Udowenko v Rasevi Pty Limited[2006] FCA 1217

and in the case of (b), to the extent the Applicants are unsuccessful in those proceedings, pay such portion of the disputed sum as is properly payable having regard to the outcome of those proceedings to Rasevi together with interest earned on that portion of the disputed sum whilst it has been deposited in the solicitor's trust account or controlled moneys account.

That they hereby irrevocably direct Emery Partners to disburse the disputed sum in accordance with these undertakings.

Insofar as Mr Alan Mitchell pursues the claim made by him against the Applicants in District Court of New South Wales proceedings no. 19 of 2000 within the next twelve (12) months, not to rely on a defence under the Limitations Act 1969 (NSW), laches or issue of judgment estoppel in answer to that claim.

For a period of twelve (12) months, not to seek to enforce orders against Mr Alan Mitchell made prior to today except by way of answer to any claim made by Mr Mitchell or to the extent to which the quantum of any sum payable to them exceeds the quantum of the sum accepted in proof of debt accepted by the Third Respondent

AND UPON THOSE UNDERTAKINGS BEING GIVEN THE COURT ORDERS THAT:

The evidence in one proceeding be evidence in the other.

To the extent necessary time be extended up to the end of 1 December 2005 to review Registrar Hedge's decision made on 23 July 2002 in proceedings N7060 of 2002.

The orders made by Registrar Hedge on 23 July 2002 in proceedings numbered N7060 of 2002 be set aside.

The Creditors Petition filed in proceedings N7060 of 2002 be dismissed.

There be no order as to costs with the intention that each party pay and bear their own costs of both proceedings.

Otherwise, the Application in proceedings NSD 2377 of 2005 and the Notice of Motion filed by Michael and Helen Udowenko on 1 December 2005 in proceedings N7060 of 2002 be dismissed.

The Official Trustee in Bankruptcy and Robert John Cruickshanks and Florence Choo have leave to file any cross claim against Mr Adrian Hogan and/or his employer within one month to recover their remuneration and expenses.

The matter be re-listed at 9.30am on 13 October 2006 for directions in regard to any such cross claim.

Liberty to apply in relation to the above undertakings given by the Applicants to the Court.

Within fourteen (14) days Michael and Helen Udowenko are directed to file a copy of these Orders and Undertakings signed by them, together with a Certificate from an interpreter in the Ukrainian language to the effect that the Orders and Undertakings have been read to them in that language before they signed the Orders and Undertakings and an affidavit from their solicitor that the effect of the Orders and Undertakings had been explained to them before the Orders and Undertakings were signed.

These Orders and Undertakings are not to be entered until such time as Order 14 has been complied with.

AND THE COURT NOTES the agreement of the Official Trustee in Bankruptcy and Robert John Cruickshanks and Florence Choo on the one hand and Michael and Helen Udowenko and Wolodymyr Udowenko that:

In regard to Supreme Court of New South Wales, Common Law Division proceedings numbered 12477 of 2005 that as soon as practicable after the entry of these Orders those proceedings be re-listed before the Registrar and orders be made dismissing the proceedings with no order as to costs.

In regard to Supreme Court of New South Wales, Equity Division proceedings numbered 5510 of 2004 and 3999 of 2004:

(a) Michael, Helen and Wolodymyr Udowenko will procure Valentyn Udowenko to consent to the action proposed in the following sub-paragraph; and

(b) those proceedings be re-listed as soon as practicable after the entry of these Orders and Undertakings before the Registrar and orders be made by consent vacating the orders made by Barrett J on 10 December 2004 and dismissing the proceedings with no order as to costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NEW SOUTH WALES DISTRICT REGISTRY NSD 2377 OF 2005

