Australian Bureau Monitoring Pty Ltd v Rufford
[2021] FedCFamC2G 141
•15 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
Australian Bureau Monitoring Pty Ltd v Rufford [2021] FedCFamC2G 141
File number(s): SYG 869 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 15 October 2021 Catchwords: BANKRUPTCY – application under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) for leave to take a step in Supreme Court proceedings against bankrupt in respect of claims made against bankrupt in that proceeding – whether claims are “provable debts” – whether the claims are based on complicated factual and legal matters – whether it is relevant that the claims made in the Supreme Court proceeding against the bankrupt substantially overlap with claims made against another defendant in that proceeding – leave granted. Legislation: Bankruptcy Act 1966 (Cth) ss 58(3), 82, 104
Federal Circuit and Family Court of Australia Act 2021 (Cth)
Cases cited: Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234
7Steel Building Solutions Pty Ltd v Wright [2011] FCA 328
Division: Division 2 General Federal Law Number of paragraphs: 18 Date of hearing: 18 August 2021 Place: Sydney Counsel for the Applicants: Mr A Di Francesco, by telephone Solicitor for the Applicants: Lighthouse Law Group The Respondent: Appeared in person, by telephone Solicitor for John Sheahan & Ian Russell Lock as Joint and Several Trustees of the Bankrupt Estate of Glenn John Rufford as interested persons: Mr O Sheahan of Sheahan Lock Partners, by telephone ORDERS
SYG 869 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF GLENN JOHN RUFFORD
BETWEEN: AUSTRALIAN BUREAU MONITORING PTY LTD
First Applicant
SURETEK PTY LTD
Second Applicant
AND: GLENN JOHN RUFFORD
Respondent
JOHN SHEAHAN & IAN RUSSELL LOCK AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF GLENN JOHN RUFFORD
Interested Persons
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
15 OCTOBER 2021
THE COURT ORDERS THAT:
1.Subject to order 2, pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) the applicants, Australian Bureau Monitoring Pty Ltd and Suretek Pty Ltd, have leave to take such further steps as they may be entitled to take against the respondent, Mr Glenn John Rufford, in proceeding No. 2019/00217125 in the Supreme Court of New South Wales.
2.The respondent has liberty to apply on such notice as the circumstances warrant to set aside order 1 if the applicants fail to prosecute the proceeding referred to in order 1 with due diligence.
3.The costs of the application are reserved.
THE COURT NOTES THAT:
4.These are orders of the Federal Circuit and Family Court of Australia (Division 2).
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
The first applicant (ABM) and the second applicant (SPL) each apply for an order under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) (Act) that it be given leave to take a fresh step in a proceeding ABM and SPL (then known as “Suretrak Global Pty Limited”[1]) commenced in the Supreme Court of New South Wales (SCNSW) initially against two defendants, one of which is the respondent, Mr Rufford. ABM and SPL each seek such order because Mr Rufford became a bankrupt after ABM and SPL commenced the SCNSW proceeding.
[1] See the affidavit of Mr G Smith 06.11.2020, [4] in exhibit MHW-2, page 3
PRINCIPLES
I begin with the text of s 58(3) of the Act, which is as follows:
Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
Subsection 58(3) applies to the enforcement of any remedy or the taking of any step “in respect of a provable debt”. The expression “provable debt” denotes the debts and liabilities specified in s 82(1) of the Act that are “provable” in a person’s bankruptcy. Subsection 82(1) of the Act provides:
Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
The balance of s 82 of the Act identifies classes of debts or liabilities that are not provable in bankruptcy. One class is the liabilities identified in s 82(2) of the Act, namely, “[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust”.
Thus, s 58(3)(b) of the Act applies to a person (creditor) who claims the bankrupt owes a debt or liability of the sort identified in s 82(1) of the Act and is not a debt or liability identified in s 82(2) or any other subsection of s 82 of the Act. When s 58(3)(b) of the Act applies, a creditor cannot, without the leave of the Court, commence a proceeding against a bankrupt to claim a debt or liability of the sort s 82(1) of the Act identifies, or, if the creditor has commenced a proceeding claiming such debt or liability against a person who has subsequently become a bankrupt, the creditor cannot take any step in the proceeding in relation to such claim.
Assuming s 58(3)(b) of the Act applies to a claim for a debt or liability of the sort identified in s 82(1) of the Act, the principles that should guide me in determining the application before me were identified by Flick J in 7Steel Building Solutions Pty Ltd v Wright:[2]
[2] 7Steel Building Solutions Pty Ltd v Wright [2011] FCA 328, at [10]-[13]
The policy behind s 58(3) has been expressed as follows by Hill J in Re Rose; Ex parte Devaban Pty Ltd (Unreported, Federal Court of Australia, Hill J, 7 October 1994) (“Re Rose”) as follows:
The obvious policy behind s 58(3) of the Act was that any proceedings in force at the time of bankruptcy should be stayed and no further proceedings should be commenced so far as they relate to the period prior to bankruptcy unless the Court gives leave. In this way the bankrupt is freed from any claims that might be made in respect to the period prior to bankruptcy and the Trustee in bankruptcy can, if the Trustee accepts the proof of debt, treat a claim against the estate like the claim of all other creditors, so that the assets of the estate are, in due course, divided pro rata among the creditors.
