Barry v Coshott
[2010] FMCA 930
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BARRY v COSHOTT | [2010] FMCA 930 |
| BANKRUPTCY – Creditor’s petition – entitlement to sequestration order not contested – pending proceedings in Federal Court concerning bankrupt estate of debtor’s spouse – prospects of mediated settlement with spouse’s trustee in bankruptcy – application for transfer of petition to Federal Court refused – petition adjourned. |
| Bankruptcy Act 1966 (Cth), ss.6A(2), 52, 52(2)(b), 54, 153A, 179 Civil Procedure Act 2005 (NSW), s.101 Federal Magistrates Act 1999 (Cth), ss.39(3), 39(3)(b), 39(3)(c), 39(3)(d) Federal Magistrates Court Rules 2001 (Cth), r.8.02(4) |
| Adamopoulos v Olympic Airways SA & Anor (1990) 95 ALR 525 Coshott v Coshott (2010) 184 FCR 495, [2010] FCA 300 Coshott v Coshott (No.2) [2010] FCA 819 Shipton Lodge Cobbitty Pty Ltd v Coshott [2008] FMCA 1294 Shipton Lodge Cobbitty Pty Ltd v Coshott (No.2) [2008] FMCA 1552 |
| Applicant: | STEPHEN MICHAEL BARRY |
| Respondent: | LJILJANA COSHOTT |
| File Number: | SYG 1738 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 24 November 2010 |
| Delivered at: | Sydney |
| Delivered on: | 24 November 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Johnson |
| Solicitors for the Applicant: | Sally Nash & Co. |
| Counsel for the Respondent: | Mr S Bliim |
| Counsel for Mr Rui Oliveira, Supporting Creditor: | Mr M Wang |
| Solicitors for the Supporting Creditor: | Wang Legal |
ORDERS
The respondent has leave to file in court an application for transfer of the proceeding to the Federal Court, returnable instanter.
That application is refused.
The petition is adjourned for further hearing on 17 February 2011 at 10.15am.
The adjournment is given upon the condition that the respondent consents to an order that she shall file and serve before 4pm on 8 December 2010 an affidavit which attaches and verifies a statement of her affairs in the form approved for the purposes of s.6A(2) of the Bankruptcy Act. The affidavit must also identify each of her separate debts or liabilities, present or future, certain or contingent, which have not been accepted as proved as joint debts or liabilities in the bankruptcy of her husband Robert Coshott.
Any further application for adjournment or transfer of the proceeding, and all supporting affidavits, must be filed and served no later than 4pm on 28 January 2011.
The applicant must file and serve any affidavits in reply before 4pm on 10 February 2011.
Any party may request that the proceeding be listed for further directions or for the hearing of an interlocutory application on a date allowing 2 working days notice to the other parties.
The costs of today’s hearing in relation to the petition and interim applications are reserved.
The applicant must give a copy of this order to the Official Receiver within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1738 of 2010
| STEPHEN MICHAEL BARRY |
Applicant
And
| LJILJANA COSHOTT |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
Mr Barry brings this creditor’s petition against Mrs Coshott based on a judgment debt obtained in the District Court, arising from litigation in the Supreme Court in which Mr and Mrs Coshott unsuccessfully sued Mr Barry for professional negligence when acting as their solicitor. My present judgment explains why I have refused to transfer the petition to the Federal Court, and why I am adjourning the hearing until 17 February 2011.
The District Court judgment debt was based on costs assessment certificate No. 00017354 of 2008, arising from an order made on 20 February 2008 at first instance by James J in the Supreme Court for indemnity costs against both Mrs and Mr Coshott. His orders were unsuccessfully challenged on appeal, and the judgment on the costs assessment has been unsuccessfully challenged in the District Court. The appeal and the challenge in the District Court were conducted by Mrs Coshott alone, since Mr Coshott had been made bankrupt by order of this Court on 7 November 2008 (see Shipton Lodge Cobbitty Pty Ltd v Coshott (No.2) [2008] FMCA 1552). Costs orders in favour of Mr Barry in those proceedings were therefore enforceable against Mrs Coshott alone. These additional costs orders are not yet the subject of costs assessments, and the likely amount of costs is not shown in the evidence.
Mr Barry’s petition at present relies only upon Mrs Coshott’s indebtedness of $337,760.39 under costs assessment certificate No. 00017354 of 2008 and the District Court judgment arising from its registration on 7 September 2009. It is possible that it might be amended to encompass the other indebtedness of Mrs Coshott to Mr Barry.
