Stay Application and Amended Claim Dismissed in NSW Supreme Court

The court dismissed the stay application and the amended statement of claim, holding that the judgment creditor can enforce the judgment independently of any liability to a bank. The decision was made in the context of civil procedure and equity principles.

Supreme Court New South Wales

Medium Neutral Citation: [NAME] v [COMPANY] (No 8); [COMPANY] v [NAME] as executor of the estate of the [NAME] [2021] NSWSC 1028 Hearing dates: 13 August 2021 Date of orders: 13 August 2021 Decision date: 13 August 2021 Jurisdiction: Equity Before: Parker J Decision: See [47]-[48] Catchwords: CIVIL PROCEDURE – application by judgment debtor to stay enforcement of judgments – where judgment debtor contends that judgment creditor no longer has any outstanding liability to mortgagee bank as a result of four deeds of settlement – judgment in favour of judgment creditor independent of whether it has any outstanding liability to the bank – stay refused CIVIL PROCEDURE – application to amend statement of claim – plaintiff has no interest in the substantive rights and obligations as between the parties against whom orders are sought – abuse of process – proceedings dismissed Legislation Cited: Civil Procedure Act 2005 (NSW), ss 67, 135 Conveyancing Act 1919 (NSW), s 12 Cases Cited: Dimitriou v Pineview Property Holdings Pty Ltd [2020] FCAFC 218 Rubino v Pineview Property Holdings Pty Ltd [2016] NSWSC 904 Rubino v Pineview Property Holdings Pty Ltd [2016] NSWSC 1780 [NAME] v [COMPANY] (No 6) [2018] NSWSC 340 [NAME] v [COMPANY] (No 7) [2019] NSWSC 1031 Category: Procedural rulings Parties: 2013/301976 [COMPANY] (Applicant) [COMPANY] (First Respondent) [NAME] (Second Respondent)

2019/173683 [COMPANY] (Applicant) [NAME] (as executor of the estate of the [NAME]) (First Respondent) [NAME] (as executor of the estate of the [NAME]) (Second Respondent) [NAME] (Third Respondent) [COMPANY] (Fourth Respondent) Representation: Appearances: 2013/301976 [NAME] (Applicant) D Allen (First and Second Respondents)

2019/173683 [NAME] (Applicant) D Allen (Fourth Respondent) D [NAME] (Solicitor Advocate) (First, Second and Third Respondents)

Solicitors: [redacted] [NAME] (Applicant) [NAME] (First and Second Respondents)

2019/173683 [NAME] (Applicant) [COMPANY] (First, Second and Third Respondents) [NAME] (Fourth Respondent) File Number(s): 2013/301976; 2019/173683 Publication restriction: Nil

Judgment – EX TEMPORE Revised from transcript; issued 17 August 2021 1. Before the Court are applications in two separate proceedings to which I will refer as the 2013 proceedings and the 2019 proceedings. The first is an application to stay the enforcement of judgments given in the 2013 proceedings. The second is an application to file an amended statement of claim in the 2019 proceedings in place of the earlier statement of claim which has been struck out.

2. Initially, the stay application in the 2013 proceedings was made by three parties who were judgment debtors. Those same three parties were also the plaintiffs in the 2019 proceedings. The parties in question were [COMPANY] ("[NAME]"), [COMPANY] ("[NAME]") and [NAME]. [NAME] and [NAME] were, at the time the underlying transactions took place, controlled by [NAME]. I will refer to them collectively as the "Wyse parties". 3. [NAME] is now bankrupt and [NAME] is in liquidation. Their applications in the 2013 proceedings, and their claims in the 2019 proceedings, have been dismissed. The remaining applicant and plaintiff is [NAME].

4. The judgment creditors are [COMPANY] ("[NAME]") and [NAME]. [NAME] is the sole shareholder and director of [NAME], although at the time of the underlying transactions it was under the exclusive de facto control of [NAME]. [NAME] is the fourth defendant in the 2019 proceedings, and by its proposed amended statement of claim [NAME] seeks to make [NAME] the fifth defendant. I will refer to these parties collectively as the "[NAME]".