Another reason for staying proceedings or preventing new proceedings from being commenced is to ensure that the Trustee of a bankrupt estate is not put to expense in defending proceedings which the Trustee has no money to defend. On the other hand, the Act does contemplate that the Court will, in an appropriate case, grant leave. In that respect a case would be an appropriate case where the proceedings proposed against the bankrupt are proceedings to which other parties are involved and for the proper conduct of which it may be necessary for the bankrupt to become a party.
Section 58(3) protects a bankrupt and the property of the bankrupt against the enforcement of remedies and enables the Court to control proceedings in respect of a provable debt in the light of the objectives of the Act: Gertig v Davies (2003) 85 SASR 226 at [15].
The reference made by Hill J in Re Rose as to the involvement of “other parties” has since been relied upon in other proceedings as a consideration relevant to the granting of leave: eg, Re Sharp; Ex parte Tietyens Investments Pty Ltd [1998] FCA 1367 (“Re Sharp”) per Weinberg J; Sturdy Components Pty Ltd v Trustee of the Bankrupt Estate of Sturt [2000] FCA 884 at [3] per Burchett J; Done v Financial Wisdom Ltd [2008] FCA 1706 at [34] to [35] per Perram J.
Also relevant to the exercise of the discretion conferred by s 58(3) is whether the facts are complex and whether it may be preferable for those facts to be resolved at a hearing rather than by way of a proof of debt: Allanson v Midland Credit Ltd (1977) 30 FLR 108 (“Allanson”). Bowen CJ, Riley and Deane JJ there observed:
Before proceeding further with the question of the effect of the stay and the operation of s 58(3), it is convenient to consider the second question which arises. That is, whether the court, if it has jurisdiction, should grant leave in the present case. Franki J, while indicating that as then advised he would not have answered this question in the affirmative, never reached the stage where it was necessary to decide it. The facts are complex. The claim of Midland Credit is not only against Mr Allanson but against other defendants who, in some respects, may be jointly and severally liable with him. There is also the question of the defences, some of which form the basis of the cross-claim. It would seem that all of these issues would be better and more comprehensively dealt with by a contested trial of the action in the Supreme Court than could possibly be the case if Midland Credit were required to lodge a proof of debt in respect of its claim against Mr Allanson alone. Such a proof of debt would be in the form of an affidavit and determined by the official receiver at such time as the stay ceased to operate. If the official receiver disallowed the claim in whole or in part, an appeal on this isolated issue could be brought to the Bankruptcy Court. But in these circumstances, the issues would have been determined in a less satisfactory way and questions between Mr Allanson and the other parties to the action would not be resolved: (1977) 30 FLR at 114.
See also: Westpac Banking Corporation v Ollis [2007] FCA 1194 at [18] to [20] per Cowdroy J.
For present purposes it should finally be noted that in Allanson, Bowen CJ, Riley and Deane JJ went on to observe that leave may be granted without determining whether s 58(3) applies. In this context their Honours concluded:
In the circumstances, we have formed the view that, if s 58(3) applies, the court has jurisdiction to grant leave to proceed and such leave should be granted.
We consider that it is unnecessary in the circumstances for us to express a final view of the effect of the stay on the operation of s 58(3). Where a court is given power to grant leave to perform a particular act or pursue a particular course of action and the question whether the need for such leave has arisen involves difficult and complicated questions of law or fact, it is permissible, in an appropriate case, to proceed on the basis that such leave is necessary rather than involve the parties in the futile exercise of determining, possibly after a series of appeals, whether the need for such leave has arisen. In all the circumstances including the urgency of the matter, we consider that that is the appropriate course to adopt in this case and that we should, to the extent necessary, grant leave to Midland Credit to continue and take fresh steps in the proceedings in the Supreme Court of New South Wales. This approach would, it seems to us, be consistent with that adopted by the High Court in Talga Ltd v MBC International Ltd (1976) 133 CLR 622. It is an approach which was raised before us in the course of argument but not before the learned judge below: (1977) 30 FLR at 114-115.
