BATSHON v Migliorino and Associates
[2003] FMCA 32
•20 February 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BATSHON v MIGLIORINO & ASSOCIATES | [2003] FMCA 32 |
| BANKRUPTCY – Application to set aside a bankruptcy notice – whether the applicant has a claim against the creditor in tort –whether this claim was one that could have been raised in the original proceedings – whether Industrial Commission of NSW had jurisdiction to hear this claim – whether the claim could be cross-vested from the Commission into the Supreme Court – whether the claim is equal to or exceeds the amount claimed in the bankruptcy notice – whether the applicant’s claim is statute barred – whether the court can achieve the level of satisfaction required by s.40(1)(g) and s.41(7) of the Bankruptcy Act 1966 (Cth). |
Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(7)(i)
Industrial Relations Act 1996 (NSW), s.106
Legal Profession Act 1987 (NSW)
Limitation Act 1969 (NSW), ss.14(1), 54(1)
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992)
26 NSWLR 234
Hughes Aircraft Systems International v Airservices Australia(1997)
146 ALR 1
Port of Melbourne Authority v Anshun Pt Limited (1981) 147 CLR 589
Premier Sports Australia Pty Ltd v Dodds [2001] NSWSC 707
Re Racheha; ex-parte Antonios (1980) 49 FLR 423
Bessemer v The Owners Strata Plan No 6925/35054 [1998] 916 FCA
Re Noel Ling; ex-parte Noel Ling v The Commonwealth of Australia (1995) 130 ALR 596
Re A Debtor (1958) 1 CH 81
Guss v Johnstone (2000) 171 ALR 598
| Applicant: | SAMIR BATSHON |
| Respondent: | MIGLIORINO & ASSOCIATES PTY LIMITED (ACN 002 641 625) |
| File No: | SZ 1044 of 2002 |
| Delivered on: | 20 February 2003 |
| Delivered at: | Sydney |
| Hearing date: | 13 February 2003 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr A Gammell |
| Solicitors for the Applicant: | Stamford Lawyers |
| Counsel for the Respondent: | Mr C Wood |
| Solicitors for the Respondent: | Minter Ellison |
ORDERS
Application dismissed.
Time extended for compliance with bankruptcy notice to 27 February 2003.
Applicant pay the respondent’s costs pursuant to the Federal Court Act and Rules to be taxed if not agreed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 1044 of 2002
| SAMIR BATSHON |
Applicant
And
| MIGLIORINO & ASSOCIATES PTY LIMITED (ACN 002 641 625) |
Respondent
REASONS FOR JUDGMENT
The applicant in this matter seeks the setting aside of a bankruptcy notice dated 23 September 2002 requiring the payment by the applicant debtor to the respondent creditor of the sum of $80,176.64. The amount claimed represents an assessment of party and party costs ordered to be paid by the debtor (together with interest) following proceedings in the Industrial Commission of New South Wales.
The debtor claims pursuant to s.41(7)(i) of the Bankruptcy Act 1966 (Cth) that he has a counter claim set off or cross demand that could not be set up in the original action and is equal to or exceeding the amount claimed in the bankruptcy notice.
History of proceedings
The applicant debtor is a builder. On 8 July 1995 he entered into a building contract known in the industry as SBW2 for the erection of a long daycare centre and caretaker’s flat at 79 Charles Street Ryde with Sitehope Pty Limited as the proprietor. Section 5 of that contact dealt with the position of the architect and 5.1 stated:
“5.1 ARCHITECT AS AGENT
The architect shall act for and on behalf of the Proprietor as the Proprietor’s agent where this is so provided or required by this Agreement and the Proprietor shall not act contrary to that authority.”
The architect under the contract was the creditor respondent in these proceedings. The building works commenced in 1995 and were not happy. The applicant submitted a number of claims for variations to the architect. Many of the claims are not accepted, others were reduced. By 1996 the project was running over time and considerably over budget. The applicant was eventually barred from the site and his contract terminated.
