FEDERAL COURT OF AUSTRALIA

Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio (No 3) [2014] FCA 92

IN THE MATTER OF: THE ESTATE OF SAMANTHA UNDERDOWN (DECEASED) (A BANKRUPT)

THE COURT ORDERS THAT:

1.    There be no orders relating to the exercise of the liberty to apply.

2.    No orders as to costs.

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

IN THE MATTER OF: THE ESTATE OF SAMANTHA UNDERDOWN (DECEASED) (A BANKRUPT)

REASONS FOR JUDGMENT

introduction

1    In this unfortunate litigation, for reasons which appear both in my reasons (Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio [2013] FCA 18) (Fazio No 1) and in the reasons of Gilmour J (Verge (Trustee), in the matter of Underdown (deceased) (a bankrupt) v Fazio (No 2) [2013] FCA 728) (Fazio No 2) orders were made for substituted service of bankruptcy and court documents on Mr Fazio. The history is outlined in each of those sets of reasons explaining the circumstances in which those orders were made in favour of the applicants. Additionally, and for reasons explained in Fazio No 1, orders were made permitting the applicants to sell the property owned and occupied by Mr Fazio. Mr Fazio sought to stay the orders made in Fazio No 1. In Fazio No 2 the stay application was refused for reasons there stated. He has appealed both decisions.

2    The orders in Fazio No 1 were final orders as is reflected from both the stay application and Mr Fazio’s two appeals as of right from Fazio No 1 and Fazio No 2. The listing and hearing of these appeals is imminent (27 February 2014).

3    The property has not been sold pursuant to the orders due to various arrangements, which I am told from the bar table have been reached in order to enable Mr Fazio to continue living at the premises for the time being.

SUBSEQUENT DEVELOPMENTS

4    In the meantime, three further events have occurred.

5    The mortgagee of the property has also taken steps through the Supreme Court of Western Australia to effect a sale of the property pursuant to its mortgagee’s rights.

6    Secondly, the applicants in these proceedings have decided to take no further action and, in particular, inform me that they have declined to take any steps in relation to the proposed appeals due to their assessment that the value of the property is insufficient after taking into account liabilities, to warrant further action being taken on its part to sell the property.

7    A third event occurred. About nine months after the settling of the minute of orders framed by the applicants in these proceedings, the applicants applied pursuant to a liberty to apply provision to crystallise and specify the quantum in relation to the costs of sale. It was a substantial item, exceeding $100,000. I was not satisfied that all relevant and necessary parties had received adequate notice of that application. I required service of the application on the mortgagee and proof of service on Mr Fazio. An affidavit of service was filed.

8    Shortly before the listing of the mention of the oral application for liberty to apply to vary the orders, notice was given by the applicants that they no longer pursued those orders. They wished to vacate their earlier application under the liberty to apply provision. They sought no order as to costs.

9    The only matter before me, therefore, on 7 February 2014 was the applicants’ application to vacate any application under the liberty to apply provision with no order as to costs. Although that might appear to be uncontentious, Mr Fazio most strenuously opposed that application with detailed submissions and affidavits in response. These materials, in essence, purport to reventilate the argument advanced before Gilmour J in Fazio No 2 on which Mr Fazio failed. Additionally, as the applicants correctly point out, those arguments which centre on the alleged injustice of the orders made against Mr Fazio, allegedly without any warning to him, are the arguments which Mr Fazio may be expected to advance in support of his appeals from the decisions in Fazio No 1 and Fazio No 2.

10    The application for leave to vary the orders was instigated by letter dated 15 October 2013 in the following terms to the Court:

…

Dear Associate

…

We refer to the above matter and to our email of 9 October 2013 (a further copy of which is attached for Mr Fazio’s reference).

We specifically wish to address the practical implementation of order 7 of His Honour Justice McKerracher’s orders dated 6 February 2013. Our understanding is that the reference to “costs and expenses incidental to the sale of the Leeming Property” should include the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration in bankruptcy. At present these equate to approximately $100,000.00.

