Supreme Court New South Wales Medium Neutral Citation: Badger v John Kagelaris Pty Ltd & Ors [2020] NSWSC 84 Hearing dates: 17 February 2020 Date of orders: 17 February 2020 Decision date: 17 February 2020 Jurisdiction: Equity - Duty List Before: Slattery J Decision: Application dismissed with costs. Catchwords: JUDGMENTS AND ORDERS – enforcement – application made to review a Registrar's decision not to order the payment of a judgment by instalments stay of the enforcement of a judgment pending the determination of an application for an instalments order – applicant has been served a bankruptcy notice to be paid within 21 days and failure to pay the debt will entitle the judgement creditor to seek a sequestration order – whether the making of an instalment order will be more conducive to the judgment creditor achieving payment in full in a reasonable time. Legislation Cited: Evidence Act 1995 (Cth), s 131(2)(g) Uniform Civil Procedure Rules 2005, Pt 49, rr 20, 37.4(4), 37.5 Cases Cited: In the matter of Australian Institute of Fitness (VIC & TAS) [2016] NSWSC 1143 Tomko v Palasty (No. 2) (2007) 71 NSWLR 61 Category: Procedural and other rulings Parties: Plaintiff: Stephen Badger First Defendant: John Kagelaris Pty Ltd ACN 144 769 095 Second Defendant: John Kagelaris Third Defendant: Paul Sheridan Sengos Representation: Counsel: Plaintiff: J.K. Raftery Third Defendant: M. Forgacs Solicitors: Plaintiff: Alexander Blackie, Woods & Day Solicitors Third Defendant: Paul Reese, Summer Lawyers File Number(s): 2017/269614 Publication restriction: No EX TEMPORE Judgment 1. On 13 December 2019 Henry J gave judgment in these proceedings. Her Honour ordered the second and third defendants, respectively, Mr John Kagelaris and Mr Paul Sengos, pay the plaintiff, Mr Badger, the sum of $114,991.48, plus interest of $17,999.06. The second and third defendants were also ordered to pay the plaintiff's costs of the proceedings. Subsequent to the entry of that judgment Mr Sengos filed on 23 December 2019 an application to pay the judgment debt by monthly instalments of $3,695 over three years. On 30 December 2019, a Registrar of the Court dismissed that application, on the basis, that a financial statement needed to be filed by both the second and the third defendants, as they were jointly and severally liable on the debt, and one had not been filed by Mr Kagelaris. 2. The solicitor for Mr Sengos communicated with the Registrar, providing information that Mr Kagelaris was impecunious and could, at most, only afford $100 per month towards the judgment debt, and as a result, Mr Sengos would be bearing the burden of the instalment order. Mr Sengos was invited to file another application to pay the judgment debt by instalments, which he did on 7 January 2020. 3. The new application for payment of the judgment debt by instalments of $3,695 per month over three years was supported by a financial statement, which showed the total value of Mr Sengos' assets as $9,955,631.94, of which some $2.5 million was residential property and some $7,435,000 was what the statement described as "other property". There is reason to believe from the evidence that Mr Sengos owns investment properties, the value of which comprises this latter sum. The statement of his liabilities totalled $14,579,366.69, of which $1,658,515 is described as a "home mortgage" and $9,769,162 is described as "other loans". It is not clear from this evidence whether those "other loans" are secured or not. 4. The Registrar dismissed that application on 28 January 2020. Following this dismissal, the plaintiff, Mr Badger, gave instructions for the issue, and service of a bankruptcy notice on Mr Sengos. Mr Badger now seeks to proceed in the Federal Circuit Court to file a creditor's petition, based upon the imminent expiry of the bankruptcy notice. 5. By motion dated 5 February 2020, Mr Sengos seeks a review of the decision of the Registrar and Mr Sengos seeks to stay her Honour's judgment. Various other alternative orders are sought, but this, in substance, is the application. 6. The Uniform Civil Procedure Rules 2005 ("UCPR"), Pt 49, r 20 confer power on the Court to review decisions of registrars. The authorities in respect of a review from a registrar's decision were considered by the Court of Appeal in Tomko v Palasty (No 2) (2007) 71 NSWLR 61; [2007] NSWCA 369. A review, unlike an appeal, does not require demonstration of error and is not restricted to a reconsideration of the material before the registrar. 7. The evidence may be shortly summarised. An up-to-date financial statement was provided by Mr Sengos, which does not markedly vary the statement of assets and liabilities which was put before the Registrar, but it does update the income and expenditure of Mr Sengos. His income is declared to be $1,384 per week and his domestic outgoings at $800 per week. 8. Mr Sengos states in an affidavit sworn today that it is his intention to pay $50,000 to the plaintiff by 2 March 2020 and then to make monthly instalment payments after that day of $4,977.91 from 16 March 2020 up until 16 August 2021. 9. Mr Sengos has included an amortisation schedule in his evidence which shows that the judgment debt of $132,990.54 plus interest of $1,998.05 (therefore totalling $134,988.59) could, by making payments up to August 2021, some 18 months hence, be fully paid off on the instalment arrangement he proposes. He has annexed evidence of a loan obtained from Crafe Loans Pty Limited ("the Crafe loan") to provide sufficient moneys to pay this amount off in accordance with his proposal. 