The application of these principles to the application before me, therefore, requires me first to assess the nature of the debts or liabilities each of ABM and SPL assert against Mr Rufford in the SCNSW proceeding and, if the debt or liability is a provable debt, the nature of the proceeding in which ABM or SPL assert the debt or liability.[3]
[3] It appears that SPL was previously known as Suretrak Global Pty Limited
ABM’S AND SPL’S CLAIMS
ABM’s and SPL’s claims against Mr Rufford in the SCNSW proceeding are pleaded in the further amended statement of claim (FASC) filed on 24 February 2021; and they are as follows:
(a)From about October 2015 to 5 October 2018 Mr Rufford was an officer of ABM or, in the alternative, an officer of SPL, acting as a de facto director, or as the financial controller, or as a chief executive officer; and he so acted pursuant to an agreement made in about October 2015.[4]
[4] FASC, [5], [6]
(b)Further, or in the alternative, from about 17 December 2015 until about 18 August 2018 Mr Rufford’s son, Mr Luke Rufford, was a director of ABM.[5]
[5] FASC, [7]
(c)During the period from about 9 November 2016 to about 4 October 2018 either or both of Mr Rufford and Mr Luke Rufford caused ABM to make payments to an entity named “Endeavour Fleet”. These payments were made in relation to lease agreements of goods supplied to Mr Rufford or Mr Luke Rufford, or to both, and they were made without ABM’s knowledge or consent.[6]
(d)Without the knowledge or consent of ABM, Mr Rufford or Mr Luke Rufford, or both, caused ABM to enter Mr Rufford as an employee, causing ABM to incur liabilities to the Commissioner of Taxation.[7]
(e)During the period from about 27 November 2017 to about 1 November 2018, without the knowledge or consent of ABM, Mr Rufford or Mr Luke Rufford, or both, caused ABM to make payments to discharge debts and liabilities personal to Mr Rufford or Mr Luke Rufford or a company named Ruffcom Pty Ltd (Ruffcom) of which Mr Rufford’s wife, Mrs Rufford, was the sole director and shareholder.[8]
(f)During the period from October 2015 to about 4 September 2018, without the knowledge or consent of SPL, Mr Rufford caused SPL to make payments to discharge debts and liabilities personal to Mr Rufford or Ruffcom, and that such payments exposed SPL to potential liabilities to pay fringe benefits tax to the Commissioner of Taxation.[9]
(g)During the period from about 3 December 2015 to about 1 November 2018, without the knowledge or consent of ABM, Mr Rufford or Mr Luke Rufford, or both, caused ABM to make payments to Mr Rufford, Mr Luke Rufford, and Ruffcom purportedly for the payment of consultancy fees.[10]
(h)During the period from about 17 October 2016 to about 1 November 2018, without the knowledge or consent of SPL, Mr Rufford caused SPL to make payments to Mr Rufford and Ruffcom purportedly for the payment of consultancy fees.[11]
(i)From about 8 November 2016 to about 10 January 2018, either or both of Mr Rufford and Mr Luke Rufford caused ABM to incur fines and penalties due to their delaying to cause ABM to lodge returns with the Australian Securities and Investments Commission and the Australian Taxation Office.[12]
(j)In causing ABM and SPL to make the payments alleged in the FASC Mr Rufford and Mr Luke Rufford acted dishonestly in breach of fiduciary duties they owed ABM and SPL.
(k)Mr Rufford and Mr Luke Rufford are liable to repay to ABM and SPL the amounts they caused ABM and SPL to pay, and they are also liable to pay damages to ABM and SPL for the liabilities for the tax and fines that have or may be imposed on ABM and SPL.
(l)Mrs Rufford is liable to pay to ABM amounts equal to the amounts Mr Rufford or Mr Luke Rufford caused ABM to pay to her.
[6] FASC, [10]-[13]
[7] FASC, [17], [18]
[8] FASC, [20]-[22]
[9] FASC, [26]-[28]
[10] FASC, [32]-[35]
[11] FASC, [38]-[40]
[12] FASC, [44]-[46]
In their defence to the amended statement of claim filed in the SCNSW proceeding, Mr Rufford, Mr Luke Rufford, and Mrs Rufford admit the payments alleged in the FASC were made, but they allege the payments were made with the knowledge and consent of Mr Glenn Smith, a director of both ABM and SPL.[13]
[13] Mrs Rufford filed a further amended defence on 24 March 2021 in the SCNSW proceeding
In addition to filing a defence, Mr Rufford and Mr Luke Rufford filed a cross-claim against Mr Glenn Smith for defamation. The claims are made in relation to the publication of material on social media which it is alleged conveys imputations that Mr Rufford and Mr Luke Rufford stole money and that they are criminals who ought to be sent to prison. In his defence Mr Glenn Smith pleads substantial truth, and relies on the matters on which ABM and SPL rely for their claims.
