FEDERAL COURT OF AUSTRALIA

Council of the City of Sydney v Obeid [2013] FCA 149

THE COURT ORDERS THAT:

1.    The creditor’s petition and the proceedings be adjourned until 17 April 2013 at 9. 30 a.m.

2.    Direct that the applicant notify my associate if the applicant’s notice of motion in respect of the judgment of the New South Wales Court of Appeal in 2012/52247 is determined before 17 April 2013, to enable the creditor’s petition to be relisted before me earlier than 17 April 2013.

3.    Liberty to apply on 48 hours notice.

4.    Costs reserved.

Note:    Entry of orders is dealt with in Order 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    Proceedings were commenced in this Court by a creditor’s petition filed on 5 June 2012. The return date was 20 June 2012.

2    By its petition, the applicant creditor, The Council of the City of Sydney, applied for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) against the estate of Moses Edward Obeid, company director.

3    The petition stated:

1.    The respondent debtor owes the applicant creditor the amount of $12,520,712.09 for liability pursuant to a judgment of the Supreme Court of New South Wales entered on 2 February 2012 in proceedings 2009/298673 in the amount of $12,123,470.09 and post-judgment interest accruing on that judgment to 30 May 2012 in the amount of $397,242 pursuant to section 101 of the Civil Procedure Act 2005 (NSW).

2.    The applicant creditor does not hold security over the property of the respondent debtor.

3.    At the time when the act of bankruptcy was committed, the respondent debtor was ordinarily resident in Australia.

4.    The following act of bankruptcy was committed by the respondent debtor within 6 months before presentation of this petition:

The respondent debtor failed to comply on or before 30 May 2012 with the requirements of a bankruptcy notice served on him on 10 February 2012 or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.

5.    The applicant creditor provides the following information, to the extent it is known to the applicant creditor, for use by the Insolvency and Trustee Service Australia:

(a)    any alias used by the respondent debtor;

(b)    the date of birth of the respondent debtor;

26 February 1969

(c)    the business name of the respondent debtor;

(d)    the business address of the respondent debtor.

4    The act of bankruptcy was therefore 30 May 2012.

5    The petition was dated 4 June 2012 and verified by affidavit affirmed on 5 June 2012 by Marcia Doheny, General Counsel and Director Legal & Governance of the applicant creditor.

Chronology

6    On 11 October 2011, judgment at first instance was entered in favour of the present applicant in proceedings in the Supreme Court of New South Wales against Streetscape Projects (Australia) Pty Ltd and the present respondent. On 2 February 2012 final orders were entered giving effect to the judgment.

7    On 7 February 2012, the Official Receiver issued a bankruptcy notice in the name of Moses Edward Obeid.

8    On 10 February 2012 Mr Smith served the respondent with an official original Bankruptcy Notice, together with a copy of the judgment or order made and entered on 2 February 2012 and a copy of the judgment or order made and entered on 6 February 2012 obtained in the Supreme Court of New South Wales. The bankruptcy notice required the respondent, within 21 days after service, to pay to the creditor the amount of the debt claimed or make arrangements to the creditor’s satisfaction for settlement of the debt.

9    On 16 February 2012 a notice of appeal was filed in the New South Wales Court of Appeal against the judgment and orders of the Supreme Court by Streetscape Projects (Australia) Pty Ltd and the present respondent. In that appeal a notice of cross-appeal and notices of contention were also filed.

10    On or about 20 February 2012 a notice of motion was filed in the Supreme Court of New South Wales to stay the enforcement of the orders arising from the judgment of the Supreme Court.

11    On 7 June 2012 Mr Riordan served a creditor’s petition on the respondent.

12    On 13 June 2012 the respondent filed a notice of appearance in this Court.

13    On 15 June 2012 the respondent filed a notice stating grounds of opposition to the applicant’s petition. The grounds were:

1.    The judgment debt relied on as the foundation of the creditor’s petition is the subject of a pending appeal in Court of Appeal proceedings No. 2012/52247 (Appeal) which will be heard on 26 – 28 November 2012. The Appeal is genuine and arguable and the Petition should not be heard until it is determined.

