Federal Court of Australia

Yushkova v Cook (Trustee), in the matter of the bankrupt estate of King [2023] FCA 77

ORDERS

THE COURT ORDERS THAT:

1.    The application for a stay of the orders of Judge Vasta of 13 October 2022 is dismissed.

2.    The first applicant, Larisa Ivanovna Yushkova, pay the respondents’ costs of the application.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    The application before the Court is made pursuant to r 36.08 of the Federal Court of Australia Rules 2011 (Cth) (Federal Court Rules) and seeks a stay of certain orders of Judge Vasta of the Federal Circuit and Family Court of Australia (Division 2) made on 13 October 2022. In substance, those orders permitted persons who had been appointed as statutory trustees for sale of a property at Helensvale on the Gold Coast to proceed to market and sell it and to distribute the proceeds in accordance with the Bankruptcy Act 1966 (Cth). Ms Yushkova, who was the second respondent to the proceedings before the primary judge, claims to be entitled to the entire beneficial interest in that property and seeks to prevent its sale pending the determination of an appeal from the first instance orders.

Background

2    On or about 13 July 2016, the third respondent to the proceedings before the primary judge, Mr Jeremy King (Mr King), was made bankrupt pursuant to a sequestration order and Mr Brett Harrison was appointed as his bankruptcy trustee.

3    At the time of the making of the sequestration order, Mr King and Ms Yushkova were the registered joint tenants of real property described as Lot 801 on Registered Plan 162672, Title Reference 15771110, also known as 13 Bairnsdale Court, Helensvale in the State of Queensland (the Helensvale Property).

4    Subsequently, there followed a long period of litigation in relation to the Helensvale Property. On 16 September 2019, the bankruptcy trustee, who had been unable to secure the assistance of Mr King and Ms Yushkova to sell it, issued proceedings to enable him to realise Mr King’s interest. He sought to establish both the nature and extent of that interest and secure the making of orders permitting him to sell the property. Mr King and Ms Yushkova disputed the trustee’s claim that Mr King had any interest in the property.

5    On or about 4 February 2021, and pursuant to an application by the bankruptcy trustee, his Honour Judge Jarrett (as his Honour then was) made orders to the effect that Mr King had an interest in the Helensvale Property, that Mr Gavin Morton and Mr Leon Lee be appointed statutory trustees to sell it, that Mr King and Ms Yushkova deliver up possession of it, and that the statutory trustees effect its sale and disburse the proceeds.

6    These orders were made in default of an appearance by Ms Yushkova and subsequently, pursuant to an application by her, the judgment entered on 4 February 2021 against her was set aside. The order appointing statutory trustees for sale was stayed until further order.

7    On 18 February 2022, Mr Paul Cook and Mr Adam Johnston were appointed as new joint trustees of Mr King’s estate and accordingly substituted as joint applicants to these proceedings.

8    The trial of the proceedings, concerning the entitlement of the bankruptcy trustees to an interest in the Helensvale Property and the nature and extent of that interest, was heard before Judge Vasta on 28 July 2022. It was defended by Ms Yushkova and Mr King.

9    At the conclusion of the trial, his Honour gave ex tempore reasons for his decision that Mr King had held a 37.32% interest in the property, which had now vested in the bankruptcy trustees.

10    In his Honour’s reasons, the evidence advanced by Ms Yushkova and Mr King was considered in detail. His Honour identified that Ms Yushkova had claimed that she had purchased the Helensvale Property for a price of $710,000, utilising a loan from Westpac Banking Corporation (Westpac) in the sum of $530,000. His Honour also considered affidavit evidence from Ms Yushkova and Mr King to the effect that Ms Yushkova alone had been responsible for paying the purchase price for the Helensvale Property, including by making the loan repayments on her own behalf in discharge of the mortgage. In general terms, the trustees alleged that Mr King and Ms Yushkova were in a relationship and that joint funds were used to make the loan repayments, such that Mr King had acquired an interest in the property. Ms Yushkova responded by saying that, although she had a son with Mr King, they were not in any relationship. She said that, although Mr King was named as a borrower for the loan and his name was on the title to the property, it was not intended that he have any interest in it. She claimed that she was entitled to 100% of the equitable interest in the property.