The petition relies upon service of a bankruptcy notice based upon that judgment debt. The bankruptcy notice was served on 10 October 2009, but its time for compliance was extended by a series of Federal Court orders culminating with an order of Edmonds J on 18 December 2009. His Honour dismissed Mrs Coshott’s application to set aside the bankruptcy notice, but exercised an independent power to extend the time for compliance (see Coshott v Barry [2009] FCA 1521, (2009) 7 ABC(NS) 489). He ordered:
The time for compliance with Bankruptcy Notice NN4442/09 by the applicant be extended until the day on which final orders are made in proceeding No. 2872/09 in the District Court of New South Wales at Sydney.
The District Court matter referred to in this order, was a pending appeal by Mrs Coshott against the costs assessment certificate, which was later renumbered 2009/00335903. Final orders in the appeal were made on 17 June 2010, when McLoughlin DCJ gave judgment against Mrs Coshott. The petition alleges that an act of bankruptcy occurred on that day.
The petition was filed on 10 August 2010, and has some time before it expires. It was served under a substituted service order, and Mrs Coshott filed an appearance and a notice of opposition on 6 October 2010. Her grounds of opposition are formulated only as:
The judgment debt founding the petition was irregularly entered pursuant to the Legal Profession Act, 2004 as it was ultra vires and a nullity.
This contention has not been explained in any amended notice, nor in any written or oral submissions presented to the Court. This is notwithstanding that on 12 October 2010 I directed Mrs Coshott to file an amended notice of grounds of opposition giving particulars, when I set the matter down for final hearing today. I therefore have difficulty perceiving any ground of opposition having merit. To the extent that the pleaded ground might raise contentions which have previously been argued in the District Court before McLoughlin DCJ, or would have been available for argument in those proceedings, those contentions may face difficulties under principles of issue estoppel or Anshun estoppel.
There is evidence that Mrs Coshott has commenced further proceedings in the Supreme Court, challenging costs assessment certificates obtained by Mr Barry including certificate No. 00017354 of 2008. Mr Barry has moved for summary dismissal of those proceedings, and Garling J has reserved his judgment on his motion. Mrs Coshott has not elucidated the issues arising in the Supreme Court matter, nor presented any material allowing me to assess her prospects of being permitted to continue a second challenge to this costs certificate. It is enough for me to find today that Mrs Coshott has not presented evidence to the Court showing that she has pending proceedings by way of appeal or challenge to the judgment debt which are “based on genuine and arguable grounds” (compare Adamopoulos v Olympic Airways SA & Anor (1990) 95 ALR 525 at 531). The application to adjourn the petition, which I shall address below, cannot therefore be supported by reason of the existence of those proceedings.
[By way of postscript. I note that on 30 November 2010 Garling J summarily dismissed Mrs Coshott’s summons in so far as it related to certificate No. 00017354 of 2008, based on principles of issue estoppel (see Coshott v Barry & Board [2010] NSWSC 1324 at [15]‑[37])].
The petition has been listed in the Court twice before today. It was first listed ex parte before a Registrar, when a substituted service order was made. On the second occasion it was listed before a Registrar and myself on 12 October 2010, when I gave a timetable fixing the matter for hearing today. Mrs Coshott was represented on that occasion by her present counsel, and consented to the orders fixing the matter for hearing today and setting a timetable.
As I have noted, Mrs Coshott did not file any amended notice of grounds of opposition nor additional affidavits, and the matter came on for hearing without any notice of her intended response to the petition.
At the commencement of the hearing, her counsel sought leave to file in Court an application for transfer of the proceedings to the Federal Court, and a supporting affidavit. In effect, he also sought an adjournment of the petition, upon the underlying grounds presented in support of the transfer application.
Mrs Coshott’s counsel conceded that on the evidence before me today Mr Barry had made out an entitlement to the making of a sequestration order, by reason of satisfaction of all the requirements of s.52 and the other provisions of the Bankruptcy Act and Regulations. Perhaps obliquely, the transfer application might be regarded as pointing to a ground of declining to make a sequestration order under s.52(2)(b), at least by declining to make that order today.
