Federal Court of Australia

Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar (No 3) [2023] FCA 1529

ORDERS

THE COURT ORDERS BY CONSENT BETWEEN THE APPLICANT AND THE RESPONDENTS TO THE INTERLOCUTORY APPLICATION FILED BY THE APPLICANT ON 13 NOVEMBER 2023 THAT:

1.    With respect to prayers 1 to 4 of the applicant’s interlocutory application filed 13 November 2023 (Applicant’s IA) and prayer 3 of the first respondent’s interlocutory application (First Respondent’s IA) filed on 15 November 2023 (Campbell Parade Prayers):

(a)    from the balance of the proceeds of sale of the property located at 701/152-162 Campbell Parade, Bondi Beach (Campbell Parade) held pursuant to Order 24 made on 6 September 2022, the applicant’s solicitors distribute the sum of $200,000 to Andrew John Kroger;

(b)    There be no order for costs as between the applicant and Mr Kroger in respect of the Applicant’s IA;

(c)    Mr Kroger be granted leave to withdraw from this proceeding.

THE COURT ORDERS THAT:

2.    Paragraphs 1 and 2 of the First Respondent’s IA are dismissed.

3.    The first respondent is to pay the applicant’s costs of the First Respondent’s IA.

4.    List paragraphs 1 to 4 of the Applicant’s IA and paragraph 3 of the First Respondent’s IA for case management hearing on 7 December 2023 at 9.30 am AEDT.

THE COURT NOTES THAT:

5.    The agreement between the applicant, the first respondent and Mr Kroger that the payment in Order 1 above of the sum of $200,000 from the Campbell Parade proceeds of sale is paid to, and accepted by, Mr Kroger in full and final settlement of any and all claims between the first respondent and Mr Kroger arising from or in connection with the contract for sale of Campbell Parade entered into between them on or about 30 July 2021.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

MARKOVIC J:

1    This proceeding was commenced in 2019 by Andrew Scott in his capacity as the trustee of the bankrupt estates of Ian Stolyar and Beth Stolyar who, without intending any disrespect and for ease, I will refer to as Ian and Beth. The respondents are Faina Stolyar, Ian’s mother and Beth’s mother-in-law; and Fanchel Pty Limited, a company of which Mrs Stolyar is sole director and shareholder. The proceeding was listed for hearing before me for a period of 10 days in April and June 2021. On 16 June 2022 I delivered judgment and on 6 September 2022 (September 2022 Orders) I made orders giving effect to the reasons published on 16 June 2022: see Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar [2022] FCA 691 (Scott v Stolyar).

2    The September 2022 Orders include:

(1)    certain declarations including in relation to the manner in which Mrs Stolyar holds the legal title to a property known as 3/10 Longworth Avenue, Point Piper (Longworth Avenue Property) and, in particular, that she holds it subject to a charge securing payment to the applicant of an amount, defined as the Rose Bay proceeds; and

(2)    certain orders including:

(a)    orders requiring Mrs Stolyar to take all necessary steps to enable title to the property known as 27/26 Ocean Street, North Bondi to be transferred to the trustee and an order that a writ of possession issue in respect of that property;

(b)    orders that Mrs Stolyar take all necessary steps and do all necessary things to enable title to the property known as 11/2 Ocean Street, North Bondi to be transferred to the trustee; and

(c)    an order staying the execution of, among others, the orders relating to 27/26 Ocean Street and 11/2 Ocean Street until, relevantly, the determination of any appeal against the September 2022 Orders by Mrs Stolyar and Fanchel.

3    Mrs Stolyar and Fanchel appealed the September 2022 Orders.

4    On 27 April 2023, their appeal was dismissed: see Stolyar v Scott (Trustee) [2023] FCAFC 61. As at that date, the stay included in the September 2022 Orders came to an end.

5    Mrs Stolyar and Fanchel were subsequently unsuccessful in their application to the High Court of Australia for special leave to appeal.