11    The primary judge concluded that, on the evidence before him, the intention of Mr King and Ms Yushkova when the Helensvale Property was acquired was that they would be joint tenants of it and they would both contribute towards the repayment of the mortgage. In reaching that conclusion, his Honour determined that he was unable to accept Ms Yushkova or Mr King as credible witnesses. He also noted that there was significant independent evidence which contradicted Ms Yushkova’s claims as to the manner in which the loan repayments were made. That included the following:

(a)    Mr King was the principal borrower in respect of the loan used to purchase the Helensvale Property and this was reflected in the loan application.

(b)    Although Ms Yushkova claimed that she had no relationship with Mr King, the loan application identified that Ms Yushkova and Mr King shared the same phone number and home address, Ms Yushkova and Mr King treated various outgoings and expenses as combined expenses, and Ms Yushkova and Mr King jointly owned motor vehicles, personal effects and household items.

(c)    The repayments of the loan were made through various bank accounts which were jointly held by Ms Yushkova and Mr King.

(d)    The evidence from the accounts indicated that Mr King was contributing substantially towards loan repayments.

(e)    Mr King had previously brought an action for payment of monies, which he claimed to have been rent monies from the Helensvale Property, and which he had asserted should have been deposited into the loan account to pay off the mortgage. This indicated that he claimed an interest in the real property.

12    Relying on this evidence, the primary judge concluded that Mr King and Ms Yushkova intended to hold the property as joint tenants in equity, as indicated by their legal joint ownership.

13    It is to be noted that the learned primary judge accepted the somewhat unusual concession by the trustees that the joint equitable interest between Mr King and Ms Yushkova should only relate to a 75% interest in the land, such that the trustees’ interest, being reflective of Mr King’s interest, was 37.32% (after certain adjustments). Though the matter was not addressed in detail in his Honour’s judgment, it appears that the trustees’ concession was made by reason of the fact that Ms Yushkova had paid a deposit of some $210,000 for the property’s acquisition, and this was properly to be attributed to her individual interest. Just how or why that might have been the case is unclear, but it is to Ms Yushkova’s distinct advantage in any event.

14    On 28 July 2022, the primary judge delivered his Honour’s decision in which he made the foregoing findings. His Honour declared that Mr King had a legal and beneficial interest in the property as a joint tenant with Ms Yushkova and that, upon the making of the sequestration order, Mr King’s interest vested in the bankruptcy trustees.

15    Further submissions were received as to the precise form of orders, including orders as to costs. These issues were dealt with on the papers after the receipt of written submissions and, on 13 October 2022, the primary judge handed down his decision in relation to them. He concluded that Ms Yushkova should be responsible for all of the costs of the proceedings, despite the fact that she had not been served with the originating application for some considerable time after the action has been commenced.

16    His Honour ordered that Ms Yushkova pay the bankruptcy trustees’ costs in a sum fixed at $120,000.

17    Otherwise, his Honour ordered that the statutory trustees be entitled to sell the Helensvale Property and, after allowing certain deductions (including that the bankruptcy trustees recover their costs), any residue of the sale proceeds be paid to Mr King and Ms Yushkova in the proportions of 37.3% and 62.7% respectively.

18    It is clear that the apportionment of the beneficial interest in the Helensvale Property reflected his Honour’s conclusions in the earlier reasons as to the extent of Ms Yushkova’s contributions, taking into account the trustees’ concession that Ms Yushkova had acquired a greater interest by reason of her payment of the deposit.

19    On 4 November 2022, an appeal was lodged from the decision of the learned primary judge. The grounds of the appeal are not easily discerned but appear, in substance, to cavil with the conclusion that Mr King had any beneficial interest in the Helensvale Property. There is no specific appeal against the costs order of the primary judge, although that might be inferred.

20    On 20 December 2022, Ms Yushkova filed the present interlocutory application seeking a stay of the primary judge’s orders pending the determination of the appeal. Again, the grounds on which the application is sought to be made are not entirely clear but tend to suggest that the primary judge erred in finding that Mr King had any interest in the Helensvale Property, or otherwise erred in failing to afford greater priority to Ms Yushkova’s interests in the distribution of the sale proceeds from the Helensvale Property.

