Oayda, R.R. v Mercantile Mutual Life Insurance Co. Ltd & Anor [1995] FCA 261

CATCHWORDS PRACTICE AND PROCEDURE - adjournment application. Bankruptcy Act, 1966 (Cth) Rozenbes v Kronhill (1956) 95 CLR 407 Re Morris; ex parte Adams and Ors [1980] 48 FLR 341 Stokes (Australasia) Ltd v Brennan 31 May 1988 (unreported) Morling J RE ROBERT RAFEC OAYDA EX PARTE MERCANTILE MUTUAL LIFE INSURANCE COMPANY LIMITED KEVIN SHIRLAW FCA, the Controlling Trustee appointed to the Debtor pursuant to s 94 of the Bankruptcy Act, 1966 No. NX75 of 1994 Beazley J 25 March 1995 Sydney

IN THE FEDERAL COURT OF AUSTRALIA ) No. NX75 of 1994 GENERAL DIVISION BANKRUPTCY DISTRICT REGISTRY ) OF THE STATE OF NEW SOUTH WALES ) RE: ROBERT RAFEC OAYDA, A Debtor EX PARTE:MERCANTILE MUTUAL LIFE INSURANCE COMPANY LIMITED KEVIN SHIRLAW FCA, the Controlling Trustee appointed to the Debtor pursuant to s 94 of the Bankruptcy Act, 1966 BAIN CLARKSON LIMITED (t/as BAIN HOGG LIMITED) Respondent CORAM: BEAZLEY J PLACE: SYDNEY DATE: 25 March 1995 REASONS FOR JUDGMENT BEAZLEY J: On 14 March 1995 I made a sequestration order against the Estate of Robert Rafec Oayda. No submissions were made on behalf of Mr Oayda in opposition to the making of that order. However, prior to my hearing the application for the making of the sequestration order, there had been a strenuously contested application for adjournment made on behalf of Mr Oayda which I dismissed. Due to the pressures of the business of the Court on the day, I was unable to deliver my reasons for judgment of the adjournment application and the application for the making of the sequestration order, those reasons being requested on behalf of Mr Oayda. This judgment reflects the matters which I raised with counsel for Mr Oayda at the time of refusing the adjournment application. Background facts On 23 May 1994, Mr Oayda signed a statement under s 188(2)(c)(ii) of Bankruptcy Act, 1966 (Cth) proposing that his affairs be dealt with pursuant to the provisions of Part X of the Bankruptcy Act. On the same day, Mr Kevin R. Shirlaw, Registered Trustee, consented to act as trustee. In his statement of affairs, also dated 23 May 1994, Mr Oayda disclosed unsecured creditors in an amount of almost $5 million and assets of $500,008. He also listed the applicant (Mercantile Mutual) as an unsecured creditor specifying the amount of the debt as being "contingent" and stating that the total amount of the debt was in dispute. Mercantile Mutual claims a debt owing to it pursuant to a deed of guarantee and indemnity dated 6 September 1988 executed by Mr Oayda in the order of $195 million. Subsequently, at a meeting of creditors, a composition was accepted. On 6 May 1994, prior to initiating the steps referred to above under s 188 of the Bankruptcy Act, Mr Oayda had commenced proceedings against, inter alia, Mercantile Mutual in the Federal Court of Australia, General Division, proceedings No. G259 of 1994 (the General Division proceedings). There were a number of other applicants, being companies in which Mr Oayda had an interest as well as other respondents. The application in the General Division proceedings was amended twice and, on 13 October 1994, a statement of claim was filed. It should be noted that the statement of claim was a lengthy document containing some 95 paragraphs which, I was informed, and this was conceded by Mr Oayda's counsel, had been drafted by Mr Oayda's solicitor, and settled by counsel. Mercantile Mutual moved the court for orders that the statement of claim be struck out. Alternative orders were sought which are usual in such an application including that portion of the claim be dismissed. The strike out motion was heard by Lockhart J. Mr Oayda and his companies were represented by senior and junior counsel. On 25 November 1994, Lockhart J, in a detailed judgment, struck out the statement of claim, stating at 29: "The statement of claim in its present form sustains no cause of action that I can discern against any of the respondents...The statement of claim must be struck out in whole." There was also an application before his Honour for security for costs. On 15 December 1994, Lockhart J made the formal orders reflecting his reasons for judgment. I have already referred to his order that the whole of the statement of claim be struck out. His Honour also ordered: "10....[Mr] Oayda provide security for the costs of [Mercantile Mutual]...in a sum and in a form to be approved by the Registrar. ... 13. The proceedings be stayed until security for the costs of [Mercantile Mutual]...has been provided pursuant to [order 10]...". His Honour made the following orders in respect of costs: "15....[Mr] Oayda pay the costs of [Mercantile Mutual]...of the proceedings including all motions on an indemnity basis. ... 17. The proceedings be stayed until the costs order made in 15...