10. The Crafe loan has been negotiated at an interest rate of what appears to be about 13%. Mr Sengos secures repayment of the loan to Crafe over real property he owns. Mr Sengos says his exit strategy for the Crafe loan is to on-sell one of his investment properties, or to refinance, depending upon his income at the time. He also says that in the event that the Court does not grant the orders in the motion, that he will consider entering into voluntary bankruptcy and/or selling his properties. He acknowledges, what seems to be obvious from his statement of assets and liabilities, that his assets are not liquid, but are in the form of real property and that it will take some time for either himself or a Trustee in Bankruptcy to realise this property. He declares that there is "likely to be no leftover sale proceeds after payment of the secured creditors, such as the bank". That may be right, or it may be wrong. It is rather difficult to know from his statement of assets and liabilities. 11. As earlier indicated, from his statement of liabilities, it is not clear whether these "other loans" are secured or not. Although there is a fair probability that the other loans are secured. 12. The respondent on the motion, the plaintiff in the proceedings, Mr Badger, opposes the grant of an instalment order and has put on evidence of negotiations which, over objection, the Court has admitted under Evidence Act 1995, s 131(2)(g). This evidence is to the effect that Mr Sengos has offered to pay the sum of $152,000 within 28 days of today, to satisfy the judgment debt. It is not clear from the evidence how Mr Sengos would fund the early payment of this sum. It certainly could not be funded by the Crafe loan. 13. Mr Sengos submits that the Court should, on this review, now make an installment order. Mr Badger opposes that course. The applicable law may be shortly stated. The latest concise summary of authority concerning the task before the Court under UCPR, r 37.4 is Barrett J's decision in In the matter of Australian Institute of Fitness (VIC & TAS) [2016] NSWSC 1143 ("AIF"). There his Honour said (at [7] – [13]): "[7] The rules do not prescribe matters to which the court is to have regard in cases where an instalment order is sought. In Hellier Capital Pty Ltd v Albarran [2009] NSWSC 403, however, McDougall J identified a number of criteria as relevant to the case before him. He drew these in part from comparable legislation elsewhere and in part from his own assessment of the nature of the case. [8] The criteria thus identified by McDougall J (at [7]) included the following: (a) whether the judgment debtor is employed; (b) the means the judgment debtor has to satisfy the judgment; (c) whether the instalments sought will see the judgment debt paid within a reasonable time; (d) the necessary living expenses of the judgment debtor and dependants; (e) other liabilities of the judgment debtor; (f) whether, having regard to the availability of other enforcement means, making the order would be consistent with the public interest in enforcing money orders efficiently and expeditiously; and (g) whether the order will impose unreasonable hardship on the judgment creditor. [9] In addition, McDougall J pointed out (at [8]) that an instalment order ought not to be made if the judgment debtor's means are sufficient to allow payment of the judgment immediately and in full; or conversely (at [9]), if the means are so deficient that the instalments could not be met and the making of the order would be futile. [10] An important point made by Mukhtar AsJ in Davidson v Greedy [2012] VSC 202 is that provisions of this kind exist to enable judgment creditors to obtain the fruits of their judgments. The purpose is not to curtail the rights available at law to obtain satisfaction of a judgment but, rather, to add a method that may be more suited to the particular circumstances than levying of execution and other processes by which the whole sum is sought to be recouped at once. [11] While an instalment order obviously mitigates the severity of the situation in which the judgment debtor is placed, that is not the real issue. The principal concern, as I say, is to discover whether an instalment arrangement will be more conducive to the judgment creditor's achieving payment in full in a reasonable time. The issue is thus not one of indulgence to the judgment debtor because the judgment debtor somehow deserves an indulgence. The issue is whether indulgence to the judgment debtor will enhance the prospects of full recovery by the judgment creditor. [12] In the Hellier Capital Pty Ltd v Albarran above (at [19]), McDougall J referred to the "public interest in enabling parties who have litigated their disputes to enforce the victory that they have achieved". His Honour continued (also at [19]: "That public interest arises, at least in part, because the system of adjudication through courts depends firstly on acceptance of the outcome (if necessary, after exhausting all available avenues of appeal) and, secondly, the ability to enforce the outcome. If the process of adjudication is to survive, so that people do not resort to self-help, the courts should be slow to interfere in the normal processes of enforcement." [13] Considerations of this kind led Einstein J to observe in Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1054 (at [15]) that some "particularly special circumstance would have to be shown to deny a party to major commercial litigation, its entitlement to