On 24 November 1998 the applicant filed a summons for relief under s.106 of the Industrial Relations Act 1996 against the proprietor and the architect and four other respondents. The applicant claimed orders declaring void in whole or in part or varying in whole or in part either ab initio or from such other time the contract or arrangement including any collateral contract or arrangement between the applicant and the respondents whereby the applicant performed work in an industry. The applicant also asked for an order varying the terms of the contract and for orders for compensation as against any or all of the respondents. The grounds of the application contained clauses [16-17] referring to progress claims and to variations. At paragraph 31 the application states:
“31 As a consequence of the conduct engaged in by the respondents the applicant is facing an uncertain future and has had to bear the losses imposed upon him by the conduct of the respondents generally as a consequence of their actions during the construction of the building under the building contract.”
In a document entitled “Statement of Contentions of the First and Second Respondents” there is reference to variations and the procedure for making them including a section on the procedural fairness of the manner in which the respondents dealt with the variations. There are references to the variations in affidavits, e.g. paragraph 50 of the Affidavit of Rocco Migliorino 14.6.02, para 91 of the same affidavit and in the written submissions of the applicant to the court there are references at [18] about the manner of assessment of progress payments and the claimed variations and at [43] a request for an order for compensation.
The applicant was unsuccessful in these proceedings and as a result an order for costs was made against him. The costs have been assessed as required by the Legal Profession Act 1987 (NSW). There is no dispute that the assessed costs and interest can ground a bankruptcy notice.
The applicant’s contentions
The applicant submits that he has a claim against the creditor in contract and/or in tort which he could not have raised against it in the action or proceeding in which the judgment or order was obtained. The applicant says that the nature of s.106 proceedings precludes such a claim which is totally separate from the claim of unfairness with which s.106 is concerned. Any claim which the applicant might have against the respondent is one which seeks the enforcement of the original contract which the applicant had petitioned the Commission to set aside or to vary in the s.106 proceedings. The respondent puts in issue all the matters required by s.40(1)(g). It argues:
i)The applicant could have raised (and indeed did raise) the counter claim, set off or cross demand in the original proceedings;
ii)The applicant should not be able to argue that it could not set up the cross claim in the proceedings in which the judgment or order was obtained if it voluntarily chose proceedings and a court which could not deal with that claim when there was available to him a court which could do so;
iii)The applicant has not established that his claim is equal to or exceeds the amount claimed in the bankruptcy notice;
iv)The applicant does not have a valid counter claim set off or cross demand because the actions of the respondent which give rise to the alleged cause of action took place more than six years ago and are consequently barred by s.14(1) of the Limitation Act 1969 (NSW) and there is no evidence of confirmation which would bring into play s.54(1) of that Act;
v)The respondent submits that the court would not reach the requisite state of satisfaction required by s.40(1)(g).
It should be noted that the applicant had not commenced any proceedings against the respondent nor did it produce for the court a draft statement of claim in which the cause of action was articulated. He relied, for the existence of the claim, upon documents created during and after the commencement of the building works which I am satisfied establish that he believed that he had a claim for variations and extensions of time that would sound in money against the proprietor. But a claim against the proprietor is not the same as a claim against the disclosed proprietor’s agent. I was not taken to any document which indicated that the agent had some contractual relationship with the builder and in arguendo the claim seemed to me to be put in a very minor key. The applicant appeared to be relying on what he described as tortious liability.
The duties of an architect or superintendent exercising a discretion under a building contract are to act reasonably and in good faith Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1. These duties are now accepted as implied terms of any contract in which a superintendent is obliged to act; provided always that the express terms of that contract do not preclude the implication. But this a claim in contract against the proprietor. The proprietor is responsible for ensuring that the superintendent, who he appoints, acts in that way. Neither Renard nor Hughes are authorities for the proposition that the superintendent owes a duty of care to the builder.
Both the applicant and the respondent agree that the essential requirement of proceedings under s.106 is the existence of a claim regarding the unfairness of a contract or arrangement pursuant to which a party performs work in an industry. The applicant argues that a claim of this nature is totally separate from the type of tortious claim which he now wishes to bring against the respondent and such a claim is not within the jurisdiction of the Tribunal. The respondent argues that the relief which the applicant sought in the original proceedings was for compensation, it was against the respondent amongst others, and the respondent’s alleged failure properly to assess variations was very much a matter in issue. It pointed out (and I have referred to) examples of where the issues were documented and suggest that this would raise the possibility of a defence of the type founded on the decision of the High Court in Port of Melbourne Authority v Anshun Pt Limited (1981) 147 CLR 589 or even possibly res judicata.