5. The first, second and third defendants in the 2019 proceedings also form a group. The first defendant is [NAME], who is sued as executor of her father, [NAME]. The second defendant was [NAME], who was the wife of [NAME], but she has since died and her son, [NAME], is her executor. It is proposed in the amended statement of claim to substitute him as the second defendant. He is already in his own right the third defendant. I will refer to these parties collectively as the "[NAME] parties".

6. The proceedings arise out of transactions orchestrated by [NAME] involving the Australia and New Zealand Banking Group Limited ("[NAME]"), the [NAME] parties and the [NAME]. [NAME] and [NAME] conducted a business of providing financial and accounting advice, although it is unclear whether he was ever licensed to do so. [NAME] seems to have specialised in distressed customers. The [NAME] at the time fell into that category. They had borrowed heavily from [NAME] and were having trouble repaying their debt. 7. [NAME] conceived a plan whereby properties owned by the [NAME] and mortgaged to [NAME] would be transferred to [NAME] and the transaction refinanced as loans to [NAME], guaranteed by [NAME], who was another client of [NAME]'s. It seems that, in effect, [NAME] was to act as trustee for the [NAME] interests so that the properties could ultimately be returned to them.

8. The refinancing, which was for a total of about $2 million, went ahead. But ultimately, about $1.3 million was appropriated by the Wyse parties, acting under [NAME]'s direction. [NAME] took enforcement action and obtained judgments both against the [NAME] parties and the [NAME].

9. In the 2013 proceedings the [NAME] sued [NAME], the Registrar-General (seeking compensation for loss of their properties) and their former solicitor, [NAME]. A cross-claim was brought by [NAME] (apparently no point was taken about her bringing a cross-claim without being joined as a defendant) and [NAME] against, among others, the Wyse parties. The Rubinos eventually settled their claim against [NAME] and their claims against the other parties were dismissed.

10. The [NAME]' cross-claim against the Wyse parties succeeded: Rubino v Pineview Property Holdings Pty Ltd [2016] NSWSC 904. [NAME] (as his Honour then was) found that [NAME] was entitled to recover substantially all of the misappropriated sum of $1.3 million. Some of those moneys had been the subject of a loan by [NAME] for approximately $580,000 and his Honour also held that [NAME] was entitled to judgment for most of that sum (he allowed deductions for certain amounts of which [NAME] had received the benefit).

11. Relevantly, his Honour made the following orders on the [NAME]' cross-claim: (b) give judgment for the first cross-claimant ([NAME]) against the [NAME] [[NAME] and [NAME]] in the sum of $535,151.62 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) from 9 March 2012; (c) declare that the [NAME] are liable to indemnify the first cross-claimant against her liability to the first defendant (the [COMPANY]) in respect of her guarantees of the moneys borrowed by the second cross-claimant ([NAME]) from the [COMPANY]; (d) give judgment for the second cross-claimant ([NAME]) against the [NAME] in the sum of $1,276,389.29, plus interest in accordance with s 100 of the Civil Procedure Act from 9 March 2012; (e) declare that the [NAME] are liable to indemnify the second cross-claimant against its liability to the [COMPANY] in connection with the mortgages given by it to the [COMPANY] on or about 9 March 2012 and in respect of any liability the second cross-claimant might have to the [NAME] in respect of payments made or liabilities incurred by the second cross-claimant otherwise than in the proper performance of the trusts on which the second cross-claimant holds the properties at [ADDRESS] and [ADDRESS], Galston for the [NAME]; (f) reserve the proceedings for further consideration and give the cross-claimants liberty to apply in respect of the working out of the declarations in para 3(c) and (e), or in respect of any application for proprietary relief or an account of profits in respect of the use of moneys of the cross-claimants misappropriated by the third and fifth cross-defendants.

1. Following the judgment, the Wyse parties launched an appeal. They then applied for a stay pending the hearing of the appeal. The application came before Brereton J (as his Honour then was): Rubino v Pineview Property Holdings Pty Ltd [2016] NSWSC 1780.