enforce a court order". A requirement framed in terms of a "particularly special circumstance" may tend to overstate the position, but there can, to my mind, be no doubt that the judgment creditor's position regarding immediate enforcement should not be disturbed without some good reason going to enhancing the prospects of ultimate payment in full." 1. AIF and the authorities cited by Barrett J are particularly helpful. UCPR, r 37.4(4), which confers the power to determine an objection against the making of an instalment order, itself gives no guidance as to the relevant considerations that the Court should address when either determining an application for an instalment order under sub rule (3), or determining an objection to instalment order under sub rule (4). The Court is now in the same position that the Registrar was in and can apply UCPR, r 37.4 itself. 2. This matter has been brought in the Duty List and the Court is determining the matter immediately on the basis that all parties need to know where they stand as soon as possible. The alternative to the Court determining the application today is that there will be a temporary stay upon the judgment, pending determination of the review: see UCPR, r 37.5. 3. The Court has been much assisted by the arguments of counsel. In substance, Mr Sengos, argues, through his counsel Mr M. Forgacs, that it is quite evident that Mr Sengos does not have sufficient liquid assets now to pay the judgment debt and that the obtaining of the loan and its provision to the respondent, Mr Badger, through the Crafe loan structure, holds out the best prospects of payment of the judgment debt. He submits that, particularly upon the assumption that the "other loans" are secured loans, that there will be very little available for unsecured creditors such as Mr Badger upon his bankruptcy and that this case falls right within the objectives stated by Barrett J in AIF, at [11]. The principle concerned is to discover "whether an instalment arrangement will be more conducive to the judgment creditors achieving payment in full in a reasonable time". 4. There is no strict onus in a case like this. The judgment to be made is a discretionary one but the Court must be satisfied that the discretion should be exercised. And as Barrett J observed in AIF, at [25], a practical burden lies upon an applicant such as Mr Sengos. 5. But the Court has reason to doubt that the making of an instalment order would hold out the best prospects of payment, as has been submitted on behalf of Mr Sengos, for several reasons. First, the fact that an offer of $152,000 payable within 28 days has already been made is a basis to infer that there is some capacity, apart from the Crafe loan, for Mr Sengos to pay the judgment debt. To make an offer such as that which has been made, brings with it at least an implied representation that there is a capacity to fund the offer. 6. Secondly, the evidence to suggest that, on bankruptcy, little will be available to creditors, is relatively thin. The statement of assets and liabilities is, as Mr J.K. Raftery on behalf of Mr Badger points out, not supported by any more detailed evidence annexing valuations, property title details, or evidence of loans to Mr Sengos being secured or unsecured. The statement is a bare skeleton. It is not a particularly satisfactory way to show a compelling financial position of an individual, such as Mr Sengos. So it is not a sound basis on which the Court can infer that bankruptcy will be a disaster for any recovery on this judgment. 7. Thirdly, there is some other evidence that there may be capacity for Mr Sengos to pay out the judgment debt, even though it is only indirect evidence. He says in paragraph 17 of his recent affidavit: "In the event the Court does not grant the orders in the motion, I will consider entering into voluntary bankruptcy and/or selling my properties." 1. He declares he believes there will be no leftover sale proceeds. But the Court has already dealt with its doubts about that issue. A strategy of selling properties to try and deal with his debts, is one that he raises himself, to explain his exit strategy for the Crafe loan (in paragraph 15), "My exit strategy for the loan is to sell one of my properties or refinance, depending on my income at the time". This suggests he may have other financial capacity. 2. Fourthly, Mr Sengos' argument invites the assumption that he is not at risk of going bankrupt within the next 18 months or during the relation back period after that. That assumption is questionable, in part, because the present judgment debt does not cover the costs of the proceedings, which have been ordered already against Mr Sengos. In the Court's general experience, the costs of a three day hearing in the Supreme Court in a semi-commercial matter in this division are unlikely to be much less than $80,000 to $100,000. Therefore, it can be anticipated that some time within the next 12 months or so, Mr Sengos will be facing another significant judgment liability to this plaintiff. His other contingent liabilities are unknown. But this scenario does not make it safe for the Court to assume that the cash flow over 18 months that would come to Mr Badger from this loan instalment arrangement, be more likely to lead to satisfaction of the judgment debt, than now refusing the instalment order. The risk of bankruptcy must be accepted on either scenario. 3. For these reasons, the Court will dismiss the application, with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 February 2020