Peter Macks as trustee of Bankrupt estate of Donka Gorcilov v Elena Pty Ltd & Anor [1998] FCA 899 (13 July 1998)

Last Updated: 4 August 1998

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 7074 of 1998

BETWEEN:	peter macks as trustee of bankrupt estate of donka gorcilov Applicant
AND:	ekena pty ltd and another Respondent
JUDGE:	VON DOUSSA J
DATE OF ORDER:	13 JULY 1998
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

The application for leave to appeal be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 7074 of 1998

BETWEEN:	peter macks as trustee of bankrupt estate of donka gorcilov Applicant
AND:	ekena pty ltd and another Respondent

JUDGE:	VON DOUSSA J
DATE:	13 JULY 1998
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

This is an application seeking leave to appeal from a decision given by Mansfield J on 22 June 1998. The decision was an interlocutory one and it is for that reason that leave is required.

By way of background history, Mrs Donka Gorcilov became bankrupt on 20 February 1998 on her own petition which referred to an act of bankruptcy which occurred on 10 July 1997. It is the contention of the present trustee in bankruptcy that the bankruptcy commenced on 10 July 1997.

The present applicant in these proceedings, Mr P Macks, became the trustee of the bankrupt's estate following a meeting of creditors on 17 March 1998. The trustee alleges that following the commencement of the bankruptcy, some assets of the bankrupt were disposed of, in particular three properties, and that the proceeds of the sale of those assets found their way directly or indirectly into the respondent company, Ekena Pty Ltd ("Ekena"). The present proceedings seek to recover moneys from Ekena which the trustee asserts represent the realisation of assets of the bankrupt. The proceedings allege that the transactions which led to the realisation of the bankrupt's assets and the movement of the funds into Ekena were done for the purposes of removing the assets from the reach of the creditors and are therefore liable to be set aside.

On 2 April 1998 these proceedings were commenced and injunctions were forthwith granted on an ex parte basis. The injunctions had two limbs. The first was a general Mareva injunction restraining Ekena from the disposition of its assets generally. That injunction was subject to the proviso that certain expenses - namely, legal expenses, insurance, loan and mortgage payments, lease payments, rates and taxes and statutory charges payable by the company - could be paid out of its assets generally, notwithstanding that general injunction. The other limb of the order was a specific injunction directed to nominated assets. One of those assets is a bank account with the Macquarie Bank which presently holds some $82,000.

The injunction was made initially ex parte, leave being reserved to Ekena and the Macquarie Bank to apply to vary the injunction. I gather from papers on the file that the question of the injunction being justified by the trustee, on an interlocutory basis, was originally raised in April 1998 but not proceeded with. Mansfield J in his reasons for judgment refers to the fact that it seems to have been accepted at that stage that the injunction was properly in place.

Thereafter however, applications were notified to the effect that Ekena would be seeking to have the specific injunction varied so as to allow costs to be paid out of the Macquarie Bank account, and on one of the earlier hearings, an order was made for the payment of $5,000 on account of legal expenses to be made.

There appear to have been a number of procedural irregularities in relation to applications to vary the Mareva injunctions. There were a number of affidavits filed on behalf of Ekena, apparently in anticipation of an application made on affidavit evidence to bring about a variation. However, the affidavits subsequently were not used and the primary judge heard oral evidence from a number of witnesses over several days in support of the application to vary the injunction in relation to the Macquarie Bank account.

Ultimately on 22 June 1998, his Honour dismissed the oral application to vary the injunctions. The effect of his order was to leave the injunction in place in respect of the $82,000 in the Macquarie account. His Honour at that time also gave directions for the future conduct of the case, including directions intended to have the matter ready for trial on 19 August 1998.

His Honour's reasons for declining to vary the injunction were that he was not satisfied that Ekena did not have available to it other resources to defend the proceedings. The application for variation had been made to him on the basis that it was necessary for Ekena to have access to the funds so that it could prepare its defence to the various allegations made by the trustee, all of which Ekena, through its director or Mr John Phillips, had indicated were in dispute.