REASONS FOR JUDGMENT HIS HONOUR: 1 The substantial issue in these proceedings arises from the lies on oath told by a process server, one Hogan, who falsely swore in an affidavit that he had personally served the applicants with bankruptcy notices. Those notices founded alleged acts of bankruptcy that resulted in sequestration orders being made against each of the applicants. The process server's fraud has been well established in criminal proceedings and is accepted by the respondents. 2 The argument of the Official Trustee is that the appropriate remedy is to annul the bankruptcy under s 153B of the Bankrupcty Act 1966 (Cth) ('the Act') on the basis that a sequestration order ought not to have been made. The advantage of that would be that the position of the creditors would be saved under s 154 and the Official Trustee's costs and expenses would also be attended to by operation of law and in the Official Trustee's favour. 3 The position of the applicants is that the sequestration order should be set aside notwithstanding the provisions of s 37(2) of the Act which says: 'The court does not have power to rescind or discharge...a sequestration order...' because the applicants have been the victims of fraud. It is essentially that fraud which is responsible for the Official Trustee's costs and expenses. The injustice and ignominy of ever having been declared bankrupt should be expunged as fully as the processes of the Court will allow. Reasonable provision for the position of the creditors, notwithstanding matters such as limitation periods which are very operative in this case, can be made by undertakings to the Court. It is accepted by the parties that, despite the terms of s 37(2), there is authority in this Court binding on me, and also persuasive authority, that the law would indeed permit the setting aside of a sequestration order, at least one made by a Registrar which has been fraudulently procured, even when the fraud was not that of the petitioning creditor personally. 4 The Official Trustee also argued that there was some evidence from which it could be inferred that the bankruptcy notices had in fact come to the attention of the applicants in a timely way; that the point as to the absence of personal service was not made earlier on every occasion when it might have been raised, and that the Court could relax procedural requirements under s 306 of the Act so as to dispense with the formal requirements for service. The applicants are elderly and frail and, even when the sequestration order was made some years ago, their age and general capacities had advanced to the point where one of their sons, Wolodymyr, acted on their behalf for much of the time under a power of attorney. In my opinion, this would not be a case where, had the matter of the process server's fraud been proven to the Court earlier, the Court would have exercised a discretion against the applicants under s 306, nor do I think that that is the correct thing to do now. 5 In my opinion it is of great importance, in order to deter any other process server who might be tempted to cut corners, to indicate that the courts will do everything they can fully to restore a party who has suffered a process server's fraud to the position that he or she would have been in had that fraud not occurred. Substantially, I agree with the position taken by counsel for the applicants in relation to this matter. 6 I do not overlook that the records show that the applicants were less than fully cooperative with the Official Trustee in that, for example, neither of them actually filed a Statement of Affairs, as was their legal obligation. However, the facts show that their son Wolodymyr, was conducting all proceedings with the Official Trustee on their behalf, that he was not dilatory in being in touch with the Official Trustee and that, concurrently with trying to deal with the requirements (quite reasonable, I may say) of the Official Trustee, he was also trying to track down and establish incontrovertibly, by contact with the police, the fact of the process server's false swearing. 7 Neither party is to blame for the mess and expense caused by the errant process server. The Official Trustee is, however, in a better position than the applicant, should circumstances warrant it, to seek ex gratia assistance from the Government in relation to the matter, or to pursue any further legal action which might be advised against the process server or, if the circumstances warrant it, the employer of that person. It is a somewhat narrow contest, but I think that the interests of justice are better served by permitting the Official Trustee's loss to rest with him rather than adopting a procedure which would cast it onto the applicants. 8 I do not seek to enunciate any general principle in this regard. Of course, each case depends on its own facts and one can well imagine a more alert and more capable person made bankrupt by fraud of a process server who might not be able to put a similarly effective story before the Court. 9 It was not until the proceedings were under way and I indicated a preliminary view, that the applicants made it clear that they were prepared to give undertakings which, in my opinion, give reasonable protection to the creditors, so far as they are known and as far as I can see. In the absence of those creditors from the Court room, I have indicated the orders that I will make, which will completely undo the bankruptcy upon certain undertakings being given. The proposed orders also deal with various other matters. I will leave it to the parties to bring in short orders to give effect to these reasons and the other matters discussed and decided in transcript. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick

Associate: Dated: 8 September 2006 Counsel for the Applicants: Mr M Elliott

Solicitor for the Applicants: Emery Partners

Counsel for the First and Second Respondents The First and Second Respondents did not appear

Counsel for the Third Respondent: Mr R Marshall

Solicitor for the Third Respondent: Sally Nash & Co

Date of Hearing: 21 August 2006

Date of Judgment: 21 August 2006