A recent market appraisal of the Leeming Property evidences an expected sale price of $775,000.00 - $825,000.00. The Westpac Banking Corporation has indicated that they are in a position to assume possession of the Leeming Property and that, as at 24 September 2013, their pay-out figure for mortgage L642658 is $683,735.00.

The above evidence will be provided in affidavit material in advance of the directions hearing.

We do not believe we will require more than 15 minutes to make submissions to the Court regarding the above.

…

11    The detail of the orders sought were set out in a minute dated and received by the Court on 23 October 2013, materially, in the following terms:

…

DATE:        23 October 2013

1.    That the Orders of the Court dated 6 February 2013 be amended by:

(a)    Adding the words “including the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration in bankruptcy up to and including 23 October 2013, capped at the sum of $120,000.00;” at the end of Order 6(a);

(b)    Adding the following orders:

Upon possession, the Applicants provide the Respondent with written notice that he has 1 month within which to provide the Applicants with notification of a geographical address at which the Respondent’s personal property may be delivered, failing which such property will be disposed of (“the Applicants’ Written Notice”).

The Applicants be entitled to dispose of the Respondent’s personal property in the event that the Respondent does not comply with the Applicants’ Written Notice.

…

12    The application was supported by an affidavit of the solicitor for the applicants dated 23 October 2013 confirming that the payout figure to the mortgagee was $683,735.70 and that it had obtained summary judgment for vacant possession of the property on 24 September 2013. The payout figure on the mortgage as at 23 October 2013 was $687,152.12 with interest accruing at the rate of $97.84 per day. A current appraisal of the property showed a value in the range of $775,000 – 825,000 with a possible commission range of up to $18,150. Various other costs, significantly, legal costs of approximately $70,000 plus GST took the total of charges and expenses in the administration of in bankruptcy for the estate of Samantha Underdown including sale costs to be in the order of approximately $120,000. In the end, as will be seen, all of this evidence was relatively academic because the applicants were of the view that there was no point in continuing. A short outline of submissions from the applicants in relation to the mention concerning the leave to vary the original orders explained this:

…

1.    The Applicants propose that the directions hearing listed on 7 February 2014 be vacated with no order as to costs. The Applicants propose that there be no re-listing of their application to amend the orders of His Honour McKerracher dated 6 February 2013.

2.    The only estate asset, comprising 10 Hannah Place, Leeming, is the subject of mortgage enforcement proceedings.

3.    It is apparent that once the mortgagee (a secured creditor) is paid there will be little to no available equity for distribution in the bankruptcy of Samantha Underdown (deceased) (affidavit of E Croft sworn 23 October 2013).

4.    Negotiations between the mortgagee and the Applicants regarding amendment (by consent) of the orders of 6 February 2013 were unsuccessful.

5.    Accordingly, the Applicants are unfunded trustees in bankruptcy.

…

13    To complete the picture concerning the progress of the applicants’ application to vary the original orders in Fazio No 1, I should include the following exchange between Mr Fazio and my Associate on 12 November 2013:

EXTREMELY URGENT

DEAR ASSOCIATE

I ONLY HAVE INTERMITTENT EMAIL FACILITIES DUE TO CREDIT AVAILABILITY, SO THIS IS AN UNRELIABLE MODE OF CONTACT FOR ME. IN ANY EVENT I TRY. FAX & POST IS THE GO. AS MY COMPUTER IS OLD AND HAS NO MEMORY LEFT, IT ALSO DOES NOT RECORD ANY EMAILS I SEND OUT, ERGO ME NOT GENERALLY USING THE FACILITY.

I ATTENDING COURT YESTERDAY AT 10.15 AM ONLY TO BE TOLD IT WAS CANCELLED???

PLEASE ADDRESS THE FOLLOWING ASA MATTER OF URGENCY;

1.    EXACTLY WHEN, WHY AND HOW WAS IT CANCELLED AND BY WHO???

2.    PLEASE URGENTLY PROVIDE COPY OF ALL COMMUNICATIONS BETWEEN YOURSELF, JUSTICE MCKERRACHER AND ELISE CROFT AT KOTT GUNNING OVER THE LAST 2 MONTHS.