2.    In the event that the appeal is successful the Applicant will no longer be a creditor of the Respondent.

3.    In the event that the Appeal is successful the Respondent will be solvent and able to pay his debts as they fall due.

14    An affidavit in support of the notice of opposition was sworn by the respondent dated 15 June 2012 and filed on that day.

15    There was correspondence between the solicitors for the respondent and the solicitors for the applicant about Streetscape Projects (Australia) Pty Ltd’s voluntary administration and the future conduct of the appeal in the New South Wales Court of Appeal.

16    On 25 June 2012 the respondent filed an interlocutory application in this Court seeking orders as follows:

1.    An order that these proceedings be transferred to the Federal Magistrates Court.

2.    Such further or other order as may be appropriate

3.    Costs.

17    The appeal in the New South Wales Court of Appeal was set down for hearing on 26 November 2012 for a number of days.

18    On 11 July 2012 I made the following orders:

1.    The proceeding be adjourned until 27 February 2013 at 9.30am before Justice Robertson.

2.    The Applicant is to notify the Associate to his Honour Justice Robertson in writing upon the Appeal being determined, to enable the matter to be relisted earlier than the date in order 1.

3.    The Respondent’s interlocutory application dated 25 June 2012 be dismissed.

4.    Liberty to approach the Associate to his Honour Justice Robertson to restore the proceeding on 5 days notice or such shorter notice as the judge may allow.

5.    The Respondent, by himself his servants and agents, until further order is restrained from:

(a)    Dealing with any of his assets other than in the ordinary course of his ordinary business without first giving 7 days written notice to the applicant of his intention to do, such notice to be given to Holding Redlich, solicitor for the Applicant, and identifying the relevant asset(s);

(b)    Incurring any liabilities other than in the ordinary course of his ordinary business without first giving 7 days written notice to the Applicant of his intention to do, such notice to be given to Holding Redlich, solicitor for the Applicant, and identifying the relevant liability(s);

(c)    In respect of the Trusts, causing or concurring in:

(i)    any amendment to any trust deed; or

(ii)    a change in trustee or appointor

without first giving 7 days written notice to the Applicant of his intention to do, such notice to be given to Holding Redlich, solicitor for the Applicant, and identifying the trust and amendment(s) or change(s);

(d)    For the purposes of paragraph (5)(c) above, “Trusts” means any trust in respect of which the respondent is:

(i)    a trustee;

(ii)    an appointor; or

(iii)    a beneficiary, either by being named a beneficiary or by being within a class of beneficiaries under the trust.

6.    Costs of the proceedings including the costs of the Respondent’s interlocutory application dated 25 June 2012 be reserved.

19    On 27 February 2013 the applicant sought an order that the proceedings be adjourned until 10 April 2013 whereas the respondent contended that the petition against the respondent should be dismissed with costs.

20    An affidavit sworn on 26 February 2013 by Sylvia Fernandez, the solicitor on the record for the applicant, was filed in court and taken as read.

21    The circumstances were that on 1 February 2013 the New South Wales Court of Appeal delivered a judgment, Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2, the relevant parts of which for present purposes were as follows, per Barrett JA, with whom Meagher and Ward JJA agreed:

[237] In my opinion, the appeal and the cross-appeal should be disposed of as follows:

1.     The cross-appeal should be dismissed.

2.     The appeal should be allowed to the extent that it challenges the findings of existence and breach of:

(a)     fiduciary duty on the part of Streetscape;

(b)     equitable duty of confidence on the part of Streetscape; and

(c)     equitable duty of confidence on the part of Mr Obeid.

3.     The appeal should be allowed to the extent that it challenges the findings of knowing complicity of Mr Obeid in breach by Streetscape of fiduciary duty and an equitable duty of confidence.

