Federal Court of Australia
Polis v Zombor (No 5) [2022] FCA 122
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to r 39.05 of the Federal Court Rules 2011, order 2 of the orders of the Honourable Justice Murphy made on 5 February 2019 be set aside.
2. The originating application be dismissed.
3. There be no order as to costs of the interlocutory application dated 17 November 2021 or the originating application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
O’BRYAN J:
Introduction
1 By interlocutory application dated 17 November 2021, the first prospective respondent, Mr Luke Zombor, seeks orders that an order against him for preliminary discovery be set aside and that the originating application filed by the prospective applicant, Mrs Gaye Polis (in her capacity as executor of the estate of Mr Henry Polis), be dismissed.
2 For the reasons that follow, I make orders that the preliminary discovery orders be set aside and the originating application be dismissed, but that no costs of the interlocutory application or the originating application be awarded.
Background
3 The proceeding has a lengthy background brought about, in large part, by Mr Zombor’s failure to take any step in the proceeding until the present application.
4 The proceeding was commenced on 27 February 2018 by the filing of an originating process in which the prospective applicant, Mr Henry Polis, sought orders for discovery from the prospective respondent, Mr Luke Zombor, under r 7.23 of the Federal Court Rules 2011 (Cth) (Federal Court Rules). Mr Polis considered that he may have causes of action against Mr Zombor based in deceit, misleading or deceptive conduct and/or unconscionable conduct, but required further information to assist in deciding whether to commence such a proceeding. Mr Polis has since died. His widow, Mrs Gaye Scott Polis, seeks to pursue the proceeding in her capacity as executor of Mr Polis’ estate. On 3 November 2021, orders were made by consent joining Mrs Polis to the proceeding in her capacity as executor of the estate of the late prospective applicant, pursuant to r 9.09(2).
5 The events giving rise to the potential causes of action were stated by Mr Polis in an affidavit sworn 21 February 2018 (the 2018 Polis Affidavit). The following is a summary of those events:
(a) In about November 2007, Mr Polis says that he provided a $70,000 loan to Mr Zombor and his son, Mr Benjamin Polis, to assist them in starting a new business (which Mr Polis refers to as the “Start-up Loan”). The Start-up Loan was interest-free, repayable at call and Mr Zombor and Benjamin Polis were jointly and severally liable to repay the Start-up Loan. Mr Polis transferred $70,000 to a bank account set up in the name of Polis Australia Pty Ltd (now deregistered) (Polis Australia).
(b) In February 2009, Mr Zombor and Benjamin Polis incorporated Energy Watch Pty Ltd (Energy Watch), and the new business was operated through that entity.
(c) On or about 19 August 2009, Polis Australia entered into liquidation. Mr Polis deposed that he did not lodge a proof of debt as the Start-up Loan agreement was with Mr Zombor and Benjamin Polis personally.
(d) In about June 2012, Energy Watch went into liquidation. Mr Polis again deposed that he did not lodge a proof of debt for the same reason - the Start-up Loan agreement was with Mr Zombor and Benjamin Polis personally.
(e) Mr Polis deposed that he had received some payments towards the repayment of the Start-up Loan, however the repayments were incorrectly recorded as a loan to Mr Polis in the books and records of Energy Watch. He deposed that he asked Benjamin “to plead with Luke” to change the accounts ledgers to accurately reflect the Start-up Loan repayments, however, this was not done. When Energy Watch went into liquidation, the liquidators sought recovery from Mr Polis of the amount recorded in the books as a loan. The statement of claim in that proceeding was annexed to Mr Polis’ affidavit. It claimed an amount from Mr Polis of $75,412.30. Mr Polis deposed that he settled the proceeding on terms that were not favourable to him. An aspect of this evidence was not explained by Mr Polis in his affidavit. If it were correct that the amount paid by Energy Watch to Mr Polis was by way of repayment of the Start-up Loan, the amount repaid (as recorded in the books of Energy Watch) exceeded the amount of the Start-up Loan, suggesting that the Start-up Loan was repaid in full. However, the current application does not turn on that discrepancy.
(f) In his affidavit, Mr Polis does not depose to taking any steps to call in or recover the amount of the Start-Up Loan from Mr Zombor or Benjamin Polis, including after the liquidation of Energy Watch.
(g) Mr Polis annexed to his affidavit a statement of the Australian Financial Security Authority which recorded that, in February 2013, Mr Zombor began steps to have his affairs dealt with under Part X of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). Mr Zombor authorised James Patrick Downey of J P Downey & Co, Chartered Accountants to be his controlling trustee. Mr Polis also annexed a “Report by Controlling Trustee” made by Mr Downey under s 189A of the Bankruptcy Act which states that:
(i) on 26 February 2013, Mr Zombor executed an Authority pursuant to the provisions of s 188 of the Bankruptcy Act;
(ii) Mr Zombor had submitted a proposal for consideration by his creditors by which Mr Zombor agreed to pay a total of $95,000 to his creditors in two instalments – the first being $10,000 to be paid on or before 31 May 2013 and the second being $85,000 to be paid on or before 1 December 2013 – and upon compliance Mr Zombor would be released from all of his provable debts within the meaning of the Bankruptcy Act;
(iii) Mr Zombor had provided the Controlling Trustee with a Statement of Affairs which showed that he had liabilities (to 15 unsecured creditors) totalling $9,694,182 and assets (being cash and superannuation) of only $13,000;
(iv) if Mr Zombor’s proposal was accepted by creditors, they would receive an estimated return of “0.005 cents” in the dollar. It should be noted that the expression of that figure in the Report is inaccurate. The true figure is $0.005 in the dollar (which equates to 0.5 cents in the dollar).
(h) The proposal was approved by Mr Zombor’s creditors and, on or about 12 April 2013, Mr Zombor executed a personal insolvency agreement under Part X of the Bankruptcy Act in accordance with the proposal. Mr Zombor complied with the obligations in the agreement.
(i) Mr Polis was not identified as a creditor and did not participate in the approval of the proposal.
(j) Mr Polis deposed to his belief that creditors who voted in favour of the personal insolvency agreement may have been misled by Mr Zombor as to his true financial capacity. That belief arises from the following matters:
(i) Mr Polis believes that, at some time in around April 2012, the assets of Energy Watch were sold to a company called General Brokerage Services Pty Ltd (GBS) and that, in connection with that sale, GBS promised to pay Mr Zombor 20% of the proceeds of the future on-sale of that business.
(ii) Mr Zombor’s interest in the future on-sale of that business was concealed through a number of corporate entities (the details of which are unnecessary to set out).
(iii) On 30 May 2014, it was announced that iSelect Ltd had agreed to purchase GBS for $10 million.
(iv) Mr Polis believes that Mr Zombor received an amount of approximately $2 million from the sale of GBS (being 20% of the proceeds).
6 The 2018 Polis Affidavit annexed statutory declarations made by Benjamin Polis, Marcus Denning and Harley Aitkens who each deposed to conversations with Mr Zombor or business associates of Mr Zombor in or around April 2012 that support Mr Polis’ belief that Mr Zombor was given, at that time, an interest in any subsequent on-sale of the Energy Watch business through GBS. The 2018 Polis Affidavit also annexed various ASIC search extracts of companies that Mr Polis believed may have been involved in the concealment of Mr Zombor’s interest in GBS. Relevantly, a company called QHT Investments Pty Ltd (QHT) held 23,180 ordinary shares in GBS out of a total number of 119998 shares, being approximately 19.3% of the shares. QHT’s interest in the proceeds of the sale of GBS to iSelect would have amounted to $1,930,000. The 2018 Polis Affidavit stated that “had the amount of $1,930,000.00 been made available, in addition to the offered $95,000.00, Luke’s creditors would have received an amount equal to approximately $0.20 on the dollar, as opposed to the $0.005 that was accepted in Luke’s PIA”.