His Honour held that he was not so satisfied for two reasons. First, he considered that there may be other assets of Ekena, not presently known to the trustee but available to it, to meet the costs of defending the proceedings. Secondly, he considered that there were other members of the bankrupt's family who had a very real interest in Ekena and the protection of its assets who could be in a position to fund the proceedings. His Honour observed in relation to the second of these matters that in a practical sense, the real dispute was between the trustee of the bankrupt estate on the one hand and members of the bankrupt's family on the other hand. Those family members had advanced funds to Ekena and now sought to claim the benefit of the funds of the company. It is clear from his Honour's reasons that he considered that the members of the family themselves would have an interest in advancing their own funds to defend the position of the company.

His Honour added two other observations in the course of his reasons, although he said that he did not decide the matter on these grounds. The first of those matters was that the trustee claimed that the funds in the Macquarie Bank, which were part of the subject matter of dispute, were actually the bankrupt's property. That being so, as a matter of law, it is at the least arguable that even if the funds were released for the purposes of paying legal fees, the lawyers using those funds could be required to repay them in the event that it was proved at trial that the moneys were the property of the bankrupt.

The second matter that his Honour noted was that the amount of the costs were such that if an order were made releasing funds to defend the proceedings, it is probable that the funds in the Macquarie account would be entirely exhausted before the completion of the trial.

It is necessary before granting leave to appeal from an interlocutory judgment that the Court be satisfied that in all the circumstances the decision of the primary judge is attended with sufficient doubt to warrant the decision being reconsidered by a Full Court, and that the refusal of leave will not bring about a serious injustice.

The decision under challenge involves the exercise of a discretion. It is necessary for a party seeking to attack a discretionary judgment to show some error in legal principle or in fact or to establish that the exercise of discretion actually made by the judge stands outside the limits of sound discretionary judgment. That is not an easy onus to discharge where the decision of the judge under challenge rests on the finding that the evidence did not satisfy the Court of a particular matter.

Mr Phillips has appeared on behalf of Ekena to argue the case in support of the application for leave to appeal. He has observed that one of the difficulties seems to be that Ekena has engaged the services of a number of solicitors from time to time and that they either have not understood, or have not been able to convey sufficiently to the Court a proper understanding of, the obviously complex financial transactions of Ekena. That may be so, but it only adds support, in my view, to the position taken by the trial judge, namely that on the evidence as it was disclosed to the Court, he was not satisfied that Ekena did not have available to it resources to enable it to defend the proceedings.

I have looked through the papers on the file and considered the matters that were taken into account by the trial judge. It is an understatement to say that the transactions which have gone through the accounts of Ekena in the relevant period are complex. Mr Phillips argues that the onus was on the trustee to establish that there were other assets and that the trustee has not been able to do so. In my view, that misstates the position. In the complexity of the situation, if Ekena wishes to have the injunctions varied or discharged, the onus is on it to establish the facts which make it appropriate to do so. In my view, no arguable error of law arises from the fact that the trial judge decided the matter on the basis that the onus was on Ekena to satisfy him that it did not have other resources available to defend the proceedings.

I am of the view that the decision reached by his Honour is not attended with sufficient doubt to warrant the matter being reviewed by a Full Court and I say that having regard to the actual basis upon which the trial judge determined the application before him. Moreover, in my opinion, the other matters that his Honour noted on the way through - namely that the trustee claims ownership of the moneys in dispute and the fact that if orders were made varying the injunction, the result would be that the funds in dispute would be wholly expended in litigation costs - are in themselves sufficient reasons to justify a refusal to vary the injunction. Those are additional reasons, in my view, why the actual decision of the judge is not attended with sufficient doubt to warrant it being reconsidered by a Full Court. In my opinion, the application for leave to appeal should be dismissed and I order accordingly.

The normal rule is that costs follow the event. In this case, the event is the outcome of the application for leave to appeal. Leave has been refused. I order that the costs of this application be the trustee's costs against the respondent Ekena.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa

Associate:

Dated: 13 July 1998

Ekena Pty Ltd was represented by its director Mr P Tomaras and, by leave, by Mr J Phillips

Counsel for the Respondent:	Ms S Maharaj with Mr B Roberts
Solicitor for the Respondent:	Kelly & Co.
Date of Hearing:	13 July 1998
Date of Judgment:	13 July 1998