Relevant statutory provisions

21    For the purposes of this application r 36.08 of the Federal Court Rules is relevant. It provides:

36.08    Stay of execution or proceedings under judgment appealed from

(1)    An appeal does not:

(a)    operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or

(b)    invalidate any proceedings already taken.

(2)    However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined.

(3)    An application may be made under subrule (2) even though the court from which the appeal is brought has previously refused an application of a similar kind.

Note:    Interested person is defined in the Dictionary.

22    As might be discerned from the terms of r 36.08(1), the Federal Court Rules contemplate that the judgment from which an appeal has been instituted is, prima facie, correct. It follows that the starting position is that the successful party below should not be deprived of the fruits of his or her victory: Esco Corp v PAC Mining Pty Ltd [2008] FCA 1018 at [19] per Tamberlin J.

23    Nevertheless, the Federal Court Rules (and the Federal Court of Australia Act 1976 (Cth)) make provision for an application to be made to stay the primary judgment, even though it is presumed to be correct. The principles on which this Court will act are well-established. They were referred to and articulated by Abraham J in Viagogo AG v Australian Competition and Consumer Commission [2021] FCA 175 at [10] – [12] in the following terms, which I gratefully adopt:

10.    Rule 36.08 confers a broad discretion. Generally, there must be demonstrated “a reason or an appropriate case” to warrant the exercise of discretion in favour of granting a stay. It is not necessary to establish special or exceptional circumstances for the grant of a stay: Powerflex Services Pty Ltd v Data Access Corp (1996) 67 FCR 65 at 66.

11.    Two questions must be considered: first, is there an arguable point on the proposed appeal: Nolten v Groeneveld Australia Pty Ltd [2011] FCA 1494 (Nolten) at [24] or some “rational prospect of success” in relation to any of the grounds of appeal: Burns v AMP Finance Ltd [2005] FCA 761 at [5]; and second, does the balance of convenience favour the grant of a stay: Nolten at [24], [46].

12.    The party seeking the order bears the onus of demonstrating a proper basis for a stay, which must be fair to all parties: Alexander v Cambridge Credit Corporation Ltd (receivers appointed) (1985) 2 NSWLR 685 (Alexander) at 695. That party must demonstrate that there is a real risk that it will suffer prejudice or damage if a stay is not granted, which will not be redressed by a successful appeal: Kalifair Pty Ltd v Digi-Tech (Australia) Ltd, McLean Tecnic Pty Ltd v Digi-Tech (Australia) Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737 (Kalifair) at [18]; Flight Centre Limited v Australian Competition and Consumer Commission [2014] FCA 658 (Flight Centre) at [9(f)]. This requirement will be satisfied if a successful appeal will be rendered nugatory unless a stay is granted: Ali v Australian Competition and Consumer Commission [2020] FCA 860 at [11]; Australian Competition and Consumer Commission v BMW (Australia) Ltd (No 2) [2003] FCA 864 (BMW) at [5]; Alexander at 695; Kalifair at [18].

Has an arguable point been established?

24    It is unfortunate that, before this Court, Ms Yushkova was unrepresented. That had the consequence that her lack of appreciation of the need for some evidential foundation for her submissions was fatal. She did not seek to adduce any evidence in relation to either the merits of the matter before the primary judge or the errors which she alleged to have affected the trial process. Rather, her approach was to criticise the primary judge’s findings of fact and the inferences which he drew. For the purposes of the hearing before this Court, Ms Yushkova was given latitude to make assertions from the Bar table so as to explain the context in which her concerns arose. However, the absence of evidence ultimately meant that she could not satisfy the Court that there was any arguable point to the proposed appeal, or any rational prospect of success in relation to any of the grounds of appeal. As mentioned, in the circumstance of this case, this is fatal to her stay application.

25    Despite that, it is appropriate to address each of the general points that Ms Yushkova raised and to deal with them as generously as possible without doing injustice to the respondents.

The behaviour of the primary judge

26    Ms Yushkova complained about the alleged conduct of the primary judge, asserting that he evinced a derogative and hostile behaviour towards her and made findings adverse to her credit without proper basis. Unfortunately, there is no evidence on this application as to what occurred in the course of the hearing before the primary judge. No transcript was produced, nor any affidavit deposing as to what occurred. It is simply not possible to make any finding in relation to the behaviour of the primary judge in the absence of such evidence.

