Papoutsakis v Scanlon

1. [1]

   The proceedings were commenced with the filing of a statement of claim on 9 November 2023. There are five defendants.

2. [2]

   Two of the defendants (the fourth and fifth) filed a defence on 22 December 2023. The same two defendants (the applicants) filed a notice of motion on 28 March 2024 in which they request that the proceedings be summarily dismissed against them or, alternatively, that the statement of claim against them be struck out.

3. [3]

   The applicants, rely on an affidavit of their solicitor, Mr Malcolm Cameron, dated 28 March 2024. Mr Cameron refers to both applicants being employed at “all material times” by a legal firm called Dentons. There is an affidavit from Mr Papoutsakis (the respondent) dated 23 February 2024 which precedes the filing of the motion and is said to be an affidavit verifying the statement of claim.

4. [4]

   The respondent is self-represented, a fact which is reflected in the style of the statement of claim and his written submissions. Nevertheless, drawing upon the written submissions in the motion, the respondent’s claim, and the general background, seems to be as follows:

   1. (1)

      in 2016 the respondent endeavoured to obtain a loan, on behalf of his company Papou Pty Ltd, of $500,000 from Prime Capital Securities, the second defendant. The first defendant was a director of the second defendant;

   2. (2)

      the respondent used a finance broker (MBA Finance) to negotiate the loan. The third defendant, Mr Tsiakis, is the principal of MBA Finance;

   3. (3)

      the original intent was for a property in Sandy Bay in Tasmania to be used as security for the loan. The property was then unencumbered and worth more than the amount of the loan;

   4. (4)

      in August 2016, the third defendant showed the respondent a copy of the loan application. It not only listed the Sandy Bay property as security but also three other properties;

   5. (5)

      the inclusion of the extra properties led to an argument between the respondent and the third defendant which seems to have been resolved by the respondent being requested to delete the reference to the three extra properties and an assertion by the third defendant that the final loan application form would not include the extra properties;

   6. (6)

      the respondent did delete the three extra properties but when the “formal documents” came to be signed in August 2016 at the offices of Simmons Wolfhagen Lawyers, the three extra properties were still included as securities. The respondent told the solicitors to send the documents back to the solicitors for the second defendant. The pursuit of the loan did not proceed;

   7. (7)

      on 30 March 2017, the respondent received an invoice for $26,606.63 from the second defendant purporting to be the fees owing to it in respect of the application for the loan. The $26,606.63 is made up of an application fee of $2200, a “discount Establishment Fee” of $11,000, liquidated damages of $4,979.17, disbursements of $8,008.68 and the addition of GST;

   8. (8)

      the respondent’s liability for the fees was said to arise from a guarantee signed by the respondent in respect of monies owed by Papou Pty Ltd. The respondent did not pay, leading to the first defendant sending him a letter of demand and then suing in the Local Court in Sydney;

   9. (9)

      the respondent took no part in the proceedings, neither entering an appearance nor filing a defence. He says he left the Local Court proceedings to the third defendant who also appears to have done nothing about them. Accordingly, default judgment was entered against the respondent on 24 July 2017. The respondent did not satisfy the judgment so that on 28 February 2018, the second defendant presented a creditor’s petition in the Federal Circuit Court of Australia. On 21 May 2018, a registrar in the Federal Circuit Court made a sequestration order against the respondent’s estate. This date is the start of his bankruptcy;

   10. (10)

       the respondent tried to have his bankruptcy annulled but this was refused by Cameron J in the Federal Circuit Court in July 2021. In March 2023 Halley J, in the Federal Court, dismissed an application by the respondent for an extension of time to appeal from the decision of Cameron J; and

   11. (11)

       the respondent remains an undischarged bankrupt, notwithstanding that more than three years have elapsed since the sequestration order.

Standing to bring the proceedings

1. [5]

   The first point made by the applicants is that the respondent has no standing to bring the action because he is an undischarged bankrupt. The general approach to be taken was set out by Kunc J in Singh v Harrowell [2023] NSWSC 420, from [84].

2. [6]

   The respondent did not contest the general approach described in Singh but said he fell within the exception provided by s 116(2)(g) of the Bankruptcy Act 1962 (Cth). This subsection exempts actions for personal injury.

3. [7]

   The respondent makes this important statement in his written submissions, at [4]:

4. [8]

   The applicants, in turn, say that while personal injury may be claimed, it must be personal injury that is consequent upon the financial loss suffered by the respondent. I was referred to this passage from Samootin v Shea [2010] NSWCA 371 at [79]:

5. [9]

   The statement of claim can be difficult to understand. However, it does set out the respondent’s allegations about the conduct of the defendants all of which ultimately led to the bankruptcy of the plaintiff. The statement of claim then says, at [19]:

6. [10]

   I note here that the respondent did describe actual personal injury, extending from mental stress to a heart condition which has required him to have stents inserted. The respondent said that he had been advised to undergo bypass surgery, but he had refused to do so because of his dislike for doctors. He also said that he had lost all of his teeth due to the stress.