6    On 15 November 2023 Mrs Stolyar filed an application seeking four orders including relevantly for today’s purposes:

(1)    an order pursuant to r 41.03 of the Federal Court Rules 2011 (Cth) that the September 2022 Orders be stayed pending the outcome of an application to set aside the judgment in Scott v Stolyar in accordance with r 39.05(b) of the Rules; and

(2)    an order pursuant to r 41.11 of the Rules.

Legislative framework and legal principles

7    Rule 41.03 of the Rules provides that a party bound by a judgment or order may apply to the Court for an order that the judgment or order be stayed. Rule 41.11 of the Rules provides that a party may apply to the Court for a stay of execution of a judgment or order.

8    Rule 39.05(b) of the Rules provides that:

The Court may vary or set aside a judgment or order after it has been entered if:

…

(b)    it was obtained by fraud;

…

9    The principles that apply in determining whether the Court should order a stay of a judgment or order pursuant to r 41.03 of the Rules are well established. While those principles have often been considered in the context of the question of whether a stay should be granted pending the outcome of an appeal, they would, in my view, equally apply in the present circumstances where a stay is sought on two bases, the second of which is pending the filing and determination of an application to set aside the September 2022 Orders on the basis that they were obtained by fraud.

10    In Flight Centre Ltd v Australian Competition and Consumer Commission [2014] FCA 658, in the context of considering whether to grant a stay pending the outcome of an appeal, Rangiah J distilled the relevant principles. Insofar as those principles would apply to the present application they include:

(a)    There is an onus on the applicant to demonstrate a proper basis for a stay that will be fair to all parties.

(b)    There is a prima facie assumption that the judgment appealed from is correct.

(c)    There is a prima facie assumption that the Court should not deprive a litigant of the benefit of a judgment in its favour.

(d)    The Court has a broad discretion as to whether to grant a stay, and it is not necessary for an applicant for a stay to demonstrate special or exceptional circumstances. It is sufficient that the applicant demonstrates a reason or an appropriate case to warrant the exercise of discretion in its favour.

…

(f)    A stay will usually be granted if there is a real risk that the applicant will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal.

(g)    In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it.

(Citations omitted.)

11    In her submissions in support of her application for a stay Mrs Stolyar identifies two bases upon which she brings her application: first, because the execution of the September 2022 Orders will cause her hardship; and secondly, as is evident on the face of her interlocutory application, because the judgment which gave rise to the September 2022 Orders was obtained by fraud. I will deal with each of those bases in turn.

The first basis – hardship

12    Mrs Stolyar gave evidence in support of her application for a stay of the September 2022 Orders which I set out below insofar as that evidence supported her claim that a stay should be granted on the basis of hardship.

13    Mrs Stolyar is 82 years old. She moved to Australia in 1979.

14    Mrs Stolyar is currently the registered proprietor of 5/41 Francis Street, Bondi (Francis Street Property), 27/26 Ocean Street, 11/2 Ocean Street and the Longworth Avenue Property.

15    Bendigo and Adelaide Bank holds a mortgage over 11/2 Ocean Street and the Francis Street Property and in October 2023 commenced a proceeding in the Supreme Court of New South Wales seeking, among others, orders for possession of those properties. Mrs Stolyar says that if the statement of claim “is allowed to proceed”, then she will lose both properties.

16    Mrs Stolyar says that the trustee has refused to sell 11/2 Ocean Street to her “to clear the bank mortgage”, which I infer is the mortgage held by Bendigo and Adelaide Bank, that the property known as 701/152 Campbell Parade, Bondi (Campbell Parade Property) has been sold, that there is approximately $5 million available for distribution following that sale and that there is no mortgage over either 27/26 Ocean Street or the Longworth Avenue Property.

17    Mrs Stolyar understands that because of the reasons for judgment in Scott v Stolyar, she is required to transfer title to 27/26 Ocean Street to the trustee. However, that property has been her place of residence for the past 16 years and its transfer would leave her, in effect, homeless.