7 On 26 April 2018, Justice Murphy made orders pursuant to r 10.24 for substituted service of that process on Mr Zombor. In Polis v Zombor [2019] FCA 69 (Polis v Zombor (No 1)), Justice Murphy explained the basis for making those orders as follows (at [9]-[11]):
9 Mr Polis was unable to effect personal service of the originating application and affidavit in support on Mr Zombor. In support of an application for substituted service he filed evidence to the following effect:
(a) service of the originating application and supporting affidavit had been attempted by an investigator at various addresses identified in searches of electoral, property, company, and other public records;
(b) a Facebook page under the name ‘Luke Zee’ existed, to which had been uploaded a photograph of Mr Zombor;
(c) the ‘Luke Zee’ account holder responded to a Facebook message and said that Mr Zombor was in Bangkok at the time but would be home by the weekend of 16 December 2017, that he would be using his parents’ home of … Carrum Downs, Victoria as his base location, and that correspondence could be sent to that address;
(d) the property at that address is jointly owned by Mr Bela Zombor and Mrs Janet Zombor; and
(e) that an ABN, held in the name Luke Michael Zombor and trading as Freedom Mortgages, is owned by Mr Zombor and its registered address is … Carrum Downs.
10 On 26 April 2018 I made orders for substituted service and directed that service on Mr Zombor of the originating application and supporting affidavit be taken to have been effected by:
(a) sending the documents to the Facebook page in the name of ‘Luke Zee’ at the specified internet address;
(b) posting the documents marked to the attention of Mr Zombor to the address Level 18, 530 Collins Street, Melbourne; and
(c) leaving the documents in an envelope marked to the attention of Mr Zombor with a person who is apparently over the age of 16 and residing at … Carrum Downs, the home of Mr Zombor’s parents.
11 I later made orders for Mr Zombor to be notified of the case management hearing on 22 June 2018 by the latter two methods (as by that time the ‘Luke Zee’ Facebook account had been closed) and that Mr Polis proposed to seek orders for final relief if Mr Zombor did not appear. I am satisfied that Mr Polis complied with the orders for substituted service and notification of the case management hearing.
8 Mr Zombor did not make any appearance in response to Mr Polis’ application. On 5 February 2019, Justice Murphy made the orders for preliminary discovery from Mr Zombor that had been sought by Mr Polis: see Polis v Zombor (No 1). Those orders, and the reasons for making them, are summarised below. His Honour also ordered that the orders for discovery be served on Mr Zombor by methods that included service at the Carrum Downs address. The orders contained an endorsement pursuant to r 41.06 informing Mr Zombor, as the first prospective respondent, that he will be liable to imprisonment, sequestration of property or punishment for contempt if he neglects or refuses to do what was required by the order.
9 The orders were duly served in accordance with Justice Murphy’s orders. Mr Zombor failed to give discovery in accordance with those orders.
10 On 22 May 2019, Mr Polis filed an interlocutory application and statement of charge seeking, as the primary relief, a declaration that Mr Zombor is guilty of contempt by failing to comply with the orders for preliminary discovery and an order that Mr Zombor be fined in respect of the contempt, pursuant to r 42.11 of the Rules. By the same application, Mr Polis also sought, as a supplementary form of relief, a warrant for Mr Zombor’s arrest and detention in custody until he is brought before the Court to answer the charge of contempt, pursuant to r 42.14. Mr Polis also sought orders that, as a first step, personal service of that interlocutory application, affidavits in support and orders of the Court be substituted with service at the Carrum Downs address. I made orders for substituted service on 5 June 2019: Polis v Zombor (No 2) [2019] FCA 856.
11 The interlocutory application was heard before me on 5 September 2019 with further submissions filed on 12 September 2019. Mr Zombor did not appear. Mr Zombor’s parents were subpoenaed to give evidence concerning his whereabouts and their contact with him. At the conclusion of the hearing, I made orders requiring Mr Zombor’s parents to preserve information stored on his mobile phone being messages transmitted between them and Mr Zombor: Polis v Zombor (No 3) [2019] FCA 1477.
12 Ultimately, Mr Polis did not press the application for contempt and that application was adjourned to be heard at a later date. Mr Polis pressed the application for a warrant for the arrest of Mr Zombor under r 42.14. On 16 December 2019, I made orders for the issue of a warrant for Mr Zombor’s arrest to bring him before the Court to answer the charge of contempt. My reasons for those orders are recorded in Polis v Zombor (No 4) [2019] FCA 2101 (Polis v Zombor (No 4)). In those reasons, I expressed doubts as to the overall utility of the proceedings, but concluded that the evidence established that Mr Zombor was aware of the proceedings and had actively sought to avoid the processes of the Court (at [5]).
13 On 28 September 2021, the Court received notification from the Australian Federal Police that Mr Zombor was expected to arrive into Melbourne on 29 September 2021. In line with COVID-19 restrictions in force at that time, Mr Zombor was due to be transferred to hotel quarantine for two weeks. He subsequently received an exemption to quarantine from his home to care for his unwell mother.
14 I listed the hearing of the contempt charge against Mr Zombor for 14 October 2021, this being the day that Mr Zombor was to be released from home quarantine. Mr Zombor ultimately agreed to attend the hearing voluntarily and without the need for an arrest. On 12 October 2021, at the request of Mr Zombor, and the consent of Mrs Polis, the hearing of the contempt charge was adjourned until 4 November 2021.
15 On 3 November 2021, I received proposed consent orders from the parties. I subsequently made the following orders by consent on 3 November 2021:
(a) the contempt application filed on 22 May 2019 was dismissed;
(b) Mrs Polis, in her capacity as executor of the estate of the late prospective applicant, was joined to the proceeding; and
(c) Mr Zombor was given 14 days in which to bring any application to vary or set aside the preliminary discovery orders made by Justice Murphy on 5 February 2019, failing which Mr Zombor was required to comply with those orders within 56 days.
16 On 17 November 2021, Mr Zombor filed the present interlocutory application.
The orders for preliminary discovery
17 Order 2 of Justice Murphy’s orders of 5 February 2019 was as follows (the preliminary discovery orders):
2. Within 28 days of service of these orders on the first prospective respondent in accordance with Order 1, or within such further period as the Court allows on application by the first prospective respondent, the first prospective respondent give discovery to the prospective applicant of:
(a) all bank statements for any and all bank accounts owned, operated or controlled by the first prospective respondent during the period 1 January 2012 to 1 February 2018;
(b) all bank statements for any and all bank accounts owned, operated or controlled by the second or third prospective respondents during the period 3 December 2014 to 1 February 2018;
(c) any documents with respect to the sale of General Brokerage Services Pty Ltd (ACN 158266141) (GBS) to iSelect, the disbursement of the sale proceeds of GBS and the incorporation of the second and third prospective respondents.
18 Justice Murphy made the preliminary discovery orders on the basis of the materials before him and the principles relevant to the consideration of an application for orders under r 7.23. Rule 7.23 provides as follows:
Discovery from prospective respondent
(1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant:
(a) reasonably believes that he or she may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and
(b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and
(c) reasonably believes that:
(i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent’s control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and
(ii) inspection of the documents by the prospective applicant would assist in making the decision.
(2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i).
19 Justice Murphy was satisfied in respect of each limb of r 7.23(1). It is convenient to extract his Honour’s reasoning in Polis v Zombor (No 1) at [15]-[23]:
15 On the basis of the materials and having regard to the relevant principles I am satisfied, first, that there is a reasonable basis for Mr Polis’s belief that he may have a right to obtain relief from Mr Zombor for deceit, misleading or deceptive conduct and/or unconscionable conduct.
16 Mr Polis is not required to show reasonable grounds for believing that he does have a right to obtain relief. He needs only reasonable grounds for believing he may have a right to obtain relief: Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (2017) 351 ALR 103; [2017] FCAFC 193 at [51]. Rule 7.23 is intended to aid a prospective applicant who is having difficulty, and reasonably so, in deciding whether to litigate because of a lack of key information. The rule is of a beneficial kind and is to be given the full scope that its language will reasonably allow. The proper brake on any excesses of its use lies in the discretion of the Court, which is required to be exercised in the particular circumstances of each case: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733.