3.    PLEASE ADVISE WHY YOU DID NOT SEND COPY OF ALL COMMUNICATIONS YOU HAD WITH KOTT GUNNING LAWYERS TO ME, AS YOU SEND ALL MY COMMUNICATIONS TO THEM???

4.    PLEASE ADVISE WHETHER OR NOT YOUR CHAMBERS IS CURRENTLY IN CONTROL OF OR HAS POSSESSION OF ALL OF THE COURT FILES ARISING OUT OF THIS MATTER???

5.    AS PER MY AFFIDAVIT OF 8 NOVEMBER 2013, PLEASE ADVISE WHETHER OR NOT JUSTICE MCKERRACHER IS, HAS OR WILL REPORT THIS MATTER TO THE C.C.C. AND OR THE A.C.C.C. FOR IMMEDIATE INVESTIGATION AS TO THE FRAUD AND OTHER CRIMINAL CHARGES???

I AWAIT YOUR URGENTLY REQUIRED ATTENDANCE TO THESE VERY SERIOUS MATTERS.

…

12 November 2013

Dear Parties

Verge (Trustee), in the matter of Underdown (Deceased) (a bankrupt) v Fazio

WAD 252 of 2012

I refer to the five pages of facsimiles from the respondent dated 12 November 2013 … which were faxed to the WA Registry and do not appear on their face appear to have been copied to the applicant’s solicitors. As previously advised, all correspondence with the Court must be copied to the other party to the proceeding.

I confirm that this matter has been relisted on 28 November 2013 at 2.15pm.

On 6 November 2013 the applicant’s solicitors emailed chambers requesting that the 11 November 2013 listing be adjourned for two weeks on the grounds that they were ‘currently in discussions with [the] mortgagee’s solicitors’ and ‘those discussions will not be concluded before 11 November 2013’. His Honour granted the adjournment request and relisted the proceeding. So as to save further costs being incurred, the applicant’s solicitors undertook on 6 November 2013 to provide copies of those email exchanges with chambers to the respondent by facsimile and (if necessary) by post.

Please be advised that his Honour has made an order from chambers today requiring the applicant’s solicitor to file and serve an affidavit within seven days confirming whether or not such copies were provided.

To check the status of Federal Court Proceedings, please use Federal Law Search available at http://www.fedcourt.gov.au/. As advised by the Deputy Registrar on 1 November 2012, the respondent should conduct his own search of the Court file should he require further information regarding the proceedings.

It is not appropriate for the Court to respond to the balance of the respondent’s facsimile. Communication with Judges, via their associates, about substantive matters should generally not occur.

…

THE ‘ARGUMENT’

14    The short point before me was whether the simple orders sought by the applicants to vacate with no order as to costs ought be made or whether I have the power, and if I have the power, I should set aside the original orders made in Fazio No 1 as contended by Mr Fazio.

15    Mr Fazio objects to the applicants ‘walking away’ after he has been put to so much inconvenience and, he says, prejudice and injustice. At the very least, he wants to be paid disbursements incurred in the abandonment of the current application to vacate the hearing. (There was no evidence of any specific disbursements being incurred.)

16    In particular, he contends that it is plain that he was not served at the outset; had no knowledge of the relief sought; and that the conclusions reached in Fazio No 2 on his stay application were manifestly incorrect.

Consideration

17    Mr Fazio argues that the Court has the power to set aside the original orders in Fazio No 1 and relied upon the following authorities in his written submissions:

…

As authorised in The High Court authority of Aktas v Westpac Banking Corporation (No 2) (2010) 241 CLR 570 at 573{6), Wenkart v Pantzer (No 3) {2013} FCAFC and Autodesk Inc v Dyason (No2) the court has full power to rehear or review a case, even after judgement (sic) has been delivered, providing there is some matter calling for review. What must be demonstrated is that the court has apparently proceeded on the basis of some misapprehension of the facts or of the relevant law.