7. [11]

   I was concerned during discussion with the respondent to ascertain the origin of his personal injury. I am satisfied that his assertion is that it emanates from his bankruptcy. This exchange occurred:

8. [12]

   It is important to repeat that the respondent did nothing about the action against him in the Local Court. That would have been the time for him to raise many of the issues he now raises. However, for present purposes the fact is that at the Local Court stage there is no suggestion of any distress on his part. He seems to have left the matter, perhaps strangely, to his broker and there is no evidence of ill-health occurring before the bankruptcy.

9. [13]

   Although I have commented critically about the haste with which Dentons was retained to chase the debt, there is a reasonably lengthy period of about six months between the default judgment being obtained and the creditor’s petition being presented, during which time the respondent could have paid the debt or at least attempted to set aside the default judgment against him.

10. [14]

    If I were to assume that wrongdoing on the part of the applicants (or any one of them) caused the bankruptcy of the respondent, I think it is clear that it was the bankruptcy that caused the physical and mental injury to the respondent. Applying the test in Samootin, the right to sue has passed to the trustee in bankruptcy. Another way of looking at the test is that there is a readily identifiable intervening act between the wrongdoing and the personal injury, that act being the rendering of the respondent as a bankrupt.

11. [15]

    The respondent drew my attention to a number of personal injury cases which he says assisted his cause. To the extent that I have been able to identify the authorities he was referring to, they do not help him.

12. [16]

    Moss v Eaglestone [2011] NSWCA 404 is probably the case referred to by the respondent as “Williams v Mod 2011”. It does have some relevance to the extent that it involves s 116(2)(g) of the Bankruptcy Act. The Court of Appeal found that s 116(2)(g) applied to an action for defamation which was an action in respect of a personal injury “and the fruits of any such action would not form part of the property divisible amongst the creditors of the bankrupt.” Allsop P (as his Honour then was) said at [68]:

13. [17]

    His Honour then said, at [77]:

14. [18]

    The distinction here is that the complaint against the applicants is that their negligence, through a train of events, ultimately caused the bankruptcy of the respondent. It was only then, that the bankruptcy led to the personal injury. This case is more akin, I think, to Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100 where Campbell J referred to both Moss and Samootin. His Honour said, at [32] and [33]:

15. [19]

    Another case referred to by the respondent was Walker v Baker [1998] NSWCA 251. This was a personal injury case arising from an injury to a pedestrian struck by a motor vehicle. It has no relevance to the present case.

16. [20]

    The third case I have been able to identify from the respondent’s list is Smith v Manchester Corporation 17 KIR 1, a decision of the Court of Appeal of England and Wales. It concerns an injury to a domestic worker and the assessment of future earnings. Again, I can see no relevance to the respondent’s case.

17. [21]

    My conclusion is that s 116(2)(g) does not provide an exception to enable the plaintiff to pursue his action against the applicants. This is enough to entitle the applicants to succeed on the motion. There are however other reasons advanced as to why the motion should succeed.

The applicants did not owe the respondent a duty of care

1. [22]

   The applicants were solicitors retained by the first defendant. They never, at any stage in the history of the matter, acted on behalf of the respondent. I specifically asked learned counsel for the applicants what the involvement of the applicants had been. I was told that they had first become involved when retained to represent the second defendant in the Local Court. This answer is consistent with the affidavit of Mr Cameron who, from [6], says that Dentons was retained by the second defendant on 31 March 2017 in order to enforce the invoice that had been issued to the respondent.

2. [23]

   The invoice (Exhibit B) is dated 30 March 2017 and bears a due date for payment of 6 April 2017. I find it most unusual that solicitors would be retained on the day after the invoice was issued and before the due date for payment. Nevertheless, that is what occurred, and it was a decision made by the second defendant, not by the applicants.

3. [24]

   In his written submissions, adopting the paragraph numbers therein, the plaintiff makes the following specific allegations against the applicants:

4. [25]

   The above allegations all depend upon there being some obligation on the part of the applicants to have acted in the interest of the respondent. Put another way, they assume a duty of care owed by the applicants to the respondent.

5. [26]

   In discussion with the respondent, it became clear that his main complaint about the applicants was that they had failed to verify the accuracy of the documents that had been prepared for the loan application. An immediate answer to this allegation would be that the applicants had not been involved with the preparation of the documents and in fact did not become involved until the invoice of 30 March 2017 was sent to the respondent and then they were retained the following day.

6. [27]

   In Hill v Van Erp (1997) 188 CLR 159; [1997] HCA 9 at [6], Brennan CJ quoted from White v Jones [1995] 2 AC 207:

7. [28]

   Then, at [13], Brennan CJ said:

8. [29]

   In particular, bearing in mind that the applicants were apparently retained at some time after the loan documents were prepared, and were in an adversarial position to the respondent, there could be no suggestion of any obligation, or duty, on their part to have conducted any verification of the contents of the loan application.

9. [30]

   However the respondent was adamant that the applicants had in fact been involved in the document preparation. He particularly referred to the General Security Deed which appears at page 82 of Exhibit A. When it was pointed out to him that the second defendant appears to have then been represented by Gadens (Lawyers) he responded that Dentons had previously been called Gadens and that the applicants had worked at Gadens.