Obviously, it is impossible to make any conclusive finding because the applicant has not articulated his claim in the form of a statement of claim either filed or in draft. I would indicate that I think there is some considerable force in the respondent’s argument. But the applicant faces a much more serious problem. I do not accept that the claim which he has put forward is one which he could not have set up in the action or proceeding. I accept that the jurisdiction of the Industrial Relations Court is limited and that as Palmer J said in Premier Sports Australia Pty Ltd v Dodds [2001] NSWSC 707 at [19]:
“[19] Under s106(1) the Commission may only make a declaratory order in respect of a contract which it finds to be unfair. Likewise, under subs(5) the Commission may make an order for payment of money only “in connection with” a contract found to be unfair and declared wholly or partly void, or varied. Absent a finding of unfairness, the Court has no power to make any declaration or order at all. If the IRC found that Mr Dodds’ contract was not an unfair contract then Premier would have to litigate their claims against Mr Dodds elsewhere.”
But the phrase “that he or she could not have set up in the action or proceeding” has been interpreted widely (re: Racheha; ex-parte Antonios (1980) 49 FLR 423; Bessemer v The Owners Strata Plan No 6925/35054 [1998] 916 FCA). The phraseology does not restrict the applicant to the particular court in which the proceedings were heard. If the cross claim could have been heard in another court to which the case could have been transferred then the applicant cannot argue that it is a matter which could not have been raised in the proceedings. Premier Sports supra is authority for the proposition that a claim commenced under s.106 which involves matters that are outside the jurisdiction of the Industrial Relations Commission of New South Wales can be cross vested into the Supreme Court of New South Wales. In Re Noel Ling; ex-parte Noel Ling v The Commonwealth of Australia (1995) 130 ALR 596 Hill J considered this problem in the context of a claim which had been commenced in the Federal Court where the Federal Court’s jurisdiction was limited. He held that the claim could have been commenced in the High Court and remitted to the Federal Court pursuant to s.44 of the Judiciary Act 1903 (Cth). This would have given the Federal Court sufficient jurisdiction to hear and determine the matter on all bases. His Honour found at [34] that:
“The claims in court against the Commonwealth which [the creditor] alleges are such that they could have been raised in the Commonwealth proceedings as cross claims and accordingly may not now be advanced by the debtor as a ground to set aside the bankruptcy notice.”
It seems to me to follow from this decision that a claim that was capable of being cross vested from the Industrial Relations Commission into the Supreme Court of New South Wales, which court would have jurisdiction to hear the tortious claim now advanced by the applicant, is a claim which the applicant could have set up in the proceedings.
To my mind this finding is fatal to the applicant’s case but it is appropriate that I should deal with the general question of “satisfaction” given the arguments that were put by both parties during the course of the hearing. The court is required to be satisfied that the applicant has a genuine demand which has a reasonable prospect of success (Re A Debtor (1958) 1 CH 81). In Guss v Johnstone (2000) 171 ALR 598 the High Court put it as follows:
“The state of satisfaction referred to in ss.40(1)(g) and 41(7) involves weighing up considerations as to the legal and factual merit of the claim relied on by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await determination of the claim.”
It also said:
“The cross demand must be an effective claim existing at the time the application to set aside the bankruptcy notice is made and capable of being enforced by an action.” (Guss v Johnstone supra).
I do not think that this claim meets these criteria. It has not been articulated other than in submissions before me. The applicant says that the claim is contained in a lengthy document setting out particulars of the variations claimed; but this is not any more than the particularisation of the damage. It does not indicate the cause of action. From what I have been told about the cause of action, I believe, it has very doubtful prospects of success against this creditor who was not the principal but the agent of the principal. Further, I think there is a real argument that the proceedings would fail on the grounds of an Anshun estoppel or an argument of res judicata. Finally, the proceedings are, by any account, out of time and would be subject to a defence that the cause of action has been extinguished by virtue of s.14(1) of the Limitation Act 1969 (NSW).I am of the view that there is justice in allowing the bankruptcy proceedings to go ahead and not awaiting the determination of an action that has yet to be commenced.
I dismiss this application but I will extend the time for compliance with the bankruptcy notice until 27 February 2003 so that the applicant can have a further chance to make payment of the amount due. I order that the applicant pay the respondent’s costs pursuant to the Federal Court Act and Rules to be taxed if not agreed.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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