18    Mrs Stolyar says that she cannot live with Ian, Beth or her granddaughter because there is insufficient space in their apartment. Ian and Beth rent and the rental money comes from Beth’s income. Ian and her granddaughter rely on her to pay their living expenses, excluding rent.

19    Mrs Stolyar is unable to live in any of the other properties she holds because:

(1)    the effect of Scott v Stolyar is that she is required to transfer title to 11/2 Ocean Street to the trustee and she has ceased receiving rental income from that property;

(2)    the Francis Street Property is currently rented to tenants and she relies on the rental income to pay her basic living expenses; and

(3)    as set out above, the Campbell Parade Property has been sold and there is approximately $5 million available for distribution.

20    Mrs Stolyar will be seeking an order for the release to her of the funds referred to at [19(3)] above so that she can discharge the mortgage held by Bendigo and Adelaide Bank, complete renovations to the Longworth Avenue Property and have access to funds to enable her to meet legal costs and living expenses. The Longworth Avenue Property has undergone renovations which have not yet been completed because of this proceeding and is not presently in a habitable condition.

21    Mrs Stolyar says that if the September 2022 Orders are not stayed, she will lose access to her only inhabitable property with nowhere to live.

22    Mrs Stolyar also gave evidence that she takes a range of medications to treat various conditions from which she suffers.

23    Mrs Stolyar understands that the effect of Scott v Stolyar and the September 2022 Orders is that:

(1)    she is required to pay at least $1,011,302.20 to the trustee;

(2)    Fanchel is required to pay at least $286,553.65 to the trustee;

(3)    she and Fanchel are required to pay a further $4,533,480.39 to the trustee;

(4)    she is to account to the trustee for the Rose Bay proceeds; and

(5)    she is required to pay the trustee’s costs.

24    Mrs Stolyar says that the effect of these orders is that she will have no income to pay for living expenses, mortgage expenses or legal fees and that she will be left homeless.

25    That Mrs Stolyar will find herself in a difficult position and, I accept, suffer hardship as a result of the execution of the September 2022 Orders is regrettable and, understandably, she is upset and, no doubt, distressed by that prospect. While I have a deal of sympathy for the predicament in which she finds herself, that is not sufficient for me to grant a stay of those orders on the basis of hardship. That is for the following reasons:

(1)    the September 2022 Orders were made on 6 September 2022. They were subject to a consensual stay pending the outcome of Mrs Stolyar and Fanchel’s appeal. That appeal was finally determined in April 2023. That is just over seven months ago. Order 11 of the September 2022 Orders required Mrs Stolyar to deliver up to the trustee vacant possession of 27/26 Ocean Street and to remove all her personal property from those premises within 90 days of the date of the lifting of the stay. That is, Mrs Stolyar had a further three months, until 25 July 2023, to vacate that property. She still has not done that;

(2)    there is evidence before me that Mrs Stolyar reached an agreement with the trustee through her former solicitors to delay the execution of the writ of possession obtained by the trustee after Mrs Stolyar did not vacate the property in accordance with Order 11 of the September 2022 Orders. That agreement provided for a six-week extension for Mrs Stolyar to vacate the premises on the basis that she would not seek any further extensions of time. On the basis of that agreement, execution of the writ was deferred to a date after 1 December 2023 and is now scheduled for 6 December 2023. There is no evidence before me that Mrs Stolyar’s position has changed since reaching that agreement, either in terms of her financial circumstances or her ability to find alternate accommodation, nor is there any evidence that her solicitors, acting for her at the time, reached the agreement without her instructions; and

(3)    there is the question of prejudice to the trustee and the creditors in not obtaining the fruits of their judgment in circumstances where the September 2022 Orders were made more than a year ago and there has been an appeal which was dismissed and an unsuccessful application for special leave to appeal.