27    It does appear that the primary judge’s finding that the evidence of Mr King and Ms Yushkova lacked credibility was important to his Honour’s overall conclusion and the resultant orders. It was Ms Yushkova’s case that she held the full beneficial interest in the Helensvale Property, but the primary judge disbelieved her evidence which she advanced in support of that proposition. Whilst Ms Yushkova seeks now to agitate before the Full Court what she says are errors in the primary judge’s conclusions on that issue, she has adduced no evidential foundation to support her position. The mere assertion that the primary judge erred in concluding that neither she nor Mr King should be believed is insufficient.

Evidence relating to the beneficial interest

28    The second ground advanced by Ms Yushkova was that the primary judge did not question her about the evidence that she had given in support of her claim of full beneficial ownership of the Helensvale Property. She also complains that she was not allowed to articulate that claim at the hearing. From what Ms Yushkova said from the Bar table on this application it appears that, as a consequence of COVID restrictions, she gave her evidence from a remote location via a video link. It seems that she feels that she was disadvantaged by this in the presentation of her case. However, Ms Yushkova was represented by both Counsel and solicitors before the primary judge. There is, with respect, nothing to suggest that all of the appropriate arguments in support of her claim were not advanced by her Counsel or that all relevant evidence was not adduced. There is nothing before this Court to suggest that his Honour did not consider the evidence in relation to this issue or that Ms Yushkova’s legal representatives were prevented from advancing all relevant submissions.

Failure to consider relevant information

29    It is then alleged that the primary judge did not take into account information supporting the claim of a resulting trust in Ms Yushkova’s favour. However, it is apparent from his Honour’s reasons of 28 July 2022 that he did identify and consider Ms Yushkova’s and Mr King’s evidence in relation to that very issue. Ms Yushkova had sought to advance the proposition that Mr King’s name was required on the loan documents only for the purposes of obtaining finance, and that the true arrangement was that he was to have no interest in the property. Mr King gave evidence to similar effect. However, their evidence was not believed. The difficulty at present is that nothing has been put before the Court that might undermine the primary judge’s conclusion in that respect. Indeed, neither the evidence put on by Ms Yushkova and Mr King, nor the transcript of the hearing before the primary judge was produced. Moreover, the primary judge’s reliance on independent evidence concerning the living and financial arrangements of Ms Yushkova and Mr King, which tended to contradict the assertion that they did not have joint financial arrangements and did not intend to hold joint interests in the Helensvale Property, went largely unchallenged.

Alleged error in relation to living arrangements

30    A further allegation is that the primary judge erred in finding that Mr King and Ms Yushkova were in a relationship and were jointly raising their son, Valentino. Ms Yushkova submitted that, merely because Mr King contributed to the payment of household expenses and paid some expenses in relation to Valentino, the conclusion should not have been reached that they were in a relationship. However, the paying of some expenses by Mr King was not the only matter relied upon by the learned primary judge. As mentioned, his Honour assayed all of the evidence surrounding their living circumstances, including their financial arrangements, and concluded that a relevant relationship existed. The evidence referred to by the primary judge, which has been set out above, provided a substantial foundation for the conclusion and no evidence has been adduced by Ms Yushkova to cast any doubt on those findings.

Ms Yushkova is not a bankrupt

31    Much of Ms Yushkova’s submissions concerned her complaint that, as she was not a bankrupt, it was inappropriate that the Helensvale Property of which she was joint owner should be sold. She asserted that, as no sequestration order had been made against her, she ought not suffer detriment consequent upon the sale of the property. Although, during the course of the hearing, many attempts were made to assist Ms Yushkova to understand that, as Mr King held a beneficial interest in the property, the trustees in bankruptcy were entitled to recover it for the benefit of Mr King’s creditors, she was unable to accept that proposition. Whilst it is unfortunate that she owned the Helensvale Property jointly with a person who became bankrupt, the fact that she is not herself a bankrupt does not alter the bankruptcy trustees’ rights to recover the bankrupt’s assets. The original trustee was entitled to apply for the appointment of the statutory trustees to sell the property and thereby recover the value of Mr King’s interest. Ms Yushkova is entitled to the residue from the sale of the property, which will represent her interest in it, but that is all. The primary judge made no discernible error in the course of addressing these matters.