17 There is evidentiary support for Mr Polis’ belief that Mr Zombor had a beneficial entitlement to 20% of the shares in GBS and an entitlement to receive a benefit upon any sale of GBS. In completing his Statement of Affairs Mr Zombor was required to disclose any benefit he expected to receive from any person or entity in the future. The Statement of Affairs does not disclose any entitlement that Mr Zombor had to shares in GBS or any benefit he may receive if GBS was sold. This supports Mr Polis’ belief that creditors voted in favour of the PIA without being informed of Mr Zombor’s asserted entitlement to a substantial benefit if GBS was sold.
18 Mr Polis argues that had Mr Zombor disclosed to his creditors that he had a beneficial entitlement to 20% of the shares in GBS, and/or was entitled to receive a substantial benefit if GBS was sold, the creditors would not have accepted the proposed PIA and would have proceeded to bankrupt him. He also contends that Mr Zombor’s asserted entitlement to a 20% share of any proceeds from the sale of GBS would have vested in the trustee in bankruptcy who is likely to have sought to recover those monies. There is a reasonable basis for Mr Polis’ belief that he may be able to obtain relief from Mr Zombor in deceit, misleading or deceptive conduct and/or unconscionable conduct.
19 Second, I am satisfied that, having made reasonable inquiries, Mr Polis does not have sufficient information to decide whether to start a proceeding against Mr Zombor. The evidence he has as to the alleged agreement under which Mr Zombor had a beneficial entitlement to 20% of the shares of GBS and to receive 20% from any sale of GBS is hearsay, he has no documentary evidence of such an agreement, and the material is insufficient to decide whether it is appropriate to start a proceeding against Mr Zombor.
20 Third, I am satisfied that there is a reasonable basis for Mr Polis’ belief that Mr Zombor has or is likely to have, or has had or is likely to have had, in his possession, power or control, the documents set out in the orders, and that such documents are directly relevant to whether Mr Polis has a right to obtain relief. This is obviously so in the case of bank statements for accounts Mr Zombor owned, operated or controlled, and is also reasonably likely in the case of LMZ and Latrme, companies of which Mr Zombor was the sole director. That the documents are directly relevant to the proposed claims of deceit, misleading or deceptive conduct and/or unconscionable conduct is plain from their nature.
21 Fourth, I am satisfied that there is a reasonable basis for Mr Polis’ belief that inspection of the documents of which he seeks discovery will assist him to decide whether to commence a claim for deceit, misleading or deceptive conduct and/or unconscionable conduct against Mr Zombor. It is reasonable for Mr Polis to believe that inspection of the identified documents may substantiate some of the matters to which he has referred in evidence, namely Mr Zombor’s entitlement to and receipt of 20% of the proceeds of the shares in GBS. This is central to his decision about whether to commence a proceeding.
22 Finally, the power to order discovery from a prospective respondent pursuant to r 7.23 is discretionary. I am not aware of anything to indicate that the orders sought might be unfairly prejudicial to Mr Zombor in a commercial or litigious sense: see Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2007) 247 ALR 199; [2007] FCA 2065 at [35].
23 It could, however, be argued that by operation of s 229(2)(c) of the Bankruptcy Act Mr Polis was not competent to bring the originating application (nor to apply for orders for final relief) and/or is not competent to bring the proposed proceeding. For the reasons I now explain, for the purposes of the present application I consider Mr Polis is competent to bring the application and to apply for the orders sought.
20 In respect of the issue raised at [23] of Polis v Zombor (No 1), Justice Murphy went on to observe that s 229 of the Bankruptcy Act provides that if a personal insolvency agreement has become binding on the creditors of the debtor then a creditor is not competent to commence any legal proceeding in respect of a “provable debt” so long as the agreement remains valid. Section 5 of the Bankruptcy Act defines “provable debt” to mean “a debt or liability that is, under this Act, provable in bankruptcy”. Section 82 of the Act sets out what constitutes a debt provable in bankruptcy. It relevantly provides: “[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy”.
21 Justice Murphy went on to consider Mr Polis’ submission that his proposed claims were for unliquidated damages and therefore not a provable debt for the purpose of s 229, concluding that (a) the proposed claims for deceit, misleading or deceptive conduct and/or unconscionable conduct are claims for unliquidated damages and (b) the proposed claims do not arise by reason of a contract, promise or breach of trust. Accordingly, Justice Murphy concluded that the claims to be made in the prospective proceeding fall within the carve-out in s 82(2), and are not provable debts in the bankruptcy (at [44]). His Honour went on to state:
I will make the interlocutory orders which Mr Polis seeks, but I will hear Mr Zombor in relation to these questions if he applies to vary or set aside those orders. If the prospective proceeding is commenced, it will also be open to Mr Zombor to rely on s 229(2)(c) to plead that Mr Polis is barred from commencing it and/or to apply to dismiss the proceeding.
Mr Zombor’s application and evidence
22 By his interlocutory application, Mr Zombor seeks the following orders:
1. Pursuant to r 39.05, alternatively r 17.04 or alternatively r 30.21(2) of the Federal Court Rules 2011, order 2 of the orders of the Honourable Justice Murphy made 5 February 2019 be set aside.
2. The originating application be dismissed.
3. The Prospective Applicant pay the First Prospective Respondent’s costs of and incidental to this application.
4. The Prospective Applicant pay the First Prospective Respondent’s costs of and incidental to this proceeding.
5. Such further orders as this Honourable Court sees fit.
23 In support of his application, counsel for Mr Zombor read an affidavit affirmed by Mr Zombor on 17 November 2021. Limited objections were sustained. Mr Zombor was not cross-examined.
24 In his affidavit, Mr Zombor responds to the evidence given by Mr Polis in the 2018 Polis Affidavit and states that he denies “most of [Mr Polis’] allegations”. The specific allegations that Mr Zombor denies are as follows:
(a) Mr Zombor denies that on or about 19 November 2007, he and Benjamin Polis (Mr Polis’ son) incorporated the entity Polis Australia as a vehicle to launch their business concept, which would later be known as Energy Watch. Mr Zombor says he did not speak with Benjamin Polis regarding the incorporation of Polis Australia nor did he have anything to do with the incorporation of Polis Australia. He was not at any time a director, secretary or shareholder of Polis Australia. Mr Zombor says he did not have anything to do with Polis Australia until around March 2008 when Benjamin approached him and asked him to work for Polis Australia. At the time he was working for Neighbourhood Energy. At Benjamin’s request he resigned from Neighbourhood Energy and commenced working at Polis Australia in around late April 2008.
(b) Mr Zombor denies that in or about November 2007 he and Benjamin Polis approached Mr Polis and asked to borrow $70,000 for a start-up loan and that Mr Polis transferred that amount into a bank account that had been set up in the name of Polis Australia. Mr Zombor says he did not have any discussions with either Mr Polis or Benjamin Polis regarding a loan from Mr Polis, nor was he a party to any agreement in this regard.
(c) Mr Zombor denied Mr Polis’ evidence that “I spoke with Luke on a regular basis, as he would often borrow funds from me (personally) at short notice. I previously had no reason not to trust Luke as he was Benjamin's best friend, and had typically paid me back when he was able to”. Mr Zombor says that he rarely spoke with Mr Polis and has not borrowed money personally from him at any time.
(d) Mr Zombor also denies Mr Polis’ claim that Benjamin Polis asked Mr Zombor to change the loan ledgers of Energy Watch. In this regard Mr Zombor states:
I am aware that Benjamin borrowed money from his parents from time to time both personally and on behalf of Energy Watch and that payments were made from Energy Watch to Benjamin’s parents to repay the loans. I am also aware that Energy Watch provided other benefits to Benjamin’s family such as use of a vehicle, petrol, insurance, and registration. Energy Watch also hired Henry’s daughter to manage the admin team at a pay level in excess of the prevailing market rate.