The second basis – judgment obtained by fraud

26    I turn then to the second ground upon which Mrs Stolyar seeks a stay of the September 2022 Orders, namely on the basis of her intention to bring an application to set aside the judgment in Scott v Stolyar because it was obtained by fraud.

27    It is convenient, before considering this ground, to set out the principles relevant to the question of when a judgment will be set aside because it was obtained by fraud. Those principles were recently and conveniently summarised by Perry J in Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617, commencing at [57]. They relevantly include:

57    First, the Federal Court has implied jurisdiction to set aside orders procured by fraud: Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd [1986] FCA 248; (1986) 12 FCR 14 at 15 (Morling J) and the authorities cited therein. This is reflected in r 39.05(b) of the Federal Court Rules 2011 (Cth) (FCR) which provides that the Federal Court may set aside or vary any judgment or order after it has been entered if it was “obtained by fraud”.

…

62    Thirdly, as the Commissioner has done in these proceedings, it is generally appropriate for a party wishing to impeach a judgment on the ground of fraud to institute independent proceedings for that purpose …

63    Fourthly, the High Court in Clone held (at [55] and [69]) that the power to set aside a judgment on the ground of fraud requires actual fraud, reflecting the public interest in the finality of litigation. In so holding, their Honours at [55] approved inter alia the statement by Sir John Rolt LJ in Patch v Ward (1867) LR 3 Ch App 203 at 212-213 that:

… the fraud must be actual positive fraud, a meditated and intentional contrivance to keep the parties and the Court in ignorance of the real facts of the case, and obtaining that decree by that contrivance. Mere constructive fraud not originating in actual contrivance, but consisting of acts tending possibly to deceive or mislead without any such intention or contrivance, would probably not be sufficient … What, therefore, the Appellant has to do is to satisfy the Court that the decree was obtained by the positive and actual fraud and contrivance of the party obtaining it.

…

71    In the fifth place, as the essence of the action is fraud, it “must be pleaded distinctly and with particularity and clearly proved”: Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 at 573; Clone at [62]; see also r 16.42 of the FCR. Furthermore, where a condition of mind such as a fraudulent intention is alleged as part of the fraud, this must also be properly particularised: r 16.43 of the FCR. Thus, as Wright J held in Dickson v Commissioner of Australian Federal Police [2019] NSWSC 1293 at [124] (upheld on appeal in Dickson v The Queen [2020] NSWCA 125):

… in order properly to plead and particularise the fraud alleged fraud sufficient to provide a basis for setting aside the restraining orders, Mr Dickson [the plaintiff] had to identify each person who allegedly engaged in a meditated and intentional contrivance to keep the Court in ignorance of the real facts of the case, what the contrivance was, what the real facts of the case were and how the contrivance was alleged to be meditated and intentional.

72    Sixthly, the circumstances in which a judgment may be set aside for fraud were considered by the NSW Court of Appeal in Wentworth (No 5) by Kirby P (with whose reasons Hope and Samuels JJA agreed) (approved, eg. in Spalla v St George Motor Finance Limited (No 5) [2004] FCA 1262 at [60]-[61] (French J (as his Honour then was)). In Wentworth (No 5) at 538-539, Kirby P (as his Honour then was) identified a number of principles governing proceedings in which it is sought to set aside a judgment on the basis of fraud. These may be summarised as follows (per French J in Spalla at [60]):

(1)    as the essence of the action is fraud, “particulars of the fraud claimed must be exactly given and the allegations established by the strict proof which such a charge requires”;

(2)    given the public interest in the finality of litigation, “it must be shown, by the party asserting that the judgment was procured by fraud, that there has been a new discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment”;

(3)    “mere suspicion of fraud, raised by fresh facts later discovered, will not be sufficient to secure relief … The claimant must establish that the new facts are so evidenced and so material that it is reasonably probable that the action will succeed. This rule is founded squarely in the public interest in finality of public litigation and in upholding judgments duly entered at the termination of proceedings in the courts” (emphasis added);