The transfer application, as well as being belated, was not adequately supported by evidence. An affidavit and oral evidence from Mr Coshott made vague references to Federal Court proceedings NSD1208/2009 and NSD1412/2009. These are proceedings to which Mr Barry is not a party, and which concern disputes between Mr Coshott and members of his family and Mr Coshott’s current trustee in bankruptcy, Mr Burke. They have been listed on numerous occasions over the last 12 months before Rares J. His Honour has delivered a judgment addressing a preliminary issue concerning the validity of Mr Burke’s appointment (see Coshott v Coshott (2010) 184 FCR 495, [2010] FCA 300). I note also another interlocutory judgment, given on 30 July 2010 (see Coshott v Coshott (No 2) [2010] FCA 819).
Beyond what can be gleaned from these judgments, there is in evidence today three orders made recently by his Honour in the case management of the two proceedings, being orders made on 1 October 2010, 29 October 2010, and 19 November 2010. In these orders, his Honour first referred the proceedings for a case management conference or mediation by a Registrar “for the purposes of determining, or the Registrar reporting on, an appropriate payout figure supported by security provided by any parties to the litigation over property including the property the subject of the controversy”. His Honour’s subsequent order noted that the trustee “is to endeavour to adjudicate upon finalised proofs of debt, with a view to crystallising the liabilities he will admit to proof by 17 November 2010, and he is to advise the other parties and Registrar Hedge of those adjudications as and when they are made”. In the most recent order, his Honour referred “the proceedings” to Registrar Hedge for mediation. He vacated a part heard hearing fixed to resume on 13 December 2010, and adjourned the proceedings to 17 December 2010, presumably for further directions.
It is implicit in these orders that his Honour is endeavouring to assist the parties in the proceedings before his Honour, to resolve their underlying disputes by way of mediation. The evidence upon which his Honour has been making those orders, his reasons for making them, and any assessment of their prospects of resolution of those disputes is, however, left obscure on the evidence before me.
Also obscure is the exact nature of the proceedings before his Honour. There is general evidence before me that in proceeding NSD1208/2009 Mr Coshott has challenged the actions of Mr Burke generally taken as trustee of his bankrupt estate, seeking a review of his conduct under s.179 of the Bankruptcy Act. However, the allegations against Mr Burke are not shown in the evidence before me. It is entirely unclear how these allegations relate to Mr and Mrs Coshott’s joint indebtedness to Mr Barry, whether under this costs assessment or otherwise.
On the evidence before me, the applicants in proceeding NSD1412/2009 are Mrs Coshott and her son, James, who are seeking unknown relief against Mr Burke, but apparently concerning the equitable title to the family home in Bellevue Hill. They appear to be claiming in capacities as trustees. There is reference to cross‑claims, but none of the pleadings in the matter are in evidence, and it is very difficult to detect how those proceedings relate to any issue arising under Mr Barry’s bankruptcy petition against Mrs Coshott.
Mr Coshott suggested in his evidence today that the existence of the petition against Mrs Coshott had been drawn to the attention of Rares J in the course of at least one or more of the directions hearings, and that his Honour had expressed certain opinions. However, a transcript is not in evidence, and I find the evidence presented in this respect unsatisfactory.
In view of the deficiencies in the evidence in support of the application for transfer, I am far from persuaded that any of the conditions upon which my power to transfer have been satisfied. Nor am I persuaded that discretionary considerations point to the exercise of that power.
Under s.39(3) of the Federal Magistrates Act 1999 (Cth), I am required to consider:
39Discretionary transfer of proceedings to the Federal Court or the Family Court
…
(3)In deciding whether to transfer a proceeding to the Federal Court under subsection (1), the Federal Magistrates Court must have regard to:
(a) any Rules of Court made for the purposes of subsection 40(2); and
(b) whether proceedings in respect of an associated matter are pending in the Federal Court; and
(c) whether the resources of the Federal Magistrates Court are sufficient to hear and determine the proceeding; and
(d) the interests of the administration of justice.
Putting the Rules of Court aside for the moment and addressing s.39(3)(b), the proceedings in the Federal Court appear to concern “an associated matter” only in the most vague and broad sense. The proceedings are connected to the petition in a collateral manner because Mr Barry has apparently proved in the bankruptcy of Mr Coshott in relation to the first instance costs order in the Supreme Court. Mr Barry is, however, entitled separately to pursue his creditor’s remedies under the Bankruptcy Act in relation to the joint debtor, unless or until the indebtedness is fully paid from Mr Coshott’s estate in bankruptcy. I am unable to identify any issue arising before Rares J concerning Mr Coshott’s bankruptcy which is also raised or could be raised by the petition and notice of objection concerning the making of a sequestration order against Mrs Coshott.