2. His Honour found that the Wyse parties had no arguable appeal against the judgment in favour of [NAME], but they did have a "not unarguable" appeal against the [NAME] judgment. His Honour decided that a stay would be granted, but this was made subject to [NAME] and [NAME] giving security for the judgments in favour of the [NAME]. That security was never given and, as a result, no formal stay ever came into effect. It seems, however, that no enforcement action was taken at that time.

3. Meanwhile, the Wyse parties had failed to comply with directions for the filing of their submissions in support of the appeal. On 5 June 2017, an order was made that the submissions be filed by 3 July or else the appeal would stand dismissed. Submissions were not filed in accordance with the timetable and, as a result, the appeal stood dismissed.

4. The Wyse parties then made an application to have the dismissal set aside and the time for providing their submissions extended. This application came before [NAME] in October 2017 who refused it.

5. The Wyse parties then made an application to appeal against the judgment of [NAME]. While that application was pending, they made another application at first instance for a stay of enforcement of the judgments. That application came before me in March 2018 and I refused it: [NAME] v [COMPANY] (No 6) [2018] NSWSC 340. The application for leave to appeal from the judgment of [NAME] was unsuccessful and, as a result, the appeal proceedings came to an end.

6. The present stay application in the 2013 proceedings was made by way of notice of motion filed on behalf of all of the Wyse parties in December 2018. The hearing of the motion was delayed. There is a judgment of Henry J dealing with the costs of an adjournment which was obtained by the Wyse parties: [NAME] v [COMPANY] (No 7) [2019] NSWSC 1031.

7. Before the motion had been determined or, it appears, fixed for hearing, the 2019 proceedings were then commenced. This was done by statement of claim filed in June of that year. As I have mentioned, the plaintiffs were the Wyse parties. The first three defendants were the [NAME] parties and the fourth defendant was [NAME].

8. By early 2021 [NAME] was bankrupt and [NAME] was in liquidation. This resulted in orders by the Chief Judge dismissing the stay motion in the 2013 proceedings, and the claims in the 2019 proceedings, to the extent that they were made by [NAME] and [NAME].

9. In March this year [NAME] applied for summary judgment in its favour in the 2019 proceedings against the remaining plaintiff, [NAME]. The contention was that the proceedings had no reasonable basis for success. The application was referred to me out of the Applications List.

10. At the hearing counsel for [NAME], who had recently come into the case, conceded that the existing statement of claim was inadequate and did not properly disclose a cause of action. I ordered that the statement of claim be struck out, but granted leave to [NAME] to make an application to file an amended statement of claim. There were some delays in the preparation of the further proposed amended statement of claim, but eventually the application came before me for hearing today.

11. The proposed amended statement of claim seeks declaratory relief to the effect that the judgment in favour of [NAME] is held on trust for the estates of the [NAME], and consequential orders. The statement of claim also seeks orders that the enforcement of the judgments in favour of [NAME] and [NAME], which are orders 3(b) and (d) made by [NAME] in the 2013 proceedings, and are set out above, be permanently stayed.

12. When the matter came before me today, the stay application in the 2013 proceedings was listed, but only for directions. The amendment application in the 2019 proceedings was listed for hearing. It seemed to me that the procedural approach being adopted was questionable. A stay, even a permanent stay, is an order of a procedural nature, not an order which determines substantive rights. Ordinarily, such an order would be sought by way of notice of motion rather than as final relief in a pleaded statement of claim.

13. I put this to counsel for [NAME] who agreed, in effect, to proceed with the hearing of the stay application in the 2013 proceedings. I will deal first with that application and will return to the other pleaded relief in the 2019 proceedings in due course.

Stay application 1. In essence, the argument for [NAME] is that orders 3(b) and (d) in favour of [NAME] and [NAME] have become unenforceable by them as the combined result of four settlements. I will briefly summarise those settlements below.