(4)    “although perjury by the successful party or a witness or witnesses may, if later discovered, warrant the setting aside of a judgment on the ground that it was procured by fraud, and although there may be exceptional cases where such proof of perjury could suffice, without more, to warrant relief of this kind, the mere allegation, or even the proof, of perjury will not normally be sufficient to attract such drastic and exceptional relief as the setting aside of a judgment …” (emphasis alleged). This stringent requirement also flows from the public interest in the finality of litigation given the frequency, in hard fought litigation, of instances in which litigants consider that they were unsuccessful because the decision was procured by false evidence;

(5)    as emphasised by Rawson, “it must be shown by admissible evidence that the successful party was responsible for the fraud which taints the judgment under challenge”; and

(6)    “the burden of establishing the components necessary to warrant the drastic step of setting aside a judgment, allegedly affected by fraud or other relevant taint, lies on the party impugning the judgment. It is for that party to establish the fraud and to do so clearly.”

28    What is clear from the principles set out by her Honour is that in order to establish that the September 2022 Orders should be set aside for fraud, Mrs Stolyar, must prove actual fraud. That is a high bar.

29    While this is not the hearing of Mrs Stolyar’s intended application to set aside the judgment, in my view, having regard to the principles at [27] above and the need to show a proper basis for a stay, I must at least be satisfied that her proposed application has some prospects.

30    In support of this basis for her application for a stay, Mrs Stolyar relies on an affidavit in which she points to and annexes material which she says was not before me at the time of the final hearing but should have been because: either the trustee was aware of the material and did not bring it before the Court; or the trustee did not make an argument that he should have made based on the material that was available to the Court. In submissions made on behalf of Mrs Stolyar by Ian, who with leave made submissions on behalf of Mrs Stolyar, I was taken to six instances where it was said that occurred.

31    Before I turn to each of those instances, I note that there is nothing before me to indicate what stage of preparation Mrs Stolyar’s proposed application is at, by when it would be brought and what steps have been taken to gather the necessary evidence and prepare the necessary pleading, including whether solicitors would be retained to act for Mrs Stolyar in the new proceeding. Indeed, at one stage in submissions, Ian said on behalf of Mrs Stolyar that a period of up to four to six months would be required, I apprehend, to commence the proceeding.

32    I turn to the particular matters relied on by Mrs Stolyar.

33    The first was a document from CommSec addressed to Ian ATF Canchel Ltd Partnership titled “margin loan statement” relating to loan number 308021 (CommSec Loan Statement). Mrs Stolyar submitted that this document was available to the trustee, that it should have been brought to the Court’s attention and, had it been, a different result would have ensued in relation to aspects of the judgment.

34    However, it became apparent that the CommSec Loan Statement was in fact relied on at the hearing. It was included in the court book and Ian, who gave evidence for Mrs Stolyar and Fanchel at the hearing, was cross-examined on it.

35    The trustee referred me to the transcript (at pages 503 to 505) where it was apparent that Ian had, in fact, been cross-examined on the CommSec Loan Statement. Therefore, no case can be made that the trustee failed to bring this document to the attention of the Court or that he failed to develop a case based on it which might have suited Mrs Stolyar. As I have said, that document was before the Court.

36    The next set of documents were Commonwealth Bank statements for a premium business account in the name of Canchel dated as at March 2009. These documents were said to relate to findings made in the judgment about the Campbell Parade Property. Mrs Stolyar submitted that they falsified a part of the trustee’s case at trial and that their non-disclosure constituted a fraud.

37    There are two problems with those submissions. First, the documents do not falsify the conclusion to which I came at [279] and [479] of Scott v Stolyar. They simply show that as at the date from which those statements speak, an amount of $3.5 million was available in the account. They are, as senior counsel for the trustee submitted, consistent with the trustee’s case that about $3.2 to $3.3 million was available to Ian at the time. That being so, the document, of itself, cannot satisfy the test of materiality required to establish fraud.

