FEDERAL COURT OF AUSTRALIA Southwell v Maladina [2002] FCA 76 ROBERT SOUTHWELL v JAMES MUSTATA MALADINA (AKA JIMMY MALADINA), JANET MALADINA, FERRAGAMO LIMITED (PREVIOUSLY KNOWN AS FERRAGAMO PTY LIMITED), FERRAGAMO (AUST) PTY LTD ACN 084 743 144, ORD MINNETT MANAGEMENT LIMITED ACN 002 262 240 and NATIONAL PROVIDENT FUND BOARD OF TRUSTEES Q 7027 OF 2001 DOWSETT J 5 FEBRUARY 2002 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 7027 OF 2001 BETWEEN: ROBERT SOUTHWELL APPLICANT AND: JAMES MUSTATA MALADINA (AKA JIMMY MALADINA) FIRST RESPONDENT JANET MALADINA SECOND RESPONDENT FERRAGAMO LIMITED (PREVIOUSLY KNOWN AS FERRAGAMO PTY LIMITED) THIRD RESPONDENT FERRAGAMO (AUST) PTY LTD ACN 084 743 144 FOURTH RESPONDENT ORD MINNETT MANAGEMENT LIMITED ACN 002 262 240 FIFTH RESPONDENT NATIONAL PROVIDENT FUND BOARD OF TRUSTEES SIXTH RESPONDENT JUDGE: DOWSETT DATE OF ORDER: 5 FEBRUARY 2002 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The motion for interlocutory relief is dismissed. 2. Paragraph 1 of the orders made on 24 December 2001 be amended to read: That summonses issue pursuant to s 81(1) of the Bankruptcy Act 1966 (Cth) for the examination of, and production of documents by, the first and second respondents, always provided that until further order the first respondent and second respondent are to be asked no questions concerning the first respondent's conduct as chairman of the National Provident Fund." 3. All parties have liberty to apply for further interlocutory relief as they may be advised. 4. There be no order as to costs as between the applicant and the first respondent. 5. Costs reserved as between the applicant and the second respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 7027 OF 2001 BETWEEN: ROBERT SOUTHWELL APPLICANT AND: JAMES MUSTATA MALADINA (AKA JIMMY MALADINA) FIRST RESPONDENT JANET MALADINA SECOND RESPONDENT FERRAGAMO LIMITED (PREVIOUSLY KNOWN AS FERRAGAMO PTY LIMITED) THIRD RESPONDENT FERRAGAMO (AUST) PTY LTD ACN 084 743 144 FOURTH RESPONDENT ORD MINNETT MANAGEMENT LIMITED ACN 002 262 240 FIFTH RESPONDENT NATIONAL PROVIDENT FUND BOARD OF TRUSTEES SIXTH RESPONDENT JUDGE: DOWSETT DATE: 5 FEBRUARY 2002 PLACE: BRISBANE REASONS FOR JUDGMENT 1 The present motion has been argued at some length, but for present purposes, the scope of the matter which I must determine is quite limited. As I am going to Cairns tomorrow and will be there for the rest of the week, and in Sydney and Melbourne for all of next week, and as there is a certain urgency attaching to this matter, it is appropriate that I give reasons for judgment now rather than reserving them. In so doing, I will probably do less than justice to at least some of the submissions which have been made before me. I should say, too, that it may be necessary for me substantially to revise these reasons once I have had an opportunity to read them. 2 The facts of the case are complex. The first respondent, James Mustata Maladina, is a lawyer who previously practised in Port Moresby and occupied a senior position in a government authority in Papua New Guinea known as the National Provident Fund. Early in 2001, judgment by default was recovered against him by that authority in various amounts, including damages to be assessed. The evidence suggests that the damages sought are quite substantial and may total something over K800,000. The National Provident Fund petitioned for Mr Maladina's bankruptcy, claiming to be a creditor. It relied upon two acts of insolvency: an allegedly fraudulent transfer of property and the allegation that he had departed from, and remained outside of Papua New Guinea for the purpose of defeating his creditors. On 16 February 2001, a sequestration order was made against him. As far as I can determine from the material, it was based upon the first-mentioned act of insolvency - the allegedly fraudulent transfer. 3 It seems that Mr Maladina had left Papua New Guinea in either 1999 or the first half of 2000. The evidence is in conflict on this point. He took up residence in Cairns. The proceedings in the action and the bankruptcy proceedings were conducted following orders for substituted service. The orders made in both sets of proceedings were made in Mr Maladina's absence. He says that he became aware of them early last year, probably after the sequestration order had been made. There seems to have been substantial delay on both sides thereafter. There was delay on the part of the trustee in bankruptcy in prosecuting the administration of the estate, although the evidence suggests this was at least in part attributable to delays in the justice system in Papua New Guinea and to difficulties in communications between Australia and Papua New Guinea. Although the first respondent was aware, from about February or March last year that the judgment had been entered against him and that he was bankrupt, he took no steps either to set aside the judgment or to attack the order in bankruptcy. The reason advanced by him for this delay is that he understood, as a result of advice that he had received, that in order to set aside the bankruptcy proceedings he would have to return to Papua New Guinea. He was unwilling to do so because he was fearful of violence at the hands of persons who suspected that he might be in a position to make serious allegations against them. I should say that his fears are probably not without some justification. Similar fears have been expressed on his behalf by the applicant who is the trustee in bankruptcy. 