PARTIES’ SUBMISSIONS
Counsel for ABM and SPL submits that leave should be granted under s 58(3)(b) of the Act because the claims against Mr Rufford closely overlap with ABM’s and SPL’s claims against Mr Luke Rufford and Mrs Rufford. Counsel also submits that the claims are factually and legally complex, particularly because they are in large part based on fraud.
Mr Rufford, on the other hand, who is not legally represented, opposes the granting of leave under s 58(3) of the Act. Mr Rufford relies on matters contained in two affidavits he has made. In his affidavit made on 19 July 2021 Mr Rufford submits the statement of claim filed in the SCNSW proceeding is vexatious and “relies upon the onus of truth of one person’s word against another regarding the arrangements discussed for employment”; Mr Rufford submits the allegations made in the SCNSW proceeding are extremely serious and he will “vehemently defend” himself “with the means available to” him “in providing the proof that the entire allegation is a fabrication of lies designed to cause further harm to” Mr Rufford, and to destroy his reputation; he submits Mr Glenn Smith has embarked on a personal vendetta against Mr Rufford and his family; he sets out the circumstances in which he became bankrupt; and ABM and SPL are seeking leave to proceed against Mr Rufford “to gain advantage over my estate and other creditors to further harass and create unnecessary angst and hurt to myself and family”. In his affidavit of 13 August 2021 Mr Rufford makes a number of submissions in relation to the FASC and to the affidavit Mr Glenn Smith filed in the SCNSW proceeding.
At the hearing I asked Mr Rufford why he opposed leave being granted to ABM and SPL to continue to proceed with their claims in the SCNSW proceeding. Mr Rufford said words to the effect that ABM and SPL ought to jump through the hoops.
DETERMINATION
I am satisfied that ABM’s and SPL’s claims against Mr Rufford are debts or liabilities of the character referred to in s 82(1) of the Act; and to the extent they are claims for unliquidated damages in tort or claims for compensation under the Corporations Act 2001 (Cth), all of the claims appear to arise out of or in connection with a contract ABM or SPL or both made with Mr Rufford and, for that reason, s 82(2) of the Act does not apply.[14] I am also satisfied, however, that this is a clear case for the granting of leave under s 58(3)(b) of the Act.
[14] See Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234
The claims ABM and SPL make in the SCNSW proceeding are based on fraud, and they relate to a large number of transactions that are alleged to have occurred over a period of around three years. Mr Rufford denies the claims, his denials are based on conversations he says he had with Mr Glenn Smith, and, moreover, Mr Rufford contends that ABM’s and SPL’s claims are made out of malice. Mr Rufford also says he intends to contest the claims to the utmost of his power. The determination of ABM’s and SPL’s claims, therefore will turn on the assessment of competing accounts of conversations between Mr Glenn Smith and Mr Rufford, and possibly conversations between Mr Glenn Smith and Mr Luke Rufford; and they will require the assessment of many transactions spanning over a significant period of time. The mechanism for the proving of debts provided for under the Act, however, would be ill suited to the determination of claims that are based on extensive allegations of fraud which will be disputed, and which will require an extensive investigation of many transactions.
Further, there is a significant overlap between the claims ABM and SPL makes against Mr Rufford and Mr Luke Rufford, and between the claims ABM and SPL makes and the issues that are likely to arise in response to Mr Rufford’s cross-claim for defamation. That is relevant for two reasons. First, if ABM’s and SPL’s rights are restricted to lodging a proof of debt, there is a prospect the SCNSW may make findings that will be inconsistent with the decision Mr Rufford’s trustees may make in either accepting or not accepting the proofs of debt, and with any decision this Court or the Federal Court may make if an application is made under s 104 of the Act for a review of the trustees’ decision to accept or reject the proofs of debt. Second, there would be efficiencies in having the one tribunal, namely, the SCNSW, rather than at least two, namely the SCNSW and Mr Rufford’s trustees in bankruptcy, or the SCNSW and a court to which an application for review may be made under s 104 of the Act, determine a dispute that arises out of substantially the same facts.
DISPOSITION
I propose to grant ABM and SPL leave pursuant to s 58(3)(b) of the Act to take such further steps to which they may be entitled to take in the SCNSW proceeding in relation to the claims they make against Mr Rufford. I propose to grant leave on terms that Mr Rufford have liberty to apply to set aside the leave I propose to grant if ABM and SPL do not pursue their claims against Mr Rufford with due diligence. I will also reserve the question of costs.
Finally, I will note that the orders I propose to make are orders of the Federal Circuit and Family Court of Australia (Division 2). That is necessary because the seal of this Court that will be affixed to the orders I propose to make only includes the words “Federal Circuit and Family Court of Australia”. The Federal Circuit and Family Court of Australia Act 2021 (Cth), however, does not constitute any court by the name of the “Federal Circuit and Family Court of Australia”.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 15 October 2021
0
10
2