Horvath, Gabor & Anor v Pattison, Paul A (Trustee) [1998] FCA 1443

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 615 of 1998

BETWEEN: GABOR HORVATH

First Applicant

agota horvath

Second Applicant

AND: PAUL A PATTISON (Trustee)

Respondent

JUDGE: weinberg J

DATE: 30 OCTOBER 1998

PLACE: MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

There are before the court two applications brought by Mr and Mrs Gabor Horvath, who are bankrupts, to challenge the decision of their trustee to admit to proof a debt or debts claimed by the Commonwealth Bank of Australia ("the Bank"). Each challenge is brought pursuant to s 99(1) of the Bankruptcy Act 1966 ("the Act"). Each application is the subject of directions which have been made by judges of this Court that the application not be accepted for filing without the leave of the court. The first such direction was given by Marshall J on 23 October 1998. The second was given by myself on 29 October 1998. The reason why these directions were given stems from the lengthy history of this matter. Mr and Mrs Horvath have at every stage of the proceedings brought against them by the Bank challenged the existence of a debt claimed to be owing to that bank. Their position is, in substance, that the Bank, through its officers, defrauded them. They say that forged documents were used to obtain the original judgment against them which forms the basis for the judgment debt leading to their acts of bankruptcy, and to their subsequent bankruptcies.