4 On 28 June last year a letter of request was forwarded to this Court by the Chief Justice of Papua New Guinea, seeking its assistance in the bankruptcy. It was by that time known that the first respondent and his wife, the second respondent, were living in Australia. The matter was mentioned before me at some time in the second half of last year, but the applicant was not then in a position to proceed pursuant to the letter of request. On Christmas Eve I made a number of ex parte orders, some of which were of the kind usually called Mareva injunctions. They restrained the respondents from disposing of assets. I also ordered that summonses issue for the examination of, and production of documents by the first and second respondents. There were a number of other orders, but they are not particularly relevant for present purposes. My orders were, as I understand it, served upon the first and second respondents early in January of this year. At that time the first respondent indicated that he intended to make application in Papua New Guinea to set aside his bankruptcy and that he would seek interlocutory relief concerning the public examination which I had ordered. However nothing was done until last Friday when, in my absence, a motion was brought on before Cooper J. His Honour adjourned the motion to yesterday for directions. When the matter came on before me yesterday, I was able to list it for argument today. 5 In effect, the motion seeks orders that the examination of the first and second respondents be deferred whilst the first respondent applies in Papua New Guinea for revocation of the sequestration order. He proposes to do that upon the basis of a challenge to the National Provident Fund's status as a creditor and, therefore, to its entitlement to present a petition in bankruptcy. He will also challenge the existence of each of the alleged acts of bankruptcy. I inquired as to why no such application had yet been made and indicated that it would be appropriate for it to be made before the matter came on for hearing today. This has been done. The application is listed for mention on 18 February. In view of the likely length of the matter, any hearing date will be about two months thereafter. Taking into account likely preparation time and the possibility of a reserved judgment, that may suggest that resolution of the application will take some months. 6 The question therefore arises as to what should happen in the meantime with respect to the public examination. The relief sought by the notice of motion is, in effect, of an interlocutory kind, designed to secure what is said to be the status quo pending the determination of the application in Papua New Guinea. It is well established that the considerations to be taken into account in considering such an application include firstly, whether or not the relevant party demonstrates a serious question to be tried and secondly, whether or not the balance of convenience favours the grant of interlocutory relief. Although the circumstances in which the present motion arises are rather different from those in which such interlocutory relief is usually sought, I see no reason to apply different principles. I turn firstly to the question of whether there is a serious question to be tried. 7 It is alleged that the National Provident Fund did not have status as a creditor sufficient to justify presentation of a petition. It is clear, however, that the debt upon which it purported to rely was part of the amount recovered pursuant to the default judgment to which I have referred. A bankruptcy court might, in an appropriate case, go behind the judgment. However the first respondent's failure to take prompt steps to bring about that result must detract from the likelihood of his successfully seeking such relief at this stage. He says that he could not, himself, have sought to set aside the original judgment because of his bankruptcy. That may be so, but nonetheless one would have thought that if he had a genuine belief in whatever claim he now makes, he would have sought to advance it during 2001. I do not accept that it is a reasonable explanation of his failure to do so that he was fearful for his safety. If the courts allow their process to be set at nought by such fear, then the administration of justice will soon grind to a halt. It is by no means uncommon for individual persons to be forced to participate in legal proceedings, notwithstanding risks to their safety. Indeed, many of us who are regularly involved in judicial proceedings are from time to time exposed to similar risks. 8 Alternatively, the first respondent seeks to demonstrate that neither of the acts of insolvency can be made out. In each alleged act of insolvency, the first respondent's intention is relevant: in the case of the allegedly fraudulent conveyance, the intention with which he conveyed away his house property; in the case of his departure from Papua New Guinea and remaining outside of that country, his intention in so doing. Those issues were not canvassed at the hearing of the petition because he did not appear. The rules of court seem to have resulted in the court making a sequestration order without further inquiry. It was easy for the petitioning creditor to allege that the first respondent had acted with the relevant intentions in each case, and it is equally easy for the first respondent now to deny such intentions. It would be better that such issues be tried rather than go by default, although there is evidence which suggests that the first respondent had good reason to fear bankruptcy at the relevant times. In particular, he faced the prospect of a judgment for in excess of K800,000. I am willing to assume that there are serious questions to be tried in this case as to the status of the National Provident Fund and as to whether or not an act of insolvency was committed. Whether or not the relevant court in Papua New Guinea is willing to allow the first respondent to raise those matters at this stage, given the long delay, will be a matter for it to determine. However that delay is again relevant when I turn to the second question, namely the balance of convenience. 