Mr Barry’s claims against Mrs Coshott appear to be more extensive than his claims provable in Mr Coshott’s bankrupt estate. He could not prove in Mr Coshott’s estate in relation to the actual judgment arising under the costs certificate and judgment in the District Court, and certainly not in relation to interest accruing on the judgment under s.101 of the Civil Procedure Act 2005 (NSW), since his rights under the costs certificate and the judgment accrued after Mr Coshott’s bankruptcy. As I have noted above, it would also seem that Mr Barry has additional claims against Mrs Coshott under costs orders made only against her in the litigation subsequent to Mr Coshott’s bankruptcy.
Although there is no evidence before me as to the financial affairs of either Mr or Mrs Coshott, I am ready to assume that there may be an overlap in their financial affairs, including in relation to the equitable interests in the family home available to their creditors. A trustee appointed under a sequestration order against Mrs Coshott would, no doubt, need to be informed by and liaise with Mr Burke, including as to the implications of the litigation before Rares J.
However, none of these circumstances points in my mind to a desirability that this petition should be transferred to the Federal Court for determination by a justice of that Court, whether by Rares J or by another justice of that Court.
In relation to s.39(3)(c), patently the resources of this Court are sufficient to address this petition, and indeed are available today to make an immediate sequestration order or to grant any appropriate adjournment.
In relation to s.39(3)(d) and considering the interests of the administration of justice, there is no particular benefit that I can see from transferring the petition to the Federal Court. Both Courts when exercising bankruptcy jurisdiction in relation to the making of a sequestration order against Mrs Coshott may need to consider broad discretions that are influenced by considerations of the interests of administration of justice, including the implications of other litigation pending in the same court or another court, but these considerations would be addressed in the same manner in whichever court they were addressed.
In my opinion there are considerations pointing to the matter remaining in this Court, where the separate interests of Mrs Coshott’s creditors, including Mr Barry, can be identified separately, and the public interests in relation to the making of a sequestration order against her estate can be addressed separately from what appear to be complex issues concerning the administration of Mr Coshott’s estate in bankruptcy.
Turning to the matters required to be addressed under r.8.02(4) of the Federal Magistrates Court Rules 2001 (Cth), there is no issue of general importance making it desirable to transfer a very ordinary bankruptcy petition to the Federal Court. This Court now is the usual first instance forum in relation to such proceedings.
It is unlikely, in my opinion, that, if transferred, the petition would be heard and determined at less cost and more convenience to the parties than if it were not. Particularly, since, as Mr Barry points out, he is not a party to the proceedings before Rares J, and has no direct interest in what is occurring in the Federal Court. He has an indirect interest only in so far as those proceedings might impact upon the speed and quantum of any dividend he might receive from Mr Coshott’s bankrupt estate in relation to his proof of debts in that estate. There is every good reason for Mr Barry not to wish to become embroiled in the litigation before Rares J. I can see little apparent benefit or savings to Mrs Coshott from the petition being transferred, notwithstanding that, as with her previous litigation, Mr Coshott appears to be the principal witness and source of inspiration for his wife.
On my current understanding of both proceedings, and of the resources of both Courts, I am not persuaded that the petition would be heard earlier in the Federal Court than this Court.
There are no “particular procedures” which are not available in this Court but which would be followed in the Federal Court in relation to this “class of proceeding”.
In relation to the wishes of the party, Mr Barry as applicant with a prima facie right to a sequestration order, strongly opposes the transfer of the proceedings, and presses for their expeditious resolution in this Court. Mrs Coshott wishes to have them transferred essentially, it seems to me, as a strategy to delay a final hearing of the petition until after the completion of her litigation with Mr Coshott’s trustee in bankruptcy.
In all the circumstances, weighing the evidence before me and the relevant considerations pointed to in the legislation and generally, I am unpersuaded that I should exercise the power of transfer of this petition to the Federal Court.
I therefore refuse the transfer application, and turn to consider whether a sequestration order should be made today or the petition adjourned for further hearing before me.
As I have noted, it is not contested on behalf of Mrs Coshott that Mr Barry has made out an entitlement to a sequestration order, based on an indebtedness which now is the amount of $337,760.39.