4.     The issues of existence and breach of an equitable duty of confidence by Streetscape and Mr Obeid (and knowing complicity of Mr Obeid in any such breach by Streetscape) and related issues should be remitted to the Equity Division for re-trial as stated in paras [179] and [180] above.

5.     The appeal should be otherwise dismissed.

[238] Because of the complexity of the orders made by the primary judge and the need to ensure that the result on appeal is appropriately accommodated, the parties should submit short minutes of orders to give effect to the decision of this court. In view of the mixed result on appeal, the parties should also make written submissions on the question of costs. I propose that directions be made as follows:

1.     Direct that, if the parties agree on the form of the orders appropriate to give effect to the decision of this court, they shall within 14 days file short minutes of those orders.

2.     Direct that, if the parties do not agree on the form of the orders appropriate to give effect to the decision of this court, each shall within 21 days file short minutes of the orders for which it contends together with brief written submissions in support of the making of those orders.

3.     Direct that the parties exchange brief written submissions on costs and that those submissions be filed within 21 days.

22    It was in these circumstances that the respondent before me contended that his liability had been eliminated on 1 February 2013 by virtue of the Court of Appeal’s judgment.

23    The respondent pointed to r 36.11 of the Uniform Civil Procedure Rules 2005 (NSW) which is in the following terms:

36.11    Entry of judgments and orders

(1)     Any judgment or order of the court is to be entered.

(2)     Unless the court orders otherwise, a judgment or order is taken to be entered when it is recorded in the court’s computerised court record system.

(2A)     If the court directs that a judgment or order be entered forthwith, the judgment or order is taken to be entered:

(a)    when a document embodying the judgment or order is signed and sealed by a registrar, or

(b)    when the judgment or order is recorded as referred to in subrule (2),

whichever first occurs.

(3)     In this rule, a reference to a judgment or order of the court includes a reference to any judgment, order, determination, decree, adjudication or award that has been filed or registered in the court, or of which a certificate has been filed or registered in the court, as referred to in section 133 (2) of the Civil Procedure Act 2005.

(4)     This rule does not limit the operation of rule 36.10.

24    On this basis the respondent submitted the judgment had been entered. No authority was cited for the proposition that rule 36. 11 in its reference to “judgment” meant reasons for judgment. The respondent did not tender a copy of the judgment he submitted had been so entered.

25    This was the respondent’s first point.

26    Picking up the chronology, on 14 February 2013 the applicant filed a notice of motion in the Court of Appeal. The notice of motion seeks to set aside or vary the judgment in whole or in part on the basis that the Court may not have fully appreciated or may have misapprehended the facts. A copy of the sealed notice of motion is in evidence before me. On 22 February 2013, the applicant filed submissions in support of its notice of motion. The sealed copy of those submissions of some 19 pages, signed by three counsel including senior counsel, is also in evidence before me.

27    The first return of the notice of motion was on 25 February 2013. The Court of Appeal ordered the respondent to file and serve written submissions in response. The Court of Appeal has not yet informed the parties of the available dates on which the notice of motion may be heard.

28    Ms Sylvia Fernandez says in her affidavit that she expects that, all things being equal, the notice of motion will be determined by the end of April 2013.

29    The respondent’s second point is that this notice of motion has no prospects of success.

30    The respondent’s third point is that given the history of the matter, there being no supporting creditors and no evidence of insolvency, the creditor’s petition should be dismissed forthwith.