It is not necessary to recite the history of this matter in any great detail. It is sufficient to say that on 24 February 1995 the Bank, in Supreme Court proceedings number 9168 of 1994, obtained a judgment against Mr Horvath and his wife in an amount of $295,287.01 together with interest and costs. That judgment was obtained by default. It was obtained also against Mr Horvath's son, Gabor Horvath Jr, who was a minor at the time of the transaction which gave rise to the alleged debt. Mr and Mrs Horvath sought to set aside the default judgment. On 6 April 1995 Master Wheeler set aside the judgment against their son, but affirmed it against each of them. The basis upon which Master Wheeler set aside the judgment against their son was that he had been an infant at the time of the relevant loan transaction. The Bank appealed against Master Wheeler's order regarding the son. It was unsuccessful in that appeal. It was, however, partly successful in relation to a stay order which had been made concerning possession of the land which secured the loan. Ultimately, there were further proceedings regarding the position of the son but no further proceedings regarding the judgment debt which had been obtained by default against Mr and Mrs Horvath. Eventually a bankruptcy notice issued against them. That notice was based upon the default judgment of 24 February 1995. Mr and Mrs Horvath made application to extend the time for compliance with that notice. That application was dismissed by a registrar. They then sought to review that decision. On 29 May 1996 Northrop J dismissed that application. His Honour declined to go behind the judgment debt. Subsequently, the Bank presented a petition for bankruptcy. On 12 February 1997 Merkel J made sequestration orders against Mr and Mrs Horvath. His Honour, as had Northrop J, refused to permit Mr and Mrs Horvath to go behind the default judgment. Moreover, he declined to exercise the discretion vested in him to refuse to make the sequestration orders sought by the Bank. An appeal was brought to the Full Court against the decision of Merkel J. On 4 June 1997 the Full Court dismissed that appeal. The Court declined to go behind the default judgment that formed the basis of the petition. As well as bringing these proceedings in the Federal Court, Mr Horvath and his wife brought proceedings in the Supreme Court of Victoria seeking to file a defence and counterclaim in the original proceedings which had led to the default judgment. On 29 July 1997 McDonald J in the Supreme Court dismissed their application to file such a defence and counterclaim. His Honour held that the proceedings in question had ended in February 1995 and it was no longer possible to reactivate them. In the alternative, his Honour determined that any rights which Mr Horvath or his wife might have to bring such an action against the Bank had vested in the trustee, once the sequestration orders were made. At a later stage, in December 1997, the trustee caused proceedings number VG 7812 of 1997 to be brought in this Court. As a result, warrants were issued permitting search and seizure of various documents. While these proceedings were in train, the proceedings in the Supreme Court continued in tandem. On 7 January 1998, Beach J ordered Mr and Mrs Horvath not to file any document in the proceedings in that Court without the leave of a judge. In January 1998 the bankrupts commenced proceeding number VG 7030 of 1998 in this Court in which they sought leave to file a summons in the Supreme Court proceeding, claiming damages against the Bank. That application was dismissed by Finkelstein J on 21 January 1998, essentially for the same reasons as had commended themselves to McDonald J. On 23 June 1998, Mr and Mrs Horvath made yet another application by notice of motion, this time seeking to have their bankruptcy annulled, and also claiming damages in an amount of $30 million. That application was dismissed by Heerey J on 6 August 1998. On 11 September 1998 in proceeding number VG 7694 of 1998 in this Court the bankrupts each made application seeking orders requiring the trustee to call a meeting of creditors and to require the Bank to verify by statutory declaration its proof of debt lodged with the trustee. The bankrupts also caused various subpoenas to be issued, seeking a range of documents which they claimed to be relevant to this new proceeding. On 12 October 1998, Marshall J set aside the subpoenas which had been issued and dismissed these applications. His Honour required the bankrupts to pay costs on a solicitor-client basis. In essence, the material which Mr Horvath and his wife seek to rely upon in the present applications before me is the same as that which they have relied upon before numerous judges of this Court, and of the Supreme Court, for a number of years. The trustee, who is the respondent to these applications, submits that the leave of the court which Mr Horvath and his wife require in order to be able to proceed with their applications should not be granted. In substance, the trustee contends that these applications are an abuse of the process of the court. He submits that there are any number of reasons why the court should not, in the exercise of its discretion, grant the leave which is sought. Originally, it was submitted by the trustee that Mr and Mrs Horvath were required to satisfy the requirements of O 21 r 5 of the Federal Court Rules. Those requirements apply to persons who have been declared vexatious litigants in accordance with rules 1 and 2 of that order. That submission was not pressed, however, when it became clear to the trustee that neither Mr Horvath nor his wife had, at any stage, been declared vexatious litigants. The alternative submission advanced on behalf of the trustee was that each application failed not merely to demonstrate that there was any serious question to be tried, but also was "clearly seen to be foredoomed to fail". That language is, of course, taken from the judgment of the High Court in Walton v Gardiner (1993) 177 CLR 378 at 393 per Mason CJ, Deane and Dawson JJ. In support of this submission counsel for the trustee noted that among the forms of relief sought by Mr and Mrs Horvath, pursuant to their applications under s 99 of the Act, are annulment of both their bankruptcies, (a remedy which is available pursuant to s 153B of the Act) and a claim for damages in the sum of $150 million. It was submitted, correctly, that relief of this type could not be obtained under s 99 of the Act. The claims made by Mr and Mrs Horvath, insofar as they sought these forms of relief, were not within the scope of the relevant provision pursuant to which their claims were made. That of itself, it was submitted, rendered the present proceedings an abuse of process. It was also submitted on behalf of the trustee that s 99 of the Act is, in effect, a provision which allows for an appeal from a decision of the trustee. An application brought pursuant to that section must establish error on the part of the trustee in admitting a proof of debt. In order to make good the contention that the trustee had so erred it would be necessary in the present circumstances to demonstrate a proper basis for going behind the judgment debt which had triggered the bankruptcy. Yet that judgment debt had already passed a high degree of judicial scrutiny before his Honour Merkel J on the occasion of the making of the sequestration orders, when it was attacked upon the same basis as is foreshadowed in the present applications. It was submitted on behalf of the trustee that there had been no material placed before the court which warranted the exercise of the court's discretion to permit a further challenge to be made to the judgment debt. It is clear that the matters which Mr Horvath seeks to agitate before me in the present application are matters which he has previously raised, in one form or another, before Northrop J, before Merkel J, before the Full Court of the Federal Court, before Marshall J and, in a different context, before Finkelstein J and before Heerey J. Mr Horvath has also sought to ventilate these matters in essentially the same form before a number of judges of the Supreme Court of Victoria. The principles which underlie the Act suggest that a substantial onus rests upon an applicant who, in proceedings brought under s 99 of the Act, seeks to go behind the very judgment which formed the basis of the sequestration order. The bankrupt has, after all, had available to him the opportunity to rely upon the broad discretion which the Court has to refuse to make a sequestration order pursuant to s 52(2) of the Act. Having failed at that level, he would scarcely be likely to be in a stronger position when challenging the decision of the trustee to admit to proof the very debt which led to the act of bankruptcy, and the sequestration order. It was not submitted by the trustee that Mr and Mrs Horvath were prevented by any issue estoppel from raising the same matters in the present proceeding as they had raised in opposition to the application for sequestration orders before Merkel J. It was, however, submitted that there was, in effect, an issue estoppel against Mr and Mrs Horvath by reason of the judgment of Northrop J when his Honour originally refused the applicants' application to set aside their bankruptcy notices. A number of authorities were cited in support of this proposition including, in particular, Makhoul v Barnes (1995) 60 FCR 572. I do not believe that it is necessary to determine whether there is in fact an issue estoppel of the type for which counsel contended. It is sufficient, it seems to me, to say that in the exercise of the court's discretion the fact that the same issue which the applicants seek to agitate before the court in the present proceeding has previously been determined adversely to them - and repeatedly - is a powerful consideration against granting the leave sought. I am satisfied that the applicants' claims as presently formulated, are clearly foredoomed to fail. Taken at their highest for the applicants, they certainly do not raise any serious question to be tried. The material which the applicants have filed in support of their applications is sparse, and does not condescend to particularity. Essentially that material calls upon the Bank to substantiate its proof of debt, and makes sweeping and general assertions of the Bank's complicity in a fraud against the applicants. Nothing has been put before me which would justify interfering with the trustee's decision to admit the Bank's proof of debt. No error has been identified in the approach taken by the trustee to the performance of his duties beyond the assertion, which the applicants have repeated for years, that they were the victims of a fraud by the Bank. When it was suggested to Mr Horvath in argument that if he or his wife had evidence of any such fraud he could refer that matter to the police, his response was that the police had told him that they would not act while the matter was still before the courts. He claimed that he needed to be permitted to proceed with these applications, and to subpoena the documents which he said he required to make good his case, before he could pursue his allegations of fraud any further. That of itself tends to suggest that there may be a collateral purpose on both his and his wife's part in bringing these proceedings. It also tends to suggest that the applicants may be engaged in an impermissible fishing expedition. It they are, it is not one which should be indulged at the expense of the trustee, or of the Bank. In all the circumstances, therefore, it seems to me that this is a case where leave to proceed with these applications should be refused. I propose to make orders to that effect. The orders of the court are: (1) In relation to each application before the court, leave to proceed upon that application be refused. (2) That the applicants pay the respondent's costs of these applications, such costs to be assessed upon a solicitor-client basis. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg