Sebie v Pham

By Notice of Motion filed on 12 May 2021, the applicants Mr Robert Sebie and ENA Development Pty Ltd (“ENA”) [1] seek, pending the hearing of their summons for leave to appeal filed on the same day, a stay of certain orders made by Sackar J in the Equity Division on 18 March 2021 and 30 April 2021, for payment out of Court to the respondents Mr and Mrs Pham, from funds in Court to which Mr Sebie is prima facie entitled, of amounts in satisfaction of costs liabilities of Mr Sebie to the Phams under various earlier orders of the Equity Division. A stay is also sought of certain orders made by the Registrar on 24 December 2020, quantifying costs liabilities of ENA to the Phams.

Some account, albeit an abbreviated and imprecise one, of the lengthy and complicated history of these proceedings is required. Because of the complexity of the history of the proceedings, and the commentary (in several judgments as well as in submissions) adverse to Mr Sebie’s credit and suggestive that he has been consistently obstructive and deceptive, I have been more concerned to scrutinise the merits and evaluate the prospects of success of any potential appeal before being prepared to grant a stay than would usually be the case on a stay application.

Mr Sebie was the vendor and the respondents Mr and Mrs Pham were the purchasers of land at Chiswick under a contract for sale of land dated 29 October 2014. Mr Sebie failed to complete the contract, and transferred the property to Enterprise ICT Pty Ltd (“Enterprise ICT”), a company with which he was associated. Various other parties had lodged encumbrances over the property, including ENA, another associated company, which claimed to have advanced the purchase money when the property was acquired in Mr Sebie’s name in 2005. On 26 April 2017, Pembroke J delivered a judgment in which his Honour made strident findings adverse to Mr Sebie’s credit, and held that the transfer to Enterprise ICT was a fraudulent conveyance and that the Phams were entitled to specific performance of the contract. [2] Subsequently, on 15 May 2017, his Honour made orders declaring the conveyance fraudulent and revesting the property in Mr Sebie, decreeing specific performance and making orders for substituted performance in the event of default in compliance by Mr Sebie, and requiring Enterprise ICT and Mr Sebie to pay the Phams’ costs of the proceedings on an indemnity basis. [3] An appeal failed. [4] A motion to deal with Mr Sebie for contempt was brought, and Enterprise ICT and Mr Sebie were ordered to pay the Phams’ costs of that motion. [5] On 30 January 2018, Slattery J made a lump sum costs order in the sum of $263,660 against Mr Sebie, in respect of his costs liability under the earlier orders both of his Honour and of Pembroke J. [6]

On 29 March 2018, Slattery J, after refusing to grant leave to Mr Sebie’s father Mr Ramzy Sebie (since deceased), a director of ENA, to appear on its behalf, and deciding that the hearing should proceed in the absence of legal representation of ENA – the barrister said to have been retained having not appeared (although it is said that he arrived after the hearing had been completed, as his Honour was leaving the bench) – dismissed ENA’s motion to file a cross claim in support of its caveat, and on the Phams’ motion made orders for the removal of ENA’s caveat. [7] His Honour also ordered ENA to pay the Phams’ costs of and incidental to their motion of 30 January 2018, and reserved the question of whether the costs ordered against ENA might also be paid by any other person. His Honour further noted the continuing operation of the orders for substituted performance.

Ultimately, the sale was completed on 2 May 2018 and the balance purchase money after discharge of the mortgage was paid into Court, and the remaining balance of that fund (from which there has been one payment out, to which reference will later be made) constitutes the fund in issue in the present proceedings.

Subsequently, Slattery J permitted ENA to file its cross claim, on the basis that the Phams could promptly apply for an order that ENA provide security for costs. [8] On 1 July 2018, ENA filed its cross claim, in which it contended that it was entitled to the net proceeds of sale of the Chiswick property held in Court. ENA claims that the property secured repayment to it of two advances made by it to Mr Sebie, comprising $1.37 million advanced in 2005 in connection with the purchase of the property in his name, and a further $504,000 advanced in 2015. On 13 July 2018, Slattery J ordered that that the proceedings on ENA’s cross-claim be stayed unless, before 4.00pm on 27 July 2018, ENA provided acceptable security for the potential costs liability of ENA to the Phams in the amount of $100,000, on account of costs to be incurred up to the commencement of the hearing of the amended cross-claim. [9] The security was not paid on time, and the cross-claim was stayed with effect from 27 July 2018.