38    Secondly, even if I was satisfied that there had been non-disclosure and that those statements of account could have made a difference, there was no evidence that the documents were available to the trustee.

39    Thirdly, complaint was made about evidence in the trustee’s affidavit sworn on 17 April 2020, in particular, at [59] thereof. In that paragraph, the trustee deposes to what he considers to be the effect of certain deposits made in July 2012 into a bank account, namely to repay Mrs Stolyar and, ultimately, to repay $1 million which had been withdrawn from a mortgage facility account. In doing so the trustee does no more than express his own opinion of the effect of certain documents which he describes in the preceding paragraphs of his affidavit, at [57] and [58], being bank statements that were available to the trustee as a result of his investigations. It is a statement of conclusion by the trustee based on the material that was available to him at the time and his own investigations. Even if that evidence was not accepted, that does not make it false as alleged by Mrs Stolyar. It is simply an opinion that could be accepted or rejected by the Court.

40    The fourth category concerned the trustee’s affidavit sworn on 31 May 2019 at [44]-[45] where he described evidence given by Ian in an affidavit he had sworn on 29 October 2012 and relied on in a different proceeding in the Supreme Court. Mrs Stolyar’s criticism made of that evidence was that it was not a fulsome description of Ian’s affidavit in the Supreme Court proceeding. Once again, this is only a recitation by the trustee of a document that was before him.

41    The highest the submission goes is the evidence or the description given by the trustee in that part of his affidavit was not complete or as fulsome as it could have been or was not accurate in parts. But that cannot be said to amount to a falsification, particularly where the affidavit itself was exhibited to the trustee’s affidavit, available to the Court and to both parties to examine and the trustee could be cross-examined on his recitation of those facts if they were thought to be incorrect.

42    The fifth category of documents is an extract from a ledger maintained by Shaw and Partners. It was submitted that this document showed additional transfers of funds which had not been identified by the trustee and brought to the Court’s attention. Mrs Stolyar said that those funds would have been available as part of the moneys used for the purchase of 27/26 Ocean Street: see Scott v Stolyar commencing at [176]. In particular, Ian, on behalf of Mrs Stolyar, directed my attention to Scott v Stolyar at [184]-[185].

43    However, the Shaw ledger was included in the court book, was before the Court at the hearing and available for consideration by both parties. If there was an argument to be made in relation to it or an alternative hypothesis which might provide some exculpatory explanation on the part of Mrs Stolyar and Fanchel in answer to the claims made by the trustee about the source of the funds for the acquisition of 27/26 Ocean Street, then it was not up to the trustee to make that argument. Mrs Stolyar and Fanchel were represented by senior and junior counsel and solicitors at the hearing and it was open to them to put any alternative hypothesis to the Court based on that document.

44    In any event, it cannot be suggested that the trustee fraudulently concealed that document such as to establish any arguable case of fraud that would lead to setting aside the judgment on its basis.

45    The final document relied on by Mrs Stolyar was a Commonwealth Bank statement for a streamline account in the names of Ian and Beth. Attention was drawn to four transfers made on 28 October 2010 included in that statement. Once again, this statement was said to be relevant to the findings made about the source of the funds for the acquisition of 27/26 Ocean Street. As senior counsel for the trustee submitted, there was no evidence that this document was in the possession of the trustee at any time such that it could be said that he intentionally withheld it from the Court. In any event, it is, on my review of the document, difficult to see how it could have made a difference to the outcome of the hearing.

46    It follows from the above that I am not satisfied that there is an arguable basis for an application to set aside the judgment on the basis of fraud based on the material to which I was taken by Mrs Stolyar such that I would grant a stay of the September 2022 Orders on that basis.

Conclusion

47    In those circumstances, I will make an order dismissing paragraphs 1 and 2 of Mrs Stolyar’s interlocutory application.

Associate:

Dated:    5 December 2023

Schedule of parties

No: NSD861/2019

Federal Court of Australia

District Registry: New South Wales

Division: General