2. The first settlement was between [NAME] and the [NAME]. I will refer to this as the "[NAME] settlement". This settlement was in fact entered into in November 2015 before the hearing of the proceedings before [NAME]. It provided for a sum of moneys to be paid by the [NAME] parties to [NAME], in return for which the bank would discharge its mortgages over certain properties owned by the Rubinos and would release the Rubinos from further claims. This payment was eventually made, and the settlement effected, after [NAME] had delivered his judgment.

3. The second settlement was between [NAME] and the [NAME]. Similarly, it provided for a sum of moneys to be paid by the [NAME] to [NAME] in exchange for a release from further claims.

4. The third settlement I will refer to as the "[NAME]-[NAME] settlement". This was a settlement between the [NAME] parties and a number of other parties, including [NAME] and the [NAME]. Relevantly, it provided for the [NAME] to transfer certain properties to the [NAME] parties and, in return, for releases to be granted.

5. The final settlement was between the [NAME] parties and the Wyse parties. I will refer to it as the "[NAME]-Wyse settlement". This settlement provided for the [NAME] parties to substitute themselves as the judgment creditor in place of [NAME] and then to release the Wyse parties from any liability under the judgment.

6. Pursuant to the [NAME]-[NAME] settlement and the [NAME]-Wyse settlement, the solicitor for the [NAME] parties, [NAME], wrote to the [NAME] demanding that the benefit of the judgment in favour of [NAME] in the 2013 proceedings be assigned to the [NAME] parties. The [NAME] dispute that they have any obligation to assign the benefit of the judgment and have declined to do so.

7. In April 2021, the [NAME] parties began fresh proceedings against the [NAME] in this Court. In those proceedings they seek orders along the lines sought in [NAME]'s letter.

8. The application for a stay was made under s 67 of the Civil Procedure Act 2005 (NSW) which provides: Subject to rules of court, the court may at any time and from time to time, by order, stay any proceedings before it, either permanently or until a specified day.

1. Counsel submitted, and I accept, that s 67 confers a broad power on the court to restrain enforcement of a judgment when it would be unjust to do so. Counsel also relied on s 135, but I do not think for present purposes that it adds anything to the power under s 67.

2. So far as the judgment in favour of [NAME] is concerned, the contention for [NAME] is encapsulated in paragraph 22 of the proposed amended statement of claim: By reason of the matters pleaded above: (a) The Fourth Defendant has no liability to the [COMPANY] and has made no payments to the [COMPANY] in respect of its borrowings from the [COMPANY]; (b) The Fourth Defendant holds the benefit of the judgment against the Plaintiff ([NAME]) as a bare trustee on trust for the First and Second Defendants or [COMPANY]; (c) Were the Fourth Defendant to receive payment of the judgment sum from the Plaintiff it would amount to unjust enrichment.

1. As counsel developed the submission, there were two limbs to [NAME]'s contention, corresponding with subparagraphs (a) and (b).

2. The contention in paragraph (a) parallels an argument which was recently made in an appeal to the [ADDRESS] of the Federal Court: Dimitriou v Pineview Property Holdings Pty Ltd [2020] FCAFC 218. This was [NAME]'s appeal against a sequestration order that had been made against him in reliance on the judgment of [NAME]. It was argued for [NAME] that the effect of the settlements to which I have referred was that [NAME] no longer had any liability to [NAME], and, as a result, the judgment in [NAME]'s favour against him was unenforceable.

3. This argument was rejected by the [ADDRESS]. Their Honours said at [56]-[57]: [NAME]'s submissions concerning the effect of the Deed of Release are founded … on a false premise. His submissions impliedly equate his position to that of a surety under a guarantee. The surety is liable to the creditor contingent upon default by the principal debtor. It follows in such a case that the surety is no longer liable once the principal debt has been discharged, or the obligation as between the creditor and principal debtor has been satisfied by some compromise by which the debt is discharged between the creditor and principal debtor. But that is not this case. As the reasons given by [NAME] in the Liability Judgment make clear, [NAME] was the principal wrongdoer and found liable as such. By Order 3(d) (referred to at [20] above), judgment was entered against [NAME] and his entities in the sum of $1,276,389.29 plus interest. This judgment debt was not contingent upon any obligation to indemnify [NAME] against its liability to the [NAME]. The indemnity was the subject of a separate declaration contained in order 3(e) referred to above (at [20]). ...