(e) In respect of Mr Zombor’s personal insolvency agreement, Mr Zombor says that he did not include Mr Polis in his list of creditors as he had not borrowed money from Mr Polis and did not owe him money.
(f) As to Mr Polis’ belief that Mr Zombor concealed from creditors his interest in the sale of GBS (and his ultimate receipt of $1,930,000 from that sale), Mr Zombor says:
14 I deny that I had any arrangement to benefit, or did benefit, either directly or indirectly from any sale of the assets or business of Energy Watch to GBS, or the sale of GBS to iSelect Limited. There was a sale of some assets of Energy Watch to GBH. I cannot recall the precise details such as exactly what was sold, when or for how much. The sale was an arm’s length transaction and I did not receive any benefit from it.
15 In relation to paragraph 53, I specifically say as follows:
(a) I did not receive any funds or other benefit as a result of the sale of GBS to iSelect either through the transactions described in paragraph 53 or otherwise;
(b) LMZ Project Pty Ltd and Latrme Pty Ltd did not receive any funds or other benefit as a result of the sale of GBS to iSelect either through the transactions described in paragraph 53 or otherwise.
16 I deny that I dealt with or obtained assets which were not disclosed in my Part X application.
25 Mr Zombor also gives evidence regarding his awareness of the proceeding and the circumstances surrounding his return to Australia. In this regard he states (emphasis added):
19. The address of … Carrum Downs is my parents’ home. I have not permanently lived at this address since 2001.
20. I was living in Vietnam until late September 2021 when my mother became very ill and it was expected that she would pass away. I flew back to Australia on 29 September 2021 so that I could see my mother. Upon returning to Australia, I went into hotel quarantine initially but was granted an exemption to move into home quarantine so that I could see my mother. I was released to home quarantine on 1 October 2021, which was the day my mother passed away.
21. On around 8 October 2021, I was contacted by the Federal Police. They told me that I had a hearing on 14 October and that if I did not attend the hearing, they would arrest me and take me to Court. The Federal Police emailed me an extract from the pre action discovery orders made in this proceeding. This was the first time I became aware of this proceeding or that orders had been made against me. Prior to this, I had not received copies of any Court documents or orders.
22. I am presently staying at … Carrum Downs with my father which is why I have used this address in this affidavit. I intend to stay in Australia for a couple of months with my father to make sure he is ok while he grieves my mother’s death. Ultimately, I intend to return to Vietnam.
Mr Zombor’s submissions
26 In his written submissions in chief, Mr Zombor failed to address the principles governing the exercise of the Court’s discretion under r 39.05. The submissions proceeded on the erroneous assumption that Mr Zombor could conduct a de novo hearing of the application for preliminary discovery as of right.
27 In his written submissions in reply and in the course of the hearing, Mr Zombor acknowledged that, in determining whether to set aside an order made in the absence of a party under r 39.05(a), the Court will usually have regard to two factors: the explanation for the party’s absence and whether they have a case that is reasonably arguable. In relation to the first factor, Mr Zombor submitted that he has given evidence that he was not aware of the proceeding until around 8 October 2021, which evidence was not challenged on cross-examination, and that that evidence explains his absence from the hearing of the preliminary discovery application. Mr Zombor argued that there is no evidence that documents served by substituted service ever came to his attention.
28 In relation to the second factor, Mr Zombor submitted that the evidence filed on behalf of the prospective applicant failed to establish the requirements for preliminary discovery under r 7.23.
29 In respect of r 7.23(1)(a), Mr Zombor submitted that there is no evidence that Mr Polis was a creditor of Mr Zombor’s other than Mr Polis’ bare assertion. Mr Zombor further submitted that the allegation that he became entitled to receive, and received, the sum of $1,930,000 from the sale of GBS which was not disclosed to his creditors is built on “nothing more than speculation and fantasy”.
30 In respect of the three potential causes of action alleged by Mrs Polis, Mr Zombor submitted that all three are “unreasonable, untenable, irrational or baseless”: per Allsop CJ in Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (2017) 257 FCR 62 at [69]. In that regard, Mr Zombor advanced the following submissions:
(a) The tort of deceit requires the plaintiff to show that the defendant made a false representation, knowing it to be false (or being reckless as to its falsity), with the intention that it be relied upon by the plaintiff and the plaintiff acted in reliance on the false representation and thereby suffered damage (referring to Magill v Magill (2006) 226 CLR 551 (Magill v Magill) at [114] per Gummow, Kirby and Crennan JJ). Mr Zombor argued that, taking Mrs Polis’ claim at its highest, the claim must fail because Mr Polis was unaware of Mr Zombor’s application under Part X of the Bankruptcy Act and Mr Zombor had not included Mr Polis amongst his list of creditors. In those circumstances, Mrs Polis could not establish that Mr Zombor made a false representation with the intention that it be relied on by Mr Polis or that Mr Polis in fact relied upon the false representation.
(b) In respect of the potential claim of misleading or deceptive conduct, Mr Zombor submitted that precisely what conduct, act or omission by Mr Zombor is said to be relevantly misleading or deceptive is not identified by the prospective applicant. Further, even accepting that some conduct were identified, the context would appear to be in the execution of a personal insolvency agreement under the Bankruptcy Act, which is not conduct “in” trade or commerce as that term is understood (referring to Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594).
(c) In respect of the potential claim of statutory unconscionability under s 20 of the Australian Consumer Law (ACL) in Sch 2 of the Competition and Consumer Act 2010 (Cth), Mr Zombor submitted that there is no basis upon which it could be said that the prospective applicant suffered from a special disadvantage, nor that Mr Zombor knew of that special disadvantage, in the manner required for a claim of unconscionability within the meaning of the unwritten law (referring to Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 (Kakavas)).
31 In respect of r 7.23(b), Mr Zombor submitted that Mrs Polis has failed to establish that reasonable enquiries had been made before making the application. Mr Zombor says that the only “enquiry” made was a letter of demand sent on 29 January 2018, prior to the commencement of the preliminary discovery application, which was not an enquiry. No enquiries were made of any of the companies said to be parties to the transactions, nor of Mr Zombor’s Controlling Trustee, nor of the liquidators of Polis Australia or Energy Watch, nor of the people supposedly with knowledge of or involvement in the alleged transactions Further, Mr Zombor submitted that Mrs Polis has failed to establish that she does not have sufficient information to decide whether to start a proceeding, relying on a statement in the letter of demand to the effect that Mr Polis had instructed his lawyers to commence a civil action in the Supreme Court of Victoria.
32 Mr Zombor submitted that, even if the Court is satisfied of the matters in r 7.23(1), it nonetheless retains a discretion to grant the relief sought under r 7.23(2). Mr Zombor submitted that there are powerful factors that militate against the exercise of that discretion, as follows:
(a) The matters complained of occurred a significant time ago – Mr Zombor’s personal insolvency agreement was executed over 8.5 years ago and it has well and truly run its course with creditors paid and the personal insolvency agreement finalised. Mrs Polis relies on concealment that allegedly occurred in around April 2012 (when creditors approved Mr Zombor’s personal insolvency agreement), a date well outside the six year limitation period for all three identified causes of action.
(b) Even if Mr Polis was a creditor of Mr Zombor, then his claim is for repayment of a $70,000 loan made in November 2007. Recovery of that debt is statute-barred. Even if Mr Zombor concealed an interest in GBS that was worth $1,930,000, and even if Mr Polis has a cause of action arising from the concealment, his loss and damage could amount to no more than $14,000. On the best case counterfactual, Mr Zombor would have disclosed the interest and agreed to make that amount available to creditors, which would have increased the payout to creditors to approximately $0.20 in the dollar which, on Mr Polis’ claim, would amount to $14,000. The costs of this proceeding alone – let alone any subsequent proceeding – are inordinately disproportionate to that amount.
(c) The letter of demand sent on behalf of Mr Polis on 29 January 2018 contained a serious and unethical threat. The Court should not condone such conduct by rewarding it with the relief sought.