[has] been satisfied." Returning to the bankruptcy matter, on 17 August 1994 Mercantile Mutual made application to the court seeking a number of orders, which in essence crystallised into a claim that the composition under Part X of the Bankruptcy Act proposed by Mr Oayda and accepted pursuant to a special resolution passed at a meeting of creditors on 27 July 1995, was void. On 20 February 1995, Wilcox J declared the composition void. His Honour stood the matter over to the Registrar's list on 28 February 1995 for the hearing of the application for a sequestration order, being one of the orders sought by Mercantile Mutual in its application of 17 August 1995. That application was referred to me as Bankruptcy List Judge on that day. Mr Walsh of counsel appeared on behalf of Mr Oadya and sought an adjournment for a period of 2 weeks to give Mr Oadya the opportunity to recast his case in the General Division proceedings. I acceded to that application and made the following directions: "2. That the matter proceed by way of affidavit evidence. 3. That any affidavit evidence to be relied upon by [Mr Oayda] be filed and served by 4pm 10 March 1995." When the matter came before me on 14 March 1995, Mr Walsh, who again appeared for Mr Oayda applied for a further two week adjournment. He informed the court that senior counsel had been briefed in the General Division proceedings 10 days ago but had been unable to attend to the brief, but had indicated that he could provide his advice within the next two weeks. Mr Walsh submitted that if Mr Oayda's claim in the General Division proceedings could be properly formulated and evidence of an arguable case could be adduced once Mr Oayda had had the benefit of the advice of senior counsel, the unsecured creditors might, in the long run, be benefited should the action succeed. He submitted that in the meantime, the applicant would not be prejudiced by a two week adjournment. Notwithstanding that only a further short adjournment was sought I was of the opinion it should be refused. The General Division proceedings are presently stayed, and although Mr Walsh referred to a "third party" who would have to pay the costs and provide security for costs in those proceedings there was no evidence of the existence of a third party who was willing to do so. I would have thought that in a matter as important as impending bankruptcy, there would have been evidence from the "third party" that the costs would be paid and security provided and that there were the means to do so, provided that the advice from senior counsel was satisfactory. There were other matters which were significant in my decision to refuse the adjournment. Mr Oayda has taken no steps to advance the provision of security since the proceedings were stayed, notwithstanding requests from the applicant as long ago as 12 December, 1994. Mr Oayda's indebtedness is huge. In addition, it appears from statements made in the judgment of Lockhart J that Mr Oayda delayed the progress of the General Division proceedings as long as possible. The evidence before me indicated that he continued to delay matters to which he should have attended wherever possible. His failure to respond to the 12 December letter in respect of security for costs is one example. His failure to do take any steps to replead the statement of claim pursuant to the leave granted by Lockhart J is another example. That matter is particularly significant when the existence of those proceedings is the only matter upon which he relies to resist the making of the sequestration order. Further, Mercantile Mutual's debt is very large. In these circumstances, the words of Dixon CJ, Webb and Fullagar JJ in Rozenbes v Kronhill (1956) 95 CLR 407 at 414 are particularly pertinent here: ""In Cain v. Whyte (1933) 48 CLR 639), this Court expressed agreement with a judgment of the Supreme Court of Queensland (Henchman J.) in which his Honour said: '...prima facie, on proof of the matters mentioned in s.56(2), the Court will proceed to make an order for sequestration, and...it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order' (1933) 48 CLR at 646)" (1956) 95 CLR at 414)." See also Re Morris; ex parte Adams and Ors [1980] 48 FLR 341 at 352. And in Stokes (Australasia) Ltd v Brennan 31 May 1988 unreported) Morling J stated: ""In a case where a debtor has incurred debts of such huge proportions relative to his assets, there is much to be said for the proposition that it is in the public interest that there be a public examination of the bankrupt (and possibly other persons) under s.81 of the Bankruptcy Act."" Accordingly, I refuse the adjournment. I certify that this and the preceding (6) pages are a true copy of the Reasons for Judgment of the Honourable Justice Beazley. Associate: Dated: 24 March 1995 APPEARANCES Counsel for Applicant: Mr Reeves Solicitors for Applicant: Messrs Mallesons Stephen Jaques Counsel for the Respondent: Mr Walsh Solicitors for Respondent: Messrs Williams Palmer Noss Date of hearing: 14 March 1995