On 20 February 2019, Slattery J determined an application by the Phams for what was characterised as enforcement of the gross sum costs order of 30 January 2018, by payment of the amount of that order to the Phams out of the funds in Court, before the resolution of other proceedings in the Family Court of Australia between Mr Sebie and his ex-wife Ms Musabwasoni. [10] His Honour observed:

His Honour considered that the Phams claim would have priority over any matrimonial claim of the ex-wife. His Honour referred to authority which had held that, in the ordinary course, the Family Court in adjusting property interests between spouses under (CTH) Family Law Act 1975, s 79, did not interfere with the rights of third party creditors of either spouse. (His Honour may not have been referred to subsequent amendments to the Family Law Act, introducing Part VIIIAA into that Act, enabling the Family Court to make orders adverse to the interests of third party creditors; but there is no suggestion that Ms Musabwasoni has invoked Part VIIIAA). His Honour ordered that on or after 27 March 2019, there may be paid out of Court to the Phams the sum of $263,660 (exclusive of interest) from the funds in Court in the name of Mr Sebie. On 25 March 2019, Leeming JA refused to stay those orders pending the hearing of an application for leave to appeal. [11] The relevant application for leave to appeal, though it does not appear specifically to have impugned the judgment of 20 February 2019, was dismissed on 17 July 2019. [12]

Meanwhile, on 29 March 2019, ENA paid into Court the $100,000 security for costs of its cross-claim dated 1 July 2018, which had been ordered by Slattery J on 13 July 2018, and by further amended notice of motion dated 26 June 2019, sought an order that the Court lift the stay on that cross claim, which had been in place since 27 July 2018.

The immediate history commences with a judgment delivered by Sackar J on 19 August 2020, [13] in which his Honour determined to make lump sum costs orders in favour of the Phams against ENA in relation to three previous costs orders against it and against Mr Sebie in relation to nine previous costs orders against him, and to order interest on costs pursuant to s 101(4) of the (NSW) Civil Procedure Act 2005. The costs orders encompassed by the gross sum orders (“the underlying costs orders”) were, in respect of ENA:

The underlying costs orders imposing costs liabilities on Mr Sebie in respect of which his Honour determined to make gross sum orders were:

So far as I have been able to ascertain, there is no extant appeal against any of the underlying costs orders; at least, none was mentioned in the course of the hearing, and no such orders have been identified as a relevant decision in the present summons for leave to appeal.

Sackar J expressed the view that in principle the stay on ENA’s cross claim should be lifted, in respect of which his Honour said: [14]

Subsequently, on 30 November 2020, his Honour referred the matter to the Registrar for hearing and determination of what orders should be made to give effect to, and consequential upon, the 20 August 2020 judgment. In substance, that meant the quantification of the lump sum orders, and determination of what if any conditions should apply to the lifting of the stay. Pursuant to that referral, on 24 December 2020, the Registrar made orders:

So far as I have been able to ascertain, no application to review the Registrar’s decision was ever made, although the present summons for leave to appeal appears to seek leave to appeal from them.

On 18 March 2021, Sackar J made orders relevantly to the effect that:

On 13 April 2021, Sackar J varied the orders made on 18 March 2021 in a number of respects, relevantly by:

On 30 April 2021, Sackar J made orders including relevantly to the effect that:

Thus there was a stay until 20 May 2021 of the following orders authorising payments out of the fund to the Phams in respect of Mr Sebie’s costs liabilities to them (“the payment out orders”):

The present motion seeks, in substance, an extension of that stay of the payment out orders pending the hearing of the application for leave to appeal, [15] and also a stay of orders 3 and 4 made by the Registrar on 24 December 2020 quantifying the lump sums payable by ENA in respect of its costs liabilities and interest.

The motion was first referred by the Registrar to me for hearing on Monday 17 May 2021. In the course of argument that day, Mr Sebie, who appears for himself (but was also granted leave, on 20 May 2021, to appear for ENA on that day only), indicated that he sought an adjournment to Thursday 20 May 2021 (when the stay would, if not extended, expire) to enable him more fully to prepare and argue the application. As the Court was able to accommodate a hearing on 20 May, and as no prejudice would be occasioned to the respondents by such an adjournment as the stay was already extended to that day, the hearing was adjourned. The resumed hearing occupied most of that day, and it was impracticable to deliver a judgment immediately, so I extended the stay contained in paras 8 and 9 of the orders made by Sackar J on 30 April 2021 until and including 31 May, by when judgment would be delivered.

No white folder was filed with the summons for leave to appeal. Although one was ultimately filed before the adjourned hearing of the motion, it does not contain a draft notice of appeal. However, it does contain a summary of argument, the focus of which is the 29 March 2018 judgment of Slattery J. In substance, the complaint is that Mr Ramzy Sebie was denied procedural fairness; it is not necessary for present purposes to elaborate the basis for that contention. However, the 29 March 2018 judgment did not include any costs order against Mr Sebie personally, though it did include a costs order against ENA, and it contemplated a possible order in the future visiting personal liability on Mr Sebie.

The summons for leave to appeal itself specifies as the material date 29 March 2021, but this appears to be a typographical error, the apparent intention being to refer to 29 March 2018, on which date Slattery J made the orders about which Mr Sebie chiefly complains. The summons also identifies as the relevant dates of hearing 27 February 2020, 18 August 2020, and 24 December 2020, and 13 and 28 April 2021, before Sackar J; and 26 March 2018 before Slattery J. The relief sought in the summons is, in substance:

Thus the summons does not impugn, at least directly or explicitly, any of the nine underlying costs orders, referred to in [11] above, which impose a costs liability on Mr Sebie, though it does impugn the first (29 March 2018) of the three underlying costs orders, referred to in [10] above, which imposes a costs liability on ENA. While it purports to impugn the lump sum quantification orders made by the Registrar on 24 December 2020, it does not impugn the orders that underlie the lump sum orders, save in respect of the order made against ENA on 29 March 2018, and that costs liability of ENA to the Phams is not the subject of an extant payment out order (as a result of the vacation on 13 April 2021 of orders 1 and 2(a) of 18 March 2021 relating to payment of the costs and interest to which the Phams were entitled from ENA out of the fund). Accordingly, there is no apparent challenge to any of the underlying costs orders imposing a costs liability on Mr Sebie to which the payment out orders relate.

Thus, insofar as leave to appeal is sought, many years out of time, from the 29 March 2018 judgment of Slattery J, it is not apparent how an appeal against the that judgment would vitiate any costs liability which underlies the payment out orders. Moreover, there was an application for leave to appeal from that judgment, by Mr Ramzy Sebie, which was dismissed on 17 July 2019, including on the basis that it was (even then) well out of time, having been filed more than fifteen months after Slattery J’s decision. [16] Mr Sebie represented Mr Ramzy Sebie at the hearing of that application. Further, the rights of third parties have intervened with the sale of the Chiswick property and the discharge of the mortgage. The prospects of Mr Sebie now being granted leave to appeal, on a second application for leave to appeal from Slattery J’s judgment, are extremely remote.

Insofar as leave to appeal is sought, out of time, from the 24 December 2020 orders made by the Registrar, they do not themselves authorise payment from the fund. Not only are they orders with respect only to costs, but they merely quantify pre-existing costs liabilities, and the underlying costs order which they quantify are not themselves the subject of an appeal, save for the first order in respect of ENA, which arises under the 29 March 2018 judgment of Slattery J, as to which I have just indicated that a second application for leave to appeal has insufficient prospects of success to warrant a stay. No reasonably arguable basis for supposing that the Registrar erred in a material way in quantifying the lumps sums or allowing interest has been demonstrated; nor has any reasonable explanation been advanced for not making a timely application to review the Registrar’s decision. No sufficient prospects of a successful appeal from those orders, or any order which underlies them, have been demonstrated such as to warrant a stay.

Reference was made to the fact that a creditor’s statutory demand had been served on ENA in respect of its liabilities under those orders. There is evidence that the demand was not complied with, and that winding up proceedings have been commenced. First, the liability arises under earlier orders, and is merely quantified by the 24 December 2020 orders. Secondly, as there has apparently already been non-compliance with the demand, a stay would serve no purpose. It will be a matter for the Corporations Judge to consider whether the winding up summons should be adjourned to permit ENA to continue to prosecute its cross-claim.

However, the essential issue on the present motion is whether the payment out orders made by Sackar J should be stayed. That in turn directs attention to whether there is a reasonably arguable case of error in respect of those orders. Sackar J’s reasons for those orders were contained in a judgment given on 16 March 2021 and in substance were as follows. [17] His Honour observed that the submissions that the Phams should be paid out of the fund were based on a number of arguments “which go partly to the strength or weakness of ENA’s cross-claim in proceedings in respect of which it has provided security. That cross-claim is to be determined in the future and it will determine, in part at least, who owns the money which is currently in court”. His Honour described the Phams as “the meat in the sandwich” in the litigation, and explained that it was important from their point of view to have some final resolution and if possible to be removed from the proceedings, and that payment out would facilitate that. The contrary argument was that the priorities were yet to be determined. His Honour took into account, as a matter of discretion, Pembroke J’s adverse credit findings concerning Mr Sebie, while noting that they would not be binding on a judge hearing ENA’s cross-claim. [18] The decisive consideration appears to have been: [19]

At first, I was concerned whether it was permissible to order payment out of Court, from a fund paid into Court in the circumstances in which this fund was, of amounts to an unsecured judgment creditor (as the Phams are, in respect of the costs orders made in their favour). This fund was not paid into Court as security for costs, but as the purchase money for the property of which Mr Sebie was the vendor. While it is undoubted that a judgment creditor may obtain a stop order against funds of the judgment debtor in Court, [20] it was not clear that that entitled the judgment creditor to an order for payment out of Court of the funds. At least in this State, the rules do not expressly so provide, although such provision is made in some jurisdictions. [21]

Historically, the proper approach appears to have been that, even if the rules did not specifically authorise it, the judgment creditor of a party entitled to funds in Court could apply for a charging order and the appointment of a receiver to obtain access to those funds. [22] That this was the case in this state is reflected in AG Nevill & AW Ashe, Equity Proceedings with Precedents (New South Wales) (Butterworths, 1981), Precedent 24(9), which provides for a charging order accompanying a stop order. [23]

However, courts became increasingly pragmatic about this, so that in Brereton v Edwards [24] the English Court of Appeal unanimously held that a judgment creditor (whether the judgment was in equity or at common law) was entitled to be paid from funds held in Court, on the basis that any judge of the High Court (that is, of any Division) had power, at the instance of a judgment creditor, to make an effectual order charging the judgment debt upon a sum of money standing to the credit of the judgment debtor in the Chancery Division, and that the appointment of a receiver was an unnecessary technicality. Lord Esher MR said: [25]

Lindley LJ said: [26]

Bowen LJ said: [27]

As to appointment of a receiver, Lord Esher MR said: [28]

Bowen LJ said: [29]

A similar approach was taken in this State in Church v Arnold, the short report of which suggests that AH Simpson CJ in Eq declined to distinguish Brereton v Edwards on the basis that it was a result of the judicature system, which did not then apply in New South Wales. [30] On the authority of Brereton v Edwards, Underwood CJ in Falcone v Mentyn (No 2) held that a judgment creditor was entitled to a charging order over funds in Court as a form of equitable execution, even though there was no statutory authority for it. [31] In Re Commonwealth Bank of Australia, Young CJ in Eq said: [32]

These cases were applied by Walton J in TAFE Commission v Cordoba to make an order for payment out of Court of funds in Court to which its judgment debtor was entitled, in satisfaction of a judgment debt. [33] And in Aquatic Air Pty Ltd v Siewert (No 2), [34] albeit without reference to precedent, I took a similar approach.

I am therefore satisfied that there is power to order payment to a judgment creditor out of a fund in Court to which the judgment debtor is entitled.