33 For completeness, I note that in the course of oral submissions, Mr Zombor also placed reliance on r 1.39 of the Federal Court Rules, which relevantly provides that the Court may extend a time frame fixed by order of the Court. By order 3 of Justice Murphy’s orders of 5 February 2019, Mr Zombor was afforded 14 days from the date of service to apply to vary or set aside the preliminary discovery orders. Mr Zombor sought to rely on r 1.39 to now request an extension to that time frame. In my view, in the circumstances of this case, the principles that should be applied to the exercise of discretion under r 1.39 to extend time are the same as those that apply in respect of r 39.05(a). It is therefore unnecessary to deal with the application of r 1.39 separately.
Mrs Polis’ submissions
34 Mrs Polis submitted that Mr Zombor’s application should be dismissed on the basis that he fails to properly explain his absence at the hearing of the application for preliminary discovery and why he could not have filed his application earlier. Mrs Polis submitted that it is necessary for Mr Zombor to show exceptional circumstances to justify the setting aside of entered orders and no such exceptional circumstances have been pointed to.
35 In relation to the requirements of r 7.23, Mrs Polis principally relied on the evidence and submissions made before Justice Murphy and his Honour’s findings and conclusions.
36 In relation to r 7.23(1)(a) (reasonable belief in a right to obtain relief), Mrs Polis did not contradict Mr Zombor’s submissions regarding the viability of her proposed causes of action. Ultimately, Mrs Polis submitted that she does not need to make out a prima facie case in deceit, misleading or deceptive conduct or unconscionability, arguing that r 7.23 sets a lower threshold.
37 In relation to r 7.23(1)(b) (making reasonable enquiries), Mrs Polis submitted that the documents sought in the application for preliminary discovery could only be obtained from Mr Zombor and his companies (the second and third respondents).
38 In respect of Mr Zombor’s submission regarding limitation periods, Mrs Polis submitted that limitation periods “have been held to bar the remedy but not the right and thus create a defence to the action which must be pleaded”: Commonwealth v Verwayen (1990) 170 CLR 394 at 405 per Mason CJ. If no limitation defence is pleaded the period within which to bring an action will never have expired. Further, in respect of the claim for deceit, Mrs Polis submitted that s 27 of the Limitation of Actions Act 1958 (Vic) (Limitations Act) would apply, meaning that the six-year limitation period would not begin to run until the plaintiff had discovered the fraud or could have with reasonable diligence discovered it. Mrs Polis submitted that it is arguable in this case that the fraud has not yet been “discovered”. In respect of the misleading or deceptive conduct and unconscionability claims, Mrs Polis submitted that time will not start to run until actual damage is suffered. In this case, she argued that the actual damage could not have been suffered prior to the sale of the Energy Watch assets to GBS in May 2014 and, on the material before Justice Murphy, there was no certainty about when time began to run.
39 Mrs Polis also submitted that the Court would have no discretion to refuse Mrs Polis’ application on the ground of the costs of the proceeding being disproportionate to the quantum sought if r 7.23(1) is otherwise satisfied.
Applicable principles
40 Although Mr Zombor’s application was stated to be made under r 39.05 of the Federal Court Rules, or alternatively under rr 17.04 or 30.21(2), no submissions were advanced in respect of the latter rules and, in my view, they have no application.
41 Rule 39.05 relevantly provides:
The Court may vary or set aside a judgment or order after it has been entered if:
(a) it was made in the absence of a party; or
…
(c) it is interlocutory; …
42 In the present case, both r 39.05(a) and r 39.05(c) are applicable. The order for preliminary discovery was made in the absence of Mr Zombor and preliminary discovery orders are interlocutory in nature: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at [4]; Dallas Buyers Club LLC v iiNet Limited (No 5) [2015] FCA 1437; 115 IPR 544 (Dallas Buyers Club) at [12] per Perram J.
43 The discretion permitted to the Court by r 39.05, while in its terms unconfined, should ordinarily be exercised only in exceptional circumstances, bearing in mind the overarching principle of the finality of litigation: Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 4) [2013] FCA 318 (ActiveSuper) at [6] per Gordon J, citing Paras v Public Service Body Head of the Department of Infrastructure (No 2) [2006] FCA 652; 152 IR 352 (Paras) at [4]. Generally, the exercise of the discretion is limited to circumstances where it can be shown that, without fault on the part of the applicant, he or she has not been heard on a relevant question: Deputy Commissioner of Taxation v Berhad (No 2) [2010] FCA 1296; 81 ATR 40 (Berhad (No 2)) at [10]; Wati v Minister for Immigration and Multicultural Affairs (1997) 78 FCR 543 at 550-553. An application under r 39.05 is not an appeal and is not the appropriate means by which to contend that the Court’s orders are affected by an error of law: ActiveSuper at [15] per Gordon J citing Paras at [5] and Dudzinski v Centrelink [2003] FCA 308 at [11].
44 In determining whether to exercise the discretion permitted by r 39.05(a), “… it is usual for the court in these circumstances, to have regard to the explanation given by the absent party for its absence, and whether the evidence discloses a defence of sufficient merit to warrant setting aside the order …”: 3D Funtimes Ltd v Intellec Development Group Pty Ltd (No 2) [2011] FCA 407 at [6]; followed in Lal v Minister for Immigration and Border Protection (No 2) [2014] FCA 892 at [9] per White J. The requirement of a reason for the absence is based in the fundamental principle that a party should be bound by a decision if he or she has had full notice and an opportunity to appear and oppose the proceedings: Berhad (No 2) per Kenny J at [10], citing Ratcliffe v Barnes (1862) 2 Sw. & Tr 486; 164 ER 1085 at 1087, applied by Payne J in Re Barraclough (dec’d) [1967] P1 at 10-11; Nicholson v Nicholson [1974] 2 NSWLR 59 at 66. In respect of the second element, the court should consider whether the respondent has a prima facie, arguable, defence: Grey v Mango Pre Paid Calling Cards Pty Ltd (2004) 141 FCR 370 at [51]-[52] per R D Nicholson J.
45 In respect of r 39.05(c), the principle of the finality of litigation is also relevant to interlocutory orders and “counsels courts to exercise caution when considering whether orders previously made and final on their face and entered should be re-opened for consideration and set aside”: Professional Administration Service Centres Pty Ltd v Commissioner of Taxation [2012] FCAFC 180; 295 ALR 52 at [53] per Edmonds, McKerracher and Nicholas JJ; see also Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 4) [2010] FCA 398; 269 ALR 76 (Campaign Master) at [69] per Yates J. The too-ready resort to, or incautious application of, the power to vary or set aside orders, even of a procedural nature, also subverts the overarching purpose identified in s 37M of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) of facilitating the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: Campaign Master at [69] per Yates J. The ability of a party to re-litigate interlocutory matters after they have been thoroughly determined is generally limited to situations where there has been a material change in circumstances or where new material has been discovered which could not reasonably have been put before the Court on the previous occasion: Dallas Buyers Club at [14]-[15] per Perram J.
Consideration
46 The determination of Mr Zombor’s interlocutory application is finely balanced. On the one hand, for the reasons explained below, Mr Zombor has not provided a satisfactory explanation for his failure to appear at the hearing of the preliminary discovery application before Justice Murphy. On the other hand, on the basis of the submissions and arguments now advanced by Mr Zombor, I consider that Mrs Polis does not have a reasonable basis to believe that she has a right to relief against Mr Zombor, rendering the proceeding futile.
Explanation for absence
47 In seeking to have the preliminary discovery orders set aside, it is incumbent on Mr Zombor to provide an explanation for his absence from the case management hearing before Justice Murphy on 22 June 2018 and his failure to file any response to the application for preliminary discovery prior to Justice Murphy making the preliminary discovery orders on 5 February 2019.