Consideration

31    In my view it is only necessary to determine the respondent’s first point.

32    Such authority as I have found in relation to r 36.11 of the Uniform Civil Procedure Rules 2005 (NSW) is contrary to the contention that, in the circumstances of the present case, judgment has been entered so as to eliminate the liability of the respondent under the judgment under appeal. I refer to Mills v Futhem Pty Ltd [2011] NSWCA 252 especially at [27] where the Court of Appeal, per Allsop P said:

[27] The proper construction of r 36.11 is, it seems to me, that unless a court orders otherwise for r 36.11(2) or unless a court directs, in the manner set out in r 36.11(2A), entry under the Rules is not effected otherwise than by recording in the court’s computerised court record system contemplated by r 36.11(2). Recording the orders means just that: setting them out. There is no recording of the orders if all that is stated is that some orders exist. It would undermine the integrity of a computerised record system to have mere references to pieces of paper in files treated as a recording of the judgment or order in the computerised record system. In my view, that is not what the rule means. To the extent that the record in the computerised system might be seen as some form of incorporation by reference, it does not record the judgment or orders. One cannot even ascertain the amount of the judgment in order 1. One can put the two together, by looking at the file, but that is not adequate.

33    Against the background that in legal parlance the word “judgment” refers only to an operative judicial act, and is not used, as it often is in other contexts, as a convenient abbreviation for reasons for judgment (see Driclad Pty Ltd v Commissioner of Taxation (1968) 121 CLR 45 at 64 per Barwick CJ and Kitto J), I find it improbable that the reasons for judgment of the Court of Appeal have been entered and I find it probable that the orders in [238] have been entered. The respondent took me to the frontsheet of the judgment in support of the proposition that the judgment had been entered under r 36.11. I very much doubt that that page may be used for this purpose. For what it is worth, on that page adjacent to the word “Decision” is “Short minutes to be filed”. I find, consistently with paragraph 6 of Ms Fernandez’ affidavit that final orders have not been entered in the Court of Appeal.

34    In my view it follows that the appeal has not yet been determined. Thus I reject the submission for the respondent that by the events which occurred on 1 February 2013 the liability of the respondent was eliminated. There has been as yet no operative judicial act displacing the orders of the judge at first instance in the Supreme Court.

35    In form therefore it is the respondent who should be seeking to have the creditor’s petition adjourned because the judgment debt presently subsists.

36    For completeness I refer briefly to the relevant authorities.

37    In Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 the Full Court said:

It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49 Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte Deputy Commissioner of Taxation (1985) 4 FCR 181.

These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.

38    That decision was followed by a later Full Court in Adamopoulos v Olympic Airways SA (1990) 95 ALR 525. Burchett and Gummow JJ quoted Ahern v Deputy Commissioner of Taxation (Qld) (above) at 148 as laying down the governing principle and said at 532:

It will, of course, be observed that the principle is stated in terms which acknowledge the existence of exceptions; it operates “in general”. For situations which were held to raise considerations making them fall outside the general rule, see Re Verma; Re Lewin and Glasson; Ex parte Milner (1986) 67 ALR 591.

39    Because the judgment founding the bankruptcy notice remains subject to an appeal, and in the absence of any exceptions relevantly applying, I conclude that the hearing of the creditor’s petition should be further adjourned pending the making of final orders in the Court of Appeal.

40    I add that it is not apparent to me that the notice of motion filed in the Court of Appeal on 15 February 2013 has no prospects of success. I also add that the history of the matter to which I was taken by counsel for the respondent does not persuade me that the creditor's petition should be dismissed. As I have said, in form it is the respondent who should be seeking to have the creditor’s petition adjourned because the judgment debt presently subsists.

41    I lastly note that reference was made in the submissions on behalf of the respondent to s 52(4) of the Bankruptcy Act which provides that a creditor’s petition lapses at the expiration of the period of 12 months commencing on the date of presentation of the petition. This date will not be reached until early June 2013 and is not of present significance. The Court also has the power, under s 52(5), to order that that period be extended.

42    The orders I make are:

1.    The creditor’s petition and the proceedings be adjourned until 17 April 2013 at 9.30 a.m.

2.    Direct that the applicant notify my associate if the applicant’s notice of motion in respect of the judgment of the New South Wales Court of Appeal in 2012/52247 is determined before 17 April 2013, to enable the creditor's petition to be relisted before me earlier than 17 April 2013.

3.    Liberty to apply on 48 hours notice.

4.    Costs reserved.

Associate:

Dated:    1 March 2013