9 Bankruptcy proceedings are designed to protect creditors and to facilitate the realisation of the assets of the debtor. It is a commonplace that speedy identification of the assets in an insolvent administration is often critical to appropriate recovery action. Delay inevitably makes a trustee's position more difficult and may compromise the interests of creditors. Were this application to have been brought shortly after the first respondent became aware of the sequestration order, I have little doubt that I would have been inclined to make an order such as that which is sought. However that is not the case. The first respondent is a lawyer who may be assumed to have been aware of his obligations in bankruptcy. Indeed, the material indicates that at least some of them were drawn to his attention. He chose not to discharge his obligations, leaving it to his trustee to find him and to enforce those obligations. In the circumstances it is a little difficult to have a lot of sympathy for him. It is also difficult to see why the administration of the estate should be any further delayed whilst he makes the anticipated application. The only reasons advanced going to convenience are firstly, his fear of reprisals from persons whom he might accuse of having committed unlawful acts and secondly, his own fear of self-incrimination. 10 It seems that at some stage it was suggested that the public examination would touch upon his conduct as chairman of the National Provident Fund. However, in the course of argument, Mr O'Donnell for the applicant has conceded that at least until such time as the application in Papua New Guinea has been disposed of, the examination can be limited so as to exclude questions concerning such conduct. The focus will be upon Mr Maladina's assets and liabilities and those of his wife as at the date of bankruptcy. His counsel has asserted that nonetheless, circumstances may still arise in which he will say something which will incriminate himself or somebody else. 11 It seems that under the Bankruptcy Act 1966 (Cth), he may not decline to answer a question on the basis of self-incrimination. He is concerned that if he answers questions which incriminate him, and his bankruptcy is subsequently annulled or set aside, he will have nonetheless provided a basis for a subsequent prosecution. That seems fairly unlikely. If his bankruptcy is set aside, it is difficult to see how any offence arising out of the bankruptcy could be prosecuted. It may be that he is concerned about prosecution for offences committed as chairman of the National Provident Fund rather than for offences associated with his bankruptcy. In any event, it is difficult to see how any such problem can arise, given the limitation to which Mr O'Donnell has agreed. If a specific problem arises, it will be open to the first respondent to seek an adjournment to enable him to make a further application for an interim order. Similar considerations apply to his fear of incriminating others. 12 In those circumstances I am of the view that no interlocutory relief should be granted in this case, and the motion will be dismissed. I will amend paragraph 1 of my order made on 24 December 2001 by deleting the full-stop at the end of the sentence, adding a comma and then the following words: always provided that until further order the first respondent is to be asked no questions concerning his conduct as chairman of the National Provident Fund. 13 As to the second respondent, there seems to be no reason to believe that she is in any different position from the first respondent. Some attempt was made to argue that she may be entitled to decline to answer questions which would incriminate him. I do not think that there can be any substance in this submission. In any event, if the order is amended in the same way in so far as it concerns her, similar safeguards will be available. The amendment to which I have previously referred should therefore refer to both the first and second respondents. That amendment is until further order. I will give all parties liberty to apply as they may be advised. 14 As to costs, the proper order in the circumstances is that with respect to the application concerning the first respondent, there should be no order as to costs. It seems to me that the first respondent could not seriously expect an order for costs after his long delay. As I understand it, the applicant will be entitled to its costs as trustee in any event. As to the second respondent, it may be that in the end, her motion today can be justified. I will reserve the costs as between the applicant and the second respondent. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 22 February 2002 Counsel for the Applicant: Mr B P'Donnell QC Solicitor for the Applicant: Blake Dawson Waldron Counsel for the First and Second Respondents: Mr C Wilkins Solicitor for the First and Second Respondents: Clayton Utz Dates of Hearing: 4 & 5 February 2002 Date of Judgment: 5 February 2002