48 The only explanation provided by Mr Zombor is a short statement in his affidavit that he only became aware of this proceeding and the orders made against him on 8 October 2021, when he was contacted by the Australian Federal Police. Although Mr Zombor was not cross-examined on that evidence, the Court is not obliged to accept it. As observed by Campbell JA (with whom Allsop P and Basten JA agreed) in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at [105]:
While the evidence was not cross-examined on, that does not necessarily mean that the judge was obliged to accept it. A judge can reject evidence that has not been cross-examined on if, for example, it was inconsistent with other evidence that he accepted, or if it was inherently incredible: Sullman v Sullman [2002] NSWSC 169 ; [2002] DFC 95-248 (77,468) at [304]–[306]; Caldwell v J A Neilson Investments Pty Ltd [2007] NSWCA 3 ; (2007) 69 NSWLR 120 at 135 [96]; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 586–8. Nor did the rule in Browne v Dunn (1893) 6 R 67 prevent the judge from rejecting the evidence. …
49 In Polis v Zombor (No 4) (at [23]), I found as follows:
The evidence establishes, on the balance of probabilities, that Mr Zombor left the jurisdiction 3 or 4 years ago before this proceeding was commenced. While Mr Zombor has returned to Australia from time to time in the intervening period, most recently he was in Sydney on 1 September 2019 when he called his parents on Father’s Day, the most recent contact between Mr Zombor and his parents indicates that he moved to Vietnam to reside earlier this year. The evidence also establishes that, despite knowing of these proceedings, [Mr Zombor] has consciously and actively avoided service of process. The evidence establishes the following:
(a) A mobile number previously known to be Mr Zombor’s, which was still in service on 16 March 2018, has been disconnected since the commencement of this proceeding.
(b) The Facebook page of “Luke Zee”, being the Facebook page of Mr Zombor, was shut down after he was sent, over that platform, the originating application in this proceeding and supporting documents.
(c) A process server left calling cards addressed to Mr Zombor at the home of his parents in May 2018 asking Mr Zombor to contact the process server. When Mr Bela Zombor later asked his son about the calling cards, his son told him to throw them out and did not want to discuss the matter.
(d) Whenever Mr Bela Zombor raised matters relating to his son’s previous businesses, his son would get upset, refuse to discuss those matters and would not make contact again with his father for a while.
(e) As a consequence of Mr Zombor’s reactions referred to in paragraphs (c) and (d), his parents have not attempted to forward to him the documents that have been served at their home.
50 Mr Zombor has not adduced any evidence to refute the above findings, whether from himself or from his father, Mr Bela Zombor. It was in his power to do so, particularly to explain the disconnection of his mobile phone, and subsequently his Facebook account, after he was contacted through those channels about the threatened proceedings. In my view, Mr Zombor’s statement in his affidavit that he was not aware of this proceeding until recently does not contradict the above findings, particularly the finding that Mr Zombor has consciously and actively avoided service of process of this proceeding. While it may be true that Mr Zombor was not aware of the details of this proceeding until recently, that is only because of his conscious and active avoidance of any knowledge of the proceeding.
51 In those circumstances, I do not accept that Mr Zombor has provided a satisfactory explanation for his absence from the proceeding to date. A respondent (or prospective respondent) to a proceeding in the Court who deliberately chooses to ignore and avoid receiving information about the proceeding cannot rely on that ignorance as an excuse for failing to appear and be heard. Except in the most exceptional case, a person who acts in that manner will not be entitled to appear at a later time and seek to set aside orders of the Court made in their absence.
52 Although I consider that Mr Zombor does not have a satisfactory excuse for his earlier failure to appear, it is necessary to consider whether other factors point to “exceptional circumstances” of the kind that require the exercise of my discretion to set aside the preliminary discovery orders – in particular, the strength of Mr Zombor’s defence to the preliminary discovery application.
Mr Zombor’s defence to the preliminary discovery application
53 In relation to r 7.23(1)(a), Mr Zombor challenged the evidentiary basis for Mrs Polis’ allegations of fact and Mrs Polis’ legal entitlement to relief based on those allegations of fact.
54 Mr Zombor’s challenge to the evidentiary basis for Mrs Polis’ allegations of fact was unpersuasive. In so far as Mr Zombor’s affidavit sought to address the allegations of fact, the affidavit consisted of bare denials of those allegations. Mr Zombor also argued that the allegations of fact contained in the 2018 Polis Affidavit were based on nothing more than speculation. I reject that argument. The key allegation concerning the concealment of an interest in GBS was supported by three statutory declarations of business acquaintances of Mr Zombor who were in positions to have knowledge of the facts alleged. The statutory declaration of Benjamin Polis, in particular, records conversations between Benjamin Polis and Mr Zombor about the key allegation. I consider that the evidence provides a proper basis to support a reasonable belief in the allegations of fact relied upon by Mrs Polis.
55 However, Mr Zombor’s challenge to Mrs Polis’ legal entitlement to relief based on those allegations of fact was far more persuasive and indeed was compelling. In the oft-recited principles summarised by Hely J in St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; 211 ALR 147 at [26] regarding O 15A r 6 (and of equal application to its replacement, r 7.23), his Honour observed (cited with approval in Apache Northwest Pty Ltd v Newcrest Mining Ltd (2009) 182 FCR 124 at [26]):
… belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action: John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679; BC200403021 at [13], [14], [17] and [73].
(emphasis added).
56 It is necessary to consider each of Mrs Polis’ proposed causes of action.
57 First, in respect of the proposed action in deceit, in Magill v Magill, Justices Gummow, Kirby and Crennan restated the five elements needed to establish the modern tort of deceit (at [114], citations omitted):
… first, that the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation.
58 Their Honours went on to observe that “… the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation”.
59 Here, the third and fourth elements summarised by Gummow, Kirby and Crennan JJ merit particular attention. In Larkins T J & Sons v Chelmer Holdings Pty Ltd & Van Den Broek [1965] Qd R 68, Lucas J considered a situation where a fraudulent misrepresentation was alleged to have been made not to the plaintiffs, but to a third party, with the result that the third party acted upon it to the detriment of the plaintiffs. Justice Lucas understood it to be implied that this result was intended. In this regard, his Honour observed (at 70, emphasis added):
Allegations such as these appear to lay a strange foundation for an action for damages for deceit. In some of the judgments in Pasley v. Freeman (1789) 3T.R.51; 100E.R.450 the case in which it was first held that fraud gave a cause of action in the absence of a contract between the parties, there are statements to the effect that “fraud without damage or damage without fraud gives no cause of action; but where these two occur, an action lies.” (See per Buller J. at 100E.R. p. 453 and per Ashurst J. at p. 456). The statement may be traced back to a dictum of Croke J. in Baily v. Merrell (1616) 3Bulst.95; 81E.R.81, and it is really, I think, at the basis of the argument for the plaintiffs in this case. Certainly, the statement is wide enough to comprehend the allegations in the present Statement of Claim, for both fraud and damage are alleged, but it has been clearly settled since the decision of the House of Lords in Peek v. Gurney (1873) L.R. 6 H.L.377 that a fraudulent misrepresentation cannot found an action of deceit unless it is made with the intent that the plaintiff should act upon it; it need not be made directly to the plaintiff, but the maker must have intended that the plaintiff should act upon it. In this case, the misrepresentation is alleged to have induced a third party to act to the detriment of the plaintiffs. Such a set of circumstances, consistently with Peek v. Gurney, would not be sufficient basis for an action of deceit …
60 In my view, Mrs Polis’ claim is incapable of establishing all of the essential elements of a cause of action in deceit. Mr Polis, by his own admission, was not listed as a creditor of Mr Zombor, and was therefore not invited to consider Mr Zombor’s personal insolvency agreement proposal. As noted earlier, Mr Polis’ failure to pursue Mr Zombor in respect of the alleged Stat-up Loan following the liquidation of Energy Watch was not explained by Mr Polis in his affidavit. It is unnecessary to speculate about the reasons for that; it suffices to say that there is no evidence that Mr Polis called up the Start-up Loan, sent a letter of demand to Mr Zombor or took any step towards recovery of the loan prior to Mr Zombor implementing the procedures under Part X of the Bankruptcy Act. Mr Zombor did not list Mr Polis as a creditor in his statement of affairs, and Mr Polis played no role in the Part X process. In these circumstances, there can be no basis for an allegation that Mr Zombor made the alleged false representation (being the misstatement of his true financial capacity in his statement of affairs provided to his creditors) with the intention that it be relied upon by Mr Polis. Nor is there any basis to an allegation that Mr Polis acted in reliance on that false representation or suffered damage caused by that reliance. It follows that there cannot be a reasonable basis for a belief that Mrs Polis may have the right to obtain relief from Mr Zombor based on the tort of deceit.