…

18    Those authorities do not stand for the proposition that the Court can revoke its final orders when an appeal from them is on foot.

19    Indeed, there is no vehicle before the Court, other than some submissions, which would enable such a course even to be contemplated.

20    The only matter listed before me for mention and of which Mr Fazio has received notice, was notification, in effect, to the Court that the applicants no longer seek to vary the orders in Fazio No 1 and contend there should be no order as to costs.

21    As to the power to set aside final orders, see the discussion in SZCZF v Minister for Immigration and Citizenship (2009) 107 ALD 138 (at [9]-[13] and [17]-[18]) where Flick J said:

9    An order, once made and entered, is normally final. In DJL v The Central Authority (2000) 201 CLR 226, the High Court held that the Full Court of the Family Court did not have power to re-open final orders after their entry. And, in reliance upon that decision, in Pantzer v Wenkart [2007] FCAFC 27 at [5], Black CJ observed that it was “hard to see … how, in the face of DJL v The Central Authority, there can be any foundation for the contention that the Full Court of the Federal Court has power to re-open final orders duly entered …”. The Chief Justice further observed:

[7]    Even if there were power to re-open the orders then it is clear that such a power should only be exercised in exceptional circumstances. The public interest in finality requires as much: see, albeit in a different context, Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 684 (Mason ACJ, Wilson and Brennan JJ); Autodesk Inc v Dyason [No.2] (1993) 176 CLR 300 at 302 (Mason CJ) and 317 (Dawson J).

10    Only limited exceptions to the finality of orders once entered are conferred by the Federal Court of Australia Act and the Federal Court Rules 1979 (Cth). In addition to such express powers, there may be an “incidental power” of uncertain extent. But it is not considered that the Applicant can bring himself within any of the exceptions.

11    One express exception set forth in the Act is s 25(2B)(bc) which permits the Court to “vary or set aside an order” made pursuant to s 25(2B)(bb), namely an order dismissing an appeal by reason of an appellant’s failure to attend a hearing relating to the appeal. That power is a power conferred “in general terms” and “should be construed liberally and without the making of implications or the imposition of limitations not found in the words used by Parliament”: SZISM v Minister for Immigration and Citizenship [2007] FCAFC 61 at [20], 158 FCR 292 at 298 per Black CJ, Weinberg and Allsop JJ. As contemplated in SZISM, the power conferred by s 25(2B)(bc) is a power which can be exercised even after the orders have been entered. See also: SZCOZ v Minister for Immigration and Citizenship [2007] FCA 641 at [1]; Brannan v Minister for Immigration and Citizenship [2007] FCA 1900 at [3]; SZJYK v Minister for Immigration and Citizenship [2007] FCA 1462 at [2].

…

13    An express power conferred by the Federal Court Rules which is frequently invoked is that found in Order 35 r 7(2). That Rule provides as follows:

…

…

AN INHERENT OR IMPLIED POWER?

17    In addition to such express power as is conferred to vary an order once entered, in departure from the general rule that such orders are final, stands the prospect that the Court may have an “inherent power” or an “implied” power.

18    In S353, for example, such an “inherent power” was referred to – but not invoked. Emmett J, with whom Allsop and Middleton JJ agreed, there referred to Order 35 r 7 and set forth the circumstances in which this “inherent power” could be exercised as follows:

[20]    However, no provision of the Rules can deprive the Court of the inherent power that it has to set aside an order made in the absence of a party or an order made at a hearing of which the party had no notice (see Taylor v Taylor [1979] HCA 38; (1979) 143 CLR 1 at 8). That is to say, it is an incident of the exercise of the judicial power of the Commonwealth that the Court may, in an appropriate case, set aside its own order if it is satisfied that there is a proper explanation for the non-attendance of a party at a hearing at which the order is made. However, given that the power exists, it is clearly discretionary (see Taylor at 8).

…

22    Mr Fazio has exercised his rights to obtain appropriate relief in both Fazio No 1 and Fazio No 2 and in filing the appeals. Further intervention on my part at this point (even if there were a proper application and admissible evidence) would be beyond power.