1. Counsel submitted that for the purpose of the application before me the facts are relevantly different (or at least arguably so), but I find it hard to see how. I am concerned in this application with the same reasons for judgment, the same order made pursuant to those reasons, and the same settlement terms. Even without the benefit of the Federal Court decision, I would have concluded that the judgment in favour of [NAME] unarguably does not depend on whether or not [NAME] has a liability to [NAME]. That conclusion has been explicitly confirmed by the [ADDRESS].

2. As to the argument that [NAME] holds the benefit of the judgment on trust for the [NAME] parties, counsel for the [NAME] submitted by reference to the [NAME]-[NAME] settlement deed that this was clearly not the case. I do not, however, find it necessary to decide whether that is so.

3. The judgment in question is a legal chose in action. One thing which is not said on behalf of [NAME] is that there has been a legal assignment of that judgment pursuant to s 12 of the Conveyancing Act 1919 (NSW). Unless there is, [NAME] remains legally entitled as the judgment creditor to enforce the judgment against the judgment debtor.

4. If it is correct that the benefit of the judgment is held on trust for the [NAME] interests, it is conceivable that the [NAME] parties could seek, in equity, orders compelling [NAME] to assign the judgment to them, but that might not be straightforward. The [NAME] parties' obligation to do equity would require them, as a condition of obtaining any such assignment, to ensure that [NAME] was first exonerated from any liabilities which it had incurred as trustee. In his judgment, [NAME] expressly stated that such liabilities would include a liability to repay the amount borrowed from [NAME]: [2016] NSWSC 904 at [302]. It would also be necessary to indemnify [NAME] against all of its reasonable costs in acting as trustee, including, it would seem, the costs of the proceedings so far taken to enforce the judgment. All of this just underlines that the existence of an equitable interest in the judgment in favour of the third party is no answer to enforcement against the judgment debtor at law.

5. As to the judgment in favour of [NAME], the contention for [NAME] is set out in paragraph 23 of the proposed amended statement of claim: By reason of the matters pleaded above: (a) The Fifth Defendant has no liability to the [COMPANY] nor has she made any payments to the [COMPANY] in respect of her liability as a guarantor, being the basis on which she obtained judgment against the Plaintiff; (b) Were the Fifth Defendant to receive payment of the judgment sum from the Plaintiff it would amount to unjust enrichment.

1. Although the judgment in favour of [NAME] is a different judgment from the judgment in favour of [NAME] which was the subject of the Full Federal Court decision, there is no relevant distinction. In my view, the same conclusions follow. It is clear from the judgment of [NAME] that [NAME]' entitlement to enforce the judgment was not in any way dependent upon her having an ongoing liability to the [NAME]: [2016] NSWSC 904 at [307] and [311].

2. There is apparently no contention that [NAME] holds her judgment on trust for the [NAME] interests, but, in any event, for reasons which I have given, that would not be an answer to the enforcement of the judgment against [NAME] as judgment debtor.

2019 proceedings 1. Unlike the proposed order for a stay, the declarations and other orders sought in the 2019 proceedings are substantive orders determining the parties' rights. But for the reasons which I have given, [NAME] has no interest in the substantive equitable rights and obligations as between [NAME] and the [NAME] parties. Those rights and obligations are the subject of properly constituted separate proceedings, as I have mentioned.

2. In these circumstances, continuation of the 2019 proceedings for the purpose of seeking those orders is an abuse of process, and the proceedings should be dismissed.

Orders 1. The orders of the Court in proceedings 2013/301976 are: 1. The motion be dismissed. 2. [NAME] pay the respondents' costs of the motion. 1. The orders of the Court in proceedings 2019/173683 are: 1. The proceedings be dismissed. 2. [NAME] pay the defendants' costs of the proceedings.

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