61 Similar difficulties afflict Mrs Polis’ second alleged cause of action in misleading or deceptive conduct under s 18(1) of the ACL. By its nature, a false statement is misleading or deceptive. Unlike the tort of deceit, it is not strictly necessary that the false statement has been made to the plaintiff, or with the intention that the plaintiff relies on it, in order for the plaintiff to recover damages under s 236 of the ACL in respect of a contravention of s 18. Nevertheless, s 236 of the ACL only entitles Mrs Polis to recover loss or damage that her late husband suffered “because of” Mr Zombor’s alleged false statement.
62 As with the use of the word “by” in s 82 of the Trade Practices Act 1974 (Cth) (the TPA), the words “because of” import the common law practical or common sense concept of causation discussed in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506: see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 (Wardley) at 525 per Mason CJ, Dawson, Gaudron and McHugh JJ and Norcast SARL v Bradken Ltd (No 2) (2013) 219 FCR 14 at [326] per Gordon J. Damage can be caused by direct reliance on a false statement as well as by indirect effect of the false statement. In Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 529-530, Lockhart J made the following observations in respect of s 82 of the TPA (cited with approval by Gummow J in Marks v GIO Aust Holdings Ltd (1998) 196 CLR 494 at [101]):
Section 82 is the vehicle for the recovery of loss or damage for multifarious forms of contravention of the provisions of Pts IV and V of the [TP] Act. It is important that rules laid down by the courts to govern entitlement to damages under s 82 are not unduly rigid, since the ambit of activities that may cause contravention of the diverse provisions of Pts IV and V is large and the circumstances in which damage therefrom may arise will vary considerably from case to case.
What emerges from an analysis of the cases (and there are many of them) is that they do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent constituting the contravention of the relevant provision.
Also, a perusal of the provisions of Pts IV and V, the contravention of which gives rise to an entitlement to an applicant for compensation for loss or damage, points to the conclusion that applicants may claim compensation when the contravener's conduct caused other persons to act in a way that led to loss or damage to the applicant. …
63 In a case such as the present, where it cannot be said that Mr Polis personally relied on the alleged false representation, the question to be asked is whether Mr Polis might nonetheless be able to seek relief for loss caused by Mr Zombor’s allegedly false statement. In McCarthy v McIntyre [1999] FCA 784, the Full Federal Court concluded that, in a third-party reliance case, it is necessary to demonstrate “a sufficient and direct link (ie, causation) between the loss or damage alleged to have been suffered by the claimant and the misleading or deceptive conduct” (at [48], per Hill, Sackville and Katz JJ). An example of the applicable principles is provided by BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141. In that case, the seventh respondent, although unaware of the misleading conduct, was a co-owner of property with others who relied on that conduct by not acting to repair the property. Justice McMurdo found (at [218]):
In the case of the seventh plaintiff, it is unlikely that anyone on its behalf knew of the 1984 repairs or of O&K’s conduct in relation to them. Unlike the other plaintiffs, the seventh plaintiff does not claim to have acted in some way, or not acted in some way, in reliance upon the exercise of due care and skill in O&K’s design of the repair solution. Nevertheless the connection between the conduct and the loss suffered by the seventh plaintiff is relatively close. The immediate consequence of O&K’s misleading conduct was, as I have found, that the then owners did not procure a careful repair solution and the BWE thereafter had an undue structural weakness. It was susceptible to a sudden and catastrophic collapse which is exactly what happened in 2000. When that occurred, the nature of the seventh plaintiff’s loss was identical to that suffered by the other plaintiffs. It is difficult to see that the statutory purpose would be served by compensating those other plaintiffs but not the seventh plaintiff. It has suffered an identical loss because its co-owners relied upon advice which was misleading or deceptive. Its loss is thereby from a reliance upon that conduct, although the reliance was not its reliance. Accordingly, the seventh plaintiff is entitled to damages against O&K pursuant to s 82.
64 In the present case, however, Mrs Polis was unable to explain how Mr Zombor’s alleged contravention of s 18 might be shown to have caused loss to Mr Polis. It is readily apparent that Mr Zombor’s alleged false statement concerning his assets may have caused loss to the creditors who approved his personal insolvency agreement. If the creditors had known the allegedly correct position, that Mr Zombor at that time had an interest in the proceeds of any future sale of GBS, the creditors would have been likely to seek a distribution of that interest to them (in so far as that was possible) or payment of an amount representing the value of the interest at that point in time (GBS was not sold to iSelect for another year). However, Mr Polis was not one of those creditors and, as far as the evidence reveals, had taken no action to recover the Start-up Loan from Mr Zombor to that date. In those circumstances, Mr Zombor would still have been released from the alleged debt owing to Mr Polis (for repayment of the Start-up Loan) by the terms of the personal insolvency agreement when approved by the creditors.
65 Mrs Polis’ belief in her entitlement to obtain relief under the ACL was based on the following chain of causation:
Because Mr Zombor failed to disclose his 20% interest in any future sale of GBS, the creditors approved the personal insolvency agreement in its proposed form.
Had the creditors been made aware of Mr Zombor’s interest, they would not have accepted the proposed personal insolvency agreement and would have proceeded to bankrupt Mr Zombor.
Mr Zombor’s interest would have vested in the trustee in bankruptcy, who is likely to have sought to recover the monies.
Mr Polis would have lodged a proof of debt in Mr Zombor’s bankruptcy.
Therefore, by reason of Mr Zombor’s alleged false statement, Mr Polis was denied the opportunity to lodge a proof of debt in Mr Zombor’s bankruptcy.
66 Two aspects of the above chain of causation are speculative and, in my view, improbable. The first is that, had Mr Zombor disclosed the alleged 20% interest in a future sale of GBS, his creditors would not have accepted the personal insolvency agreement and would have proceeded to bankrupt him. There is no reason in logic to believe that that would have occurred. In circumstances where Mr Zombor was seeking to deal with his affairs under Part X, the most likely result would have been a proposal by which the alleged 20% interest was distributed to the creditors or an equivalent value was distributed. At the time, a year before GBS was sold, the value of the interest would likely have been uncertain, thereby diminishing any agreed value. The second aspect that is improbable is that Mr Polis would have lodged a proof of debt in Mr Zombor’s bankruptcy. That prospect is entirely speculative in circumstances where Mr Polis had taken no steps to that date to call in the Start-up Loan and seek recovery from Mr Zombor.
67 In my view, Mrs Polis’ contentions with respect to the cause of action based on s 18 of the ACL lack a reasonable basis to believe that she has a right to damages. However, even if Mrs Polis’ contentions as to causation of loss were to be accepted as providing a possible basis for a right to relief, the claim faces a further problem under the statutory limitation period. Section 236(2) provides that an action under s 236(1) may be commenced within six years after the day on which the causes of action accrued. A cause of action accrues under s 236(1) when damage is first suffered: see Wardley at 525-526. On the claim as propounded by Mrs Polis, damage was suffered by Mr Polis when creditors approved Mr Zombor’s personal insolvency agreement and the agreement was entered into, bringing about the release of the Start-up Loan (being a provable debt within the meaning of the Bankruptcy Act). The evidence indicates that that occurred on or about 12 April 2013. Accordingly, the claim would be barred under s 236(2) of the ACL. Mrs Polis submitted, correctly, that a limitation period bars the remedy but not the right; further, the bar does not arise unless it is pleaded by way of defence. So much may be accepted. However, in my view the existence of a clearly applicable limitation period is relevant to the Court’s assessment of whether a prospective applicant has a reasonable belief that he or she may have the right to obtain relief, and whether the Court should exercise its discretion to make an order for preliminary discovery.