32    It should be noted that the bankruptcy has been continuing for some time and Ms Yushkova has not attempted to acquire Mr King’s interest in the Helensvale property for market value. She might avoid the consequences of the sale were she to do so.

Other matters

33    During the course of the hearing, Ms Yushkova asserted that she had a claim against Westpac, as mortgagee of the Helensvale Property. It was suggested from the Bar table, by both sides, that Westpac had exercised its powers under the mortgage and taken steps to arrange for the sale of the property, but was not progressing any sale and was, instead, allowing the bankruptcy trustees to take the lead in that respect. Ms Yushkova suggested that this reflected some sinister arrangements between the bankruptcy trustees and the Bank.

34    The claim that Ms Yushkova seeks to advance against Westpac is unclear, but seems to relate to an assertion that Westpac denied her the opportunity to maintain payments on the mortgage. I make no comment about the veracity of her assertions. It suffices to note that they do not impact upon the validity of the primary judge’s decision presently before the Court. Nor is there anything sinister in the Bank holding off from incurring additional expenses by pursuing its own sale of the Helensvale Property. That would merely result in a duplication of costs, which would necessarily diminish Mr Yushkova’s interest in any proceeds of sale.

35    Ms Yushkova also complained that she has not been entitled to access her personal items, which are presently stored at the Helensvale Property. She asserted that they have been damaged or lost as a result of the trustees’ failure to ensure that they were stored securely. These allegations were not supported by evidence, and I was informed by Counsel for the trustees that Ms Yushkova is welcome to remove her property at any time. Again, this is irrelevant to any question which might be before the Court on this application.

Costs order

36    Perhaps the real issue for Ms Yushkova is the fact that the primary judge concluded that she should be liable for the bankruptcy trustees’ costs of the litigation from its commencement, even though it appeared that she was not properly served for some time. The primary judge ordered that the bankruptcy trustees have leave to recover those costs from any proceeds of the sale of the Helensvale Property which might otherwise be paid to Ms Yushkova. In his reasons, he explained why Ms Yushkova should be responsible for the trustees’ costs. In the hearing before this Court, Ms Yushkova did not address any of the primary judge’s reasons in relation to this point. On the face of those reasons, his Honour was justified in concluding that Ms Yushkova had effectively been involved in the proceedings from around the time of their initiation and, together with Mr King, had sought to frustrate the trustees in their attempt to realise the assets of Mr King’s estate. Nothing has been shown which might suggest that the learned primary judge erred in his conclusions on the question of costs.

Conclusion as to whether any arguable point has been shown

37    It follows that Ms Yushkova has not produced evidence sufficient to demonstrate that her grounds of appeal, which are substantially fact based, have any rational prospect of success. There is accordingly no foundation for the application to stay the orders of the primary judge.

38    In any event, even if some prospect of success was shown, little reason has been identified as to why the Court should, on the balance of convenience, exercise its discretion to grant a stay. The issues in this litigation concern, for the most part, the entitlements to the proceeds of the sale of the Helensvale Property. Whilst it may have been the home of Ms Yushkova for around five years, the property did not appear to have any other significance. If Ms Yushkova is successful on her appeal, she will be entitled to recover all the proceeds of the sale of the property and acquire an alternative home. It is not the case that the appeal will be rendered nugatory if a stay is not granted.

39    Furthermore, it seemed to be common ground between the parties that Westpac is intent on selling the property if it is not sold by the bankruptcy trustees. Although the information as to Westpac’s position was scant, it appears that the bank is presently holding back so as to allow the sale to proceed under the stewardship of the statutory trustees. If the orders allowing the bankruptcy trustees to effect a sale were stayed, it would remain possible for the bank to move upon its security and cause a sale to take place regardless. There are, accordingly, good grounds to conclude that the balance of convenience weighs against the exercise of the Court’s discretion to grant a stay in Ms Yushkova’s favour.

Conclusion

40    Ms Yushkova’s application for a stay of the orders of the primary judge of 13 October 2022 must be dismissed.

41    Ms Yushkova must pay the costs of the bankruptcy trustees.

Associate:    

Dated:    10 February 2023