23    Despite the strength of the language adopted by Mr Fazio in his written submissions, his oral presentation was articulate and taken alone, made evident the futility of these entire proceedings. The applicants at one level have incurred substantial expense pursuing relief from which they will never benefit and Mr Fazio has sustained frustration and dissatisfaction with the process which has occurred. Nevertheless, it is clear that the orders made in Fazio No 1 were final. It is clear that Mr Fazio has exercised an application for relief in respect of those orders albeit unsuccessfully and it is clear that his rights to pursue appeals from Fazio No 1 and Fazio No 2 are preserved. In the meantime, while all this occurs, I am informed on affidavit from the applicants that the mortgagee is, in any event, pursuing its own power of sale.

24    There is no power in the Court to revoke its final orders particularly when there is an appeal on foot from those final orders. The proper avenue is to seek redress, if it is available through the process of appeal. Secondly, lest there is any doubt about that point, even affording Mr Fazio every reasonable indulgence, I am far from satisfied that there is admissible evidence before me which makes it clear that any of the conclusions reached in Fazio No 1 or Fazio No 2 were unsound. Mr Fazio has relied upon some material which shows an injury, a need for nursing care at various times and of certain other difficulties. It is not clear specifically what he would ask the court to draw from that material assuming that it were properly before the court. While the futility of this entire exercise is manifest, and while it appears that the applicants, in simply ‘abiding the decision of the Court’ on the appeals, are unlikely to make clear the steps that they have taken in relation to keeping Mr Fazio informed of his rights and obligations in accordance with the Rules, there is no power on my part to usurp the function of the Full Court by setting aside the final orders which were both made in Fazio No 1 and not disturbed in Fazio No 2.

25    Suggestions were raised by Mr Fazio that, as he had informed Court staff between the hearing of the applicants’ application and the delivery of the decision in Fazio No 1, he had not been served with all the documentation and that Court staff and solicitors for the applicants were aware that he had not been served with the process upon which the applicants’ application in open Court proceeded.

26    The evidence does show that a query was raised by Mr Fazio with the Deputy District Registrar after the hearing. It shows that Mr Fazio was informed correctly that he could examine the Court file.

27    There is no evidence he did so.

28    There is no evidence he sought to be heard while judgment was reserved.

29    There is no evidence that any application or any request of any sort was made.

30    As Mr Fazio would be aware from previous experience, the business of the Court is conducted by way of applications and affidavits as provided for in the Rules of the Court, rather than by way of correspondence to members of the Court Registry.

31    Insofar as the correspondence to the Court is concerned, to the extent that such material may be taken to be a submission that those within the Registry of the Court or its members would have any interest in deliberately ensuring that Mr Fazio was denied justice, it would be fundamentally misconceived. Indeed, to the contrary, the Court has repeatedly afforded Mr Fazio indulgences and special consideration in light of his unrepresented status.

32    It follows that the application by the applicants to vacate any application for leave to apply in relation to the orders with no order as to costs should be allowed. As the reality of the matter is that they are simply not pursuing such an application, no further order is necessary.

CONCLUSION

33    All that said, it seems an unsatisfactory state of affairs that having initiated and prosecuted the litigation, when it is found to no longer be fruitful, the applicants will ‘walk away’ once that which they had sought ceases to be of value. The trustees are in quite a different position from the second respondent as they have initiated and advanced the proceeding. No doubt the trustees, if they intend to continue to act in that capacity, will be conscious of their onerous duties as well as the requirements of Sch 4A of the Bankruptcy Regulations 1996 (Cth). No doubt they would not be intending to abide the decision in the sense of leaving the Full Court without the benefit of any argument when allegations raising serious complaints are advanced against the applicants, their advisors and others. Doubtless they will consider that those circumstances call for a response, albeit one that may occasion some expense rather than mere passive acquiescence.

34    For the reasons indicated above, however, I will make no orders relating to the exercise of the liberty to apply.

Associate:

Dated:    17 February 2014