10. [31]

    This information is contrary to the information provided by Mr Cameron in his affidavit which suggests, as I have said above, that the applicants only became involved at Dentons from 31 March 2017. I asked the applicants’ legal representatives to check the respondent’s assertion about an earlier involvement by the applicants. It is important to note that the applicants are sued individually and not in the guise of Dentons. Therefore, if they had been involved before 31 March 2017 it would not matter whether they were associated with Dentons or Gadens.

11. [32]

    Following inquiries, I was informed that Gadens had changed its name to Dentons in December 2016 and that one of the applicants (the fifth defendant) had worked at Gadens. The other applicant (the fourth defendant), I was informed, had joined Dentons as a ‘paralegal’ in May 2017 and could not have had any involvement with the matter at Gadens.

12. [33]

    The fifth defendant’s association with Gadens at the time the documents were prepared should have been included in Mr Cameron’s affidavit. Clearly the second defendant was a long-standing client of the firm whether called Gadens or Dentons.

13. [34]

    Notwithstanding the lack of disclosure, there is no evidence that links the preparation of documents to the fifth defendant. I was specifically informed that the fifth defendant had not had any involvement in the preparation of the documents.

14. [35]

    Therefore, even if the failure to verify the accuracy of the documents could conceivably have given rise to a duty of care to the plaintiff, which I do not think is the case, there is no evidence to suggest that the fifth defendant had ever worked on the documents.

15. [36]

    Further, there is no suggestion that any time the respondent looked to the applicants for advice or for any other assistance. The respondent had himself noticed the error in respect of the extra securities. He took the deliberate action of not proceeding with the loan because he was aware that the loan documents were incorrect. One wonders what more he expected from the solicitors who prepared the documents. I also note that the plaintiff actually had his own solicitors, Simmons Wolfhagen Lawyers, acting for him when the loan documents were to be executed. Precisely what their involvement was is difficult to ascertain, but nevertheless they did seem to have been retained by the respondent when he came to execute the documents.

16. [37]

    In conclusion on this point, I am of the view that the applicants never owed the respondent a duty of care. He therefore has no cause of action against them.

A possible allegation of deceit

1. [38]

   The applicants have pointed out that the allegations made against them could constitute the tort of deceit. Applying the test set out in Magill v Magill (2006) 226 CLR 551; [2006] HCA 51, it is apparent that such an allegation could not succeed. The test was stated as follows, at [114]:

2. [39]

   The investigation of the five elements can be terminated swiftly. No representations, false or otherwise, has been identified on behalf of the applicants.

Abuse of process

1. [40]

   Another point made by the applicants was that allowing the matter to proceed would amount to an abuse of process because a primary issue that would need to be proved by the respondent had already been dealt with in both the Federal Circuit Court (by Cameron J) and in the Federal Court (by Halley J).

2. [41]

   The primary issue concerns the asserted falsification of documents by the defendants. It can be seen from the decision of Cameron J that his Honour specifically dealt with the two versions of the loan documents that were before the court. There is the one propounded by the respondent and the separate document put forward by the trustee in bankruptcy. Cameron J identified the differences in the documents, pointing out that in the document put forward by the trustee “the sums stated to be secured by three of the properties referred to in the document had been crossed out and some names or signatures inserted in the section above that list of properties.” His Honour specifically found:

3. [42]

   This issue was also considered by Halley J who concluded, at [63]:

4. [43]

   The applicants submitted that to allow this issue to remain alive would be an abuse of process because “re-litigation of the falsification question would be inconsistent with the principle of finality and undermine public confidence in the administration of justice.” I agree, the falsification issue has been comprehensively dealt with, it should not be permitted to be re-agitated yet again.

5. [44]

   I note here, in connection with the decision of Halley J, that at [65] of his Honours reasons he refers to the respondent’s legal representatives having allegedly acted negligently. This again raises the point made above about the involvement of the respondent’s solicitors (Simmons Wolfhagen) who would have been the appropriate persons to check the documents rather than the second defendant’s solicitors.

6. [45]

   I have come to the conclusion therefore that the respondent has no standing (the bankruptcy issue) to bring the proceedings against the applicants and that, in any event, there are other reasons for not permitting the litigation to continue.

7. [46]

   A proceeding should not be summarily dismissed under r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) unless it is “so obviously untenable that it cannot possibly succeed”. This is the test stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 at [8]. The Court of Appeal in West Australia summarised the test in this way in Ogbonna v Qantas Airways Limited [2019] WASCA 146 at [51].

8. [47]

   I have referred to the Western Australian case because leave to appeal was recently refused by the High Court (Ogbonna v Qantas Airways Limited & Anor [2024] HCASL 122)

Conclusion

1. [48]

   Whether because of the lack of standing or the lack of a viable cause of action or the likelihood of the proceedings amounting to an abuse of process, I think the proceedings are untenable and “there is no real question to be tried”. Consequently I will make the orders sought by the applicants.

2. [49]

   I make the following orders:

   1. (1)

      The proceedings are summarily dismissed against the fourth and fifth defendants.

   2. (2)

      The plaintiff is to pay the fourth and fifth defendants’ costs of the notice of motion filed on 28 March 2024.