However, Mr Sebie’s principal argument was in substance that in circumstances where entitlement to the fund in Court has not been resolved – there being, at least, a claim on it by ENA – it was premature to order payment out, which might be to the detriment of ENA.

Funds in Court can be paid out only under the authority of the rules or by order of the Court. [35] It is well established that entitlement to funds in Court must be strictly proved. As explained in Aquatic Air Pty Ltd v Siewert (No 3): [36]

As Lindsay J said in JKB Holdings Pty Ltd v De La Vega: [37]

For those reasons, it is not the practice to authorise payments out of Court on a discretionary interlocutory basis (save so far as concerns any part of the fund as is not in dispute, and in such a case the payment out is neither discretionary nor interlocutory but on a final basis to that extent).

Mr Sebie referred to documentary evidence which prima facie shows a good arguable claim by ENA to the fund, arising from it having advanced the purchase money, and holding security for it. I recognise that there is a dispute as to the authenticity of this transaction, including as to the date that appears on the duty stamp affixed to the Secured Loan Agreement; [38] but even so, there is other documentary evidence, including cheques, which appears to show that ENA provided the purchase money when the property was acquired in the name of Mr Sebie. While acknowledging that whether ENA has a claim is controversial, it cannot be said that there is not a substantial argument that it has. Sackar J acknowledged, in the August 2020 judgment, that there was no argument that the cross-claim was unarguable. [39]

In those circumstances, there seems to me a strongly arguable ground of appeal that Sackar J erred in making the payment out orders, when there was an apparently arguable superior claim to the fund that remained outstanding and unresolved, security for costs for its prosecution had been provided, and it was no longer stayed, to which the desirability of removing the Phams from the proceedings was no answer.

Mr Zipser argued that the Phams had a set-off against the funds in Court, and referred to a number of cases, of which the most apt was Sivritas v Sivritas (No 2). [40] It is unnecessary to resolve that argument; it suffices to say that it is not self-evident that orders made as to costs against Mr Sebie in favour of the Phams in the course of this litigation would give them an interest in the proceeds of sale which would take priority over any interest of ENA.

The Phams offered an undertaking not to further encumber the Chiswick property (said to be valued at $3 million and subject to a mortgage to Macquarie Bank securing $2.4 million) nor transfer it to a third party, for a period of five months; and not to transfer it to any party for a period of six months (that is, a further month) without first giving two weeks written notice to Mr Sebie and ENA. In the course of the hearing, this was extended to nine months.

The undertaking proffered does not include any offer of security, and it completely evaporates after nine months. In the event that ENA succeeds, it would be an unsecured creditor of Phams who would have to execute against their real property, in circumstances where the mortgagee would have security and priority. This would be a far inferior position to being a claimant on a fund in Court. I have not overlooked that a similar undertaking was accepted by Leeming JA in this Court as satisfactorily meeting the requirements of the balance of convenience, in respect of the payment out order made by Slattery J. [41] However, it is not clear that the argument that it was premature to distribute the fund while a potentially superior claim had not been resolved was then at the forefront of the proceedings.

Moreover, a stay of the payment out orders would not prevent the Phams from enforcing the costs orders in their favour by other means.

In those circumstances, and given my assessment of the arguability of an appeal from the payment out orders, the balance of convenience plainly favours those orders being stayed pending the hearing of the application for leave to appeal.

In the course of argument, the Court indicated that if a stay were granted, an undertaking as to damages would likely be required, and that such damages might well involve liability for interest on a compound basis in respect of the funds which would otherwise be paid out. While it was objected that an undertaking as to damages by Mr Sebie was worthless, that is answered by the fund in Court itself. As the stay was also for the benefit of ENA, as the claimant on the fund, it was indicated that an undertaking would be required from it too, and in a subsequent communication, Mr Jemmott, a director of ENA, stated that ENA was prepared to give such an undertaking. Nonetheless, the stay I propose to grant will be conditioned on a formal undertaking by Mr Sebie and ENA being filed in the registry within seven days.

Any appeal from the payment out orders would be in a relatively narrow scope, and would appropriately be heard concurrently with the application for leave.

The Court orders that: