were in a way tampered with so as to bring about the result that those statements of claim were struck out. The difficulty for the appellants lies in the independent findings of Black J and McDougall J that the statements of claim on which the appellants relied as being authentic or representing what they wished to assert before each of their Honours was their true pleading would have been struck out in any event. 76 The four versions of the statement of claim before me, none of which is proved by admissible evidence to have been the one which the appellants say they had in fact filed in the Supreme Court, demonstrate that whichever was the version asserted by the appellants to be correct would have suffered no different fate than being struck out in the same way as was the one before each of Hallen AsJ and Nicholas J. 77 Importantly, on 4 November 2011, Hallen AsJ ordered that the appellants would have the opportunity to seek leave to file a further amended statement of claim on or before 1 December 2011, so that at that stage of the litigation they were not shut out from proceeding. They did not avail themselves of that opportunity. They have only themselves to blame for their subsequent failures to set aside the orders of the Supreme Court preventing them from filing any further statements of claim, whatever may have been the position with the suggested loss of their amended statement of claim that was before Hallen AsJ. 78 To the extent that the appellants sought to raise allegations of fraud and the like, as I have said, they have failed to put those matters before the Court in a coherent way or in a way that complied with the obligation that a person alleging fraud has to plead it specifically and with particularity: Banque Commerciale SA (En Liquidation) v Akhil Holdings Limited (1990) 169 CLR 279 at 285 per Mason CJ and Gaudron J, with whom, on this point, Brennan J agreed at 290. I am not prepared to permit the appellants to raise new allegations and issues before me in the appeal, as opposed to the annulment proceedings, after making all allowances for the difficulties of litigants in person, for the reasons given by Gibbs CJ, Wilson, Brennan and Dawson JJ in Coulton v Holcombe (1986) 162 CLR 1 at 7-8. 79 In my opinion, the appellants' claim that the 2013 costs orders, on which the judgment debt in these proceedings was founded, would be set aside on the ground of fraud has no prospects of success.

Consideration - the appellants' other arguments 80 The appellants raised a raft of other arguments before me. They suggested that no valid board, apart from the new board, had been elected to the company or was in a position to control it, that the annual general meeting called on 1 May 2011 was invalid, and that whatever the original board may have been prior to the current turmoil within the company, it had ceased to exist. Those arguments do not, in my opinion, provide any basis for going behind the Supreme Court judgment. They simply rehearse the same arguments that were put to the judges in the Supreme Court, and were correctly rejected by them. 81 The appellants then argued that they were entitled to indemnity themselves under each of cl 20 of the memorandum of association and Art 82, and possibly, because of their contention that Mr De Varda and Mr Cliffe were duly-elected directors of the company, Art 116. In my opinion, the trial judge's finding that cl 20 of the memorandum had to be read subject to Art 116 was wrong. However, that makes no difference to the view I have formed as to the applicability of the indemnity rights under the constitution of the company, consisting of its memorandum and articles of association. 82 A memorandum of association had to identify objects of a company, and the articles regulated the internal management and affairs of the company, before amendments to the Corporations Act created what is now a company's constitution. The fact that cl 20 of the memorandum provided for an object of the company simply gave authority to the company to make provision in its articles for indemnities. The clause did not provide a free-standing source of indemnity, let alone an indeterminate obligation for the company to indemnify, that would give potentially anyone a right to apply for or receive an indemnity from the company. Indeed, the terms of cl 20 would commit, if they operated in the way that the appellants contended, the company's funds to indemnify any person against any liability, loss or damage whatsoever, irrespective of what association that person had with the company, and the basis on which it was incurred. Such a construction is self-evidently absurd. Article 82(6) gave the board a power to grant an indemnity, in furtherance of the object identified in cl 20, to such persons and on such terms and conditions as the board might resolve. It did not give the appellants any enforceable right to an indemnity in the absence of the board resolving to grant that to them. 83 Critically, as the trial judge held, Art 116 gave an officer of the company a right to an indemnity in respect of proceedings in which judgment was given in that person's favour. The appellants suffered a judgment against them, namely the 2013 costs orders, and thus cannot claim to be entitled to any indemnity under Art 116.

Consideration - solvency 84 As the trial judge noted, the appellants did not seek to put on any evidence of their solvency before him, nor have they done so before me, despite my having raised expressly with them the fact that such evidence was missing, and that it would be a necessary pre-condition to making an order for an annulment. They relied on having sought to tender a cheque for the judgment sum the subject of the bankruptcy notice. The latest attempt to tender such a document occurred before Wigney J when the proceedings were first before his Honour in early February 2014. However, the time for compliance with the bankruptcy notice had long since expired and the late tender of the cheque did not, and does not, affect Mr Lowbeer's right to proceed with the petition: McIntosh v Shashoua (1931) 46 CLR 494 at 505 per Gavan Duffy CJ and Dixon J, 508 per Starke J, 521 per McTiernan J. 85 The appellants are subject to a further liability pursuant to an order of the Supreme Court made on 14 June 2013 that they pay the old board $84,478.85. There is no evidence that they have paid that sum and having regard to their hostility to the old board, I am comfortably satisfied that they have not. 86 The principles relevant to the exercise of the discretionary power conferred by s 153B(1) of the Act recently has been discussed by Rares, Flick and Bromberg JJ in Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18. There, the Full Court approved the helpful summary given by Tracey J in Bulic v Commonwealth Bank of Australia Ltd (2007) 5 ABC (NS) 122 at 126 where his Honour noted, among other things, that: "Section 153B(1) and its predecessors have been considered in many decisions of this and other Courts. These authorities establish a number of relevant propositions. They are: … (2) An applicant who seeks an annulment of his or her bankruptcy "carries a heavy burden". It is incumbent on an applicant "to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant": Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531. (3) In determining whether or not a sequestration order "ought not to have been made" the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; Re Raymond; Ex parte Raymond (1992) 36 FCR 424 at 426. (4) A sequestration order "ought not to have been made" if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; Ex parte Piliszky (1987) 16 FCR 396." 87 There is nothing before me to suggest that the sequestration orders ought not to have been made by the trial judge against the appellants. Indeed, I am satisfied that those orders were properly made. Nor is there any reason to suggest that the appellants are entitled to the exercise of the discretion to annul the bankruptcy order in their favour. By not joining their trustee, they have not enabled the Court to have any material from the trustee as to what his or her costs are, or information from the trustee as to whatever financial investigations as to the appellants' affairs that he or she has made. This is not a case in which there is any evidence to suggest that the appellants were able to pay their debts as and when they fell due. They have chosen not to put material before the Court twice, despite a clear warning by the trial judge as disclosed in his reasons for judgment that, he having raised the question of their solvency, they deliberately chose not to put material before him on that topic. They have put no material before me as to their financial positions.

Conclusion 88 For these reasons, I am of opinion that both the appeal and application for annulment must be dismissed with costs. Any existing stay of the operation of the sequestration orders must be vacated. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.