The evidence before me, however, does indicate that there may be a genuine effort being directed in the Federal Court at payment of, if not the whole of that debt, a substantial part of it, in so far as it reflects a joint indebtedness of Mr Coshott. That outcome might be achieved if there is a mediated solution to the disputes concerning Mr Coshott’s bankruptcy estate, and if the solution involves a complete discharge of all his unsecured creditors.
Mr Coshott gave evidence today that in the course of the proposed mediation, he anticipates that the parties in the Federal Court proceedings will be discussing a family arrangement involving the refinancing of the house at Bellevue Hill, giving rise to funds available to pay the creditors who have proven in Mr Coshott’s bankrupt estate, so as to allow a statutory annulment of the bankruptcy pursuant to the provisions of s.153A. His evidence suggested that any settlement would occur in the course of, or arising out of, a mediation to be conducted by Registrar Hedge before the next listing before Rares J on 17 December 2010.
The prospects of this actually occurring are not apparent on the evidence before me. Mr Coshott’s evidence is somewhat reminiscent of evidence he gave me in 2008 in support of an adjournment of the petition against himself, which came to nothing (see Shipton Lodge Cobbitty Pty Ltd v Coshott [2008] FMCA 1294 at [5]). There is today a complete lack of particulars of the proposal which is likely to be put at the mediation, and of the background financial circumstances of Mr and Mrs Coshott. Perhaps it is understandable that these matters have not been revealed, but on the present evidence I can have no confidence that satisfactory arrangement with Mr Coshott’s creditors who have proven in his bankruptcy will emerge in the Federal Court proceedings in the next month or two.
I am, however, sufficiently persuaded that an opportunity for this to happen should be allowed.
I accept that there is a public interest invoked by Mr Barry in relation to Mrs Coshott’s separate creditors, in having her financial affairs come under the inquiry and management of an independent trustee in bankruptcy. It is arguably against their interests that she should continue to incur liabilities to further substantial costs orders without some independent assessment of the merits of the litigation she is currently embroiled in.
However, there is also a risk that the interests of her creditors might be jeopardised if a chance, even an outside chance, of a satisfactory family arrangement being arrived at in the next month or two might be frustrated by the intervention of another bankruptcy administrator, and by possible legal complexities arising from Mrs Coshott acquiring the status of a bankrupt person. On the evidence before me, there is no evidence of a substantial risk to Mrs Coshott’s creditors arising in the next month or two, so as to point to an immediate bankruptcy order being made today in the interests of her creditors.
That said, in the present circumstances the onus should be on Mrs Coshott to satisfy the Court that there is no such risk. As Mr Barry’s counsel points out, she has filed no evidence whatsoever as to her separate or joint financial position, and has filed no evidence from herself articulating a personal commitment to joining a family arrangement with Mr Coshott’s creditors, including his joint creditors with her.
The history of litigation in the present proceedings, disregarding Mr and Mrs Coshott’s history of litigation in other proceedings, must give rise to some scepticism as to the prospect that they will arrive at arrangements which will satisfy both their creditors and themselves.
In my opinion, all these circumstances point to only a short adjournment being granted for the petition, and one which is conditional upon Mrs Coshott demonstrating to the Court a degree of candour in relation to her current financial circumstances.
If I had made a sequestration order today, she would have been obliged under s.54 of the Bankruptcy Act to submit a statement of affairs within 14 days, and I think it not unreasonable to require her to submit similar evidence to the Court in support of an adjournment today, and certainly in support of any future adjournments. I therefore have proposed orders which would require her to consent to directions that she file that evidence, and her consent has been foreshadowed by her counsel.
I shall therefore adjourn the petition until February for further hearing, by which time events in relation to the Supreme Court proceedings might be clarified, and the outcome of the mediation which is to be held in mid‑December will be known.
Mrs Coshott will have the opportunity to file additional evidence in support of a further adjournment application, and even to make another transfer application. However, she should be under no misapprehension that such an application will at least need to show compliance with my order in relation to candour as to her financial position. It will also require better evidence as to the state of the proceedings before Rares J, including any continuing mediation. If statements by Rares J are relied upon, then they must be shown to this Court in transcript.
I shall grant liberty to apply in the event that the condition on the adjournment is not met. However, it is a matter for Mr Barry to decide whether he will bring the matter back to Court in that event, or wait until a perhaps inevitable outcome on the next occasion.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 7 December 2010
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