68 Mrs Polis’ third possible cause of action, based on the prohibition of unconscionable conduct under s 20 of the ACL, faces the same problems of causation of loss and statutory limitation period as apply to the claim based on s 18 of the ACL. As to the allegation of unconscionable conduct itself, further difficulties arise. It is unnecessary to explore those difficulties in any detail. However, I accept Mr Zombor’s submission that unconscionability under s 20 invokes the equitable principles stated in cases such as Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 which requires the plaintiff to show an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests: see Kakavas at [118]. Those equitable principles can have no application in circumstances where Mr Polis was not a participant in Mr Zombor’s arrangements under Part X of the Bankruptcy Act.
69 For completeness, I observe that the applicable limitation period in respect of the deceit claim is less likely to have expired. As Mrs Polis submitted, while s 5(1)(a) of the Limitations Act provides for a limitation period of six years in respect of actions in tort, s 27 of that Act provides:
Where, in the case of any action for which a period of limitation is prescribed by this Act –
(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or
(b) the right of action is concealed by the fraud of any such person as aforesaid; or
(c) the action is for relief from the consequences of a mistake -
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it…
70 In the present case, it might be open to find that the limitation period for the action in tort would not start to run until any deceit was “discovered”, potentially upon cooperation with the preliminary discovery orders. However, for the reasons noted above, I do not consider that Mrs Polis could have a reasonable belief that she could make out the necessary elements of a cause of action in deceit.
71 In respect of r 7.23(b), I also accept Mr Zombor’s argument that the evidence adduced by Mrs Polis failed to establish that reasonable enquiries had been made before making the preliminary discovery application. It is no answer to that argument to contend that the relevant documents being sought would be in the possession of Mr Zombor. I accept Mr Zombor’s argument that, in the circumstances of this case, Mrs Polis ought to have made enquiries at least of the companies said to be parties to the transactions and of Mr Zombor’s Controlling Trustee.
72 As to Mr Zombor’s arguments on the exercise of the Court’s discretion to order preliminary discovery, I accept that the quantum of the claim is a relevant consideration having regard to the overarching purpose in s 37M of the Federal Court Act, particularly the objective of resolving disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. Mrs Polis did not contest Mr Zombor’s submission that the maximum value of the claim is $14,000. Indeed, when various contingencies relating to causation are taken into account, particularly the value that might have been ascribed to Mr Zombor’s alleged interest in GBS at the time of the Part X proposal, the value of the claim is likely to be less. While interest may be added to the claim, Mr Zombor’s submission that the costs of this proceeding alone, let alone any subsequent proceeding, are likely to exceed the amount of the claim should be accepted. In my view, that factor is relevant to the exercise of the Court’s discretion. It is inconsistent with the overarching purpose of the Federal Court Rules to order preliminary discovery in respect of a potential claim for recovery of a monetary amount that is less than the costs that will be incurred in the application for preliminary discovery, let alone any subsequent proceeding.
Conclusion
73 In conclusion, while I do not consider that Mr Zombor has provided a satisfactory explanation for his failure to appear at the hearing of the preliminary discovery application before Justice Murphy, I consider that on the material and submissions now before me there are powerful reasons for refusing an order for preliminary discovery. Most importantly, it is apparent that there are considerable defects in Mrs Polis’ proposed causes of action including:
(a) in respect of the claim of deceit, there can be no basis for an allegation that Mr Zombor made the alleged false representation (being the misstatement of his true financial capacity in his statement of affairs provided to his creditors) with the intention that it be relied upon by Mr Polis, nor for an allegation that Mr Polis acted in reliance on that false representation or suffered damage caused by that reliance;
(b) in respect of the claim of misleading or deceptive conduct, the prospect of Mrs Polis establishing that Mr Zombor’s alleged false representation caused Mr Polis loss is remote and, in any event, the claim for relief would be statute-barred; and
(c) in respect of the claim of unconscionable conduct based on equitable principles, there can be no basis for an allegation that Mr Zombor took unconscientious advantage of some disabling condition or circumstance that seriously affected the ability of Mr Polis to make a rational judgment as to his own best interests in circumstances where Mr Polis was not a participant in Mr Zombor’s arrangements under Part X of the Bankruptcy Act. Any such claim also suffers the same problems of causation of loss and being statute-barred.
74 In my view, those defects take Mrs Polis’ prospective claim below the “reasonable basis” threshold for the exercise of the Court’s power. Further factors militate against the making of a preliminary discovery order, particularly the limited enquiries made in respect of relevant factual matters before bringing the application and the very small quantum of the claim.
75 In exercising the Court’s power under r 39.05 to vary or set aside a previous order of the Court I am also guided by the overarching purpose stated in s 37M of the Federal Court Act, to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible. While in other circumstances s 37M would militate against the exercise of the discretion under r 39.05, I consider that its proper application in the present case requires the exercise of my discretion to set aside the preliminary discovery orders.
76 For these reasons, I will order that the preliminary discovery orders be set aside and the originating application be dismissed. It is necessary, though, to consider the costs of the originating application and this interlocutory application (and all other interlocutory applications that have been made in this proceeding).
77 The applicable principles governing the award of costs are well known. The Court’s discretion to award costs under s 43 of the Federal Court Act is broad and is not bound by rigid or inflexible rules. The discretion must be exercised judicially, consistently with the purpose of the power and taking account of relevant facts and circumstances of the litigation. While the discretion to award costs is generally exercised in favour of a successful party, a successful party may be deprived of a proportion of its costs, or even required to pay costs to the other party, if the successful party succeeded only upon a portion of its claim, or where the result of the litigation might be described as mixed. A further circumstance in which a successful party may be deprived of its costs is where that party has “done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense”, which includes “improper conduct in or connected with the litigation calculated to defeat or delay justice”: Ritter v Godfrey [1920] 2 KB 47 at 60-61 per Atkin LJ.
78 Mr Zombor has been successful in his interlocutory application to have the preliminary discovery orders set aside and the originating application dismissed. If Mr Zombor had appeared at the first hearing of the originating application and had been successful, almost certainly he would have been awarded his costs. However, in the circumstances of the present case, I consider that no order for costs should be made in favour of either party. That is because Mr Zombor’s conduct of consciously and actively avoiding participation in this proceeding for some three years has resulted in wasted costs being incurred by Mr Polis (whose estate is now represented by Mrs Polis). If Mr Zombor had not consciously and actively avoided service of process, there would not have been a need for this interlocutory application, and for the prospective applicant (and the Court) to conduct two hearings of the same application. Further, if Mr Zombor had not consciously and actively avoided service of process, at least four other applications to the Court would have been avoided:
(a) Mr Polis’ first application for substituted service of the originating application with orders being made on 26 April 2018;
(b) Mr Polis’ second application for substituted service of the interlocutory application for contempt with orders being made on 5 June 2019;
(c) Mr Polis’ application for the preservation of mobile phone data held by Mr Zombor’s parents with orders being made on 5 September 2019;
(d) Mr Polis’ application for a declaration that Mr Zombor is guilty of contempt by failing to comply with the orders for preliminary discovery, alternatively for a warrant for Mr Zombor’s arrest to answer the charge of contempt (contempt application) with orders being made on 16 December 2019.
79 In my view, Mr Zombor’s conduct has occasioned unnecessary cost in the litigation. The costs of the above applications (a)-(c) should be treated as being awarded against Mr Zombor. I note that on 3 November 2021, I made orders by the consent of the parties that there be no order as to costs in relation to the contempt application and Mrs Polis’ application to be joined to the proceeding as executor of Mr Polis’ estate. I have taken the orders made on 3 November 2021 into account. Overall, weighing Mr Zombor’s ultimate success on the originating application against the unnecessary applications and costs occasioned by his conduct, I consider that there should be no order for costs of this interlocutory application or the proceeding more generally.
I certify that the preceding seventy-nine (79) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan. |
Associate:
