FEDERAL CIRCUIT COURT OF AUSTRALIA
| BOYLE AS LIQUIDATOR OF THE FORGIONE FAMILY GROUP PTY LTD v FORGIONE | [2018] FCCA 2578 |
| Catchwords: CORPORATIONS – Insolvency – mutual credit and set-off – whether Anshun estoppel operates to preclude statutory set-off. ESTOPPEL – Anshun estoppel – principles – whether ground of opposition to sequestration order application Anshun estopped – whether Anshun estoppel operates to preclude statutory set-off – whether reasonable to raise issue in earlier proceedings. PRACTICE AND PROCEDURE – Estoppel – Anshun estoppel – whether ground of opposition to sequestration order application Anshun estopped – whether Anshun estoppel operates to preclude statutory set-off. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.41(5), 43, 86 Bankruptcy Act 1914 (UK), s.31 |
| Cases cited: Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170 |
| Applicant: | SHAUN WILLIAM BOYLE AS LIQUIDATOR OF FORGIONE FAMILY GROUP PTY LTD (ACN 009 363 464) (IN LIQ) |
| Respondent: | FRANCESCO FORGIONE |
| File Number: | PEG 510 of 2017 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 9 April 2018 |
| Date of Last Submission: | 9 April 2018 |
| Delivered at: | Perth |
| Delivered on: | 17 September 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr S.K Shepherd |
| Solicitors for the Applicant: | Tottle Partners |
| Counsel for the Respondent: | Mr D.W Thompson |
| Solicitors for the Respondent: | SRM Lawyers |
ORDERS
That the applicant’s oral interlocutory application made at hearing on 9 April 2018 to strike out the ground of opposition in the respondent’s Notice stating grounds of opposition to petition filed 13 October 2017 be dismissed.
That the matter be adjourned to a date to be fixed after 1 October 2018 for hearing.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 510 of 2017
| SHAUN WILLIAM BOYLE AS LIQUIDATOR OF FORGIONE FAMILY GROUP PTY LTD (ACN 009 363 464) (IN LIQ) |
Applicant
And
| FRANCESCO FORGIONE |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Shaun William Boyle as Liquidator of Forgione Family Group Pty Ltd (ACN 009 363 464) (in liq) (“Liquidator”), by a Creditor’s Petition filed on 20 September 2017 seeks a sequestration order pursuant to s.43 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) as a judgment creditor against the estate of the respondent, Mr Francesco Forgione (“Mr Forgione”) as a result of the Federal Court of Australia entering judgment by consent in WAD 86 of 2009 (“Judgment”) in favour of the Liquidator for the amount of $129,408.74 on 23 December 2015 (“Judgment Debt”).
The hearing
When the matter came on for hearing on 9 April 2018 both parties had filed written submissions in respect of the Creditor’s Petition. Mr Forgione’s sole ground of opposition was a claim of set-off pursuant to s.41(5) of the Bankruptcy Act and s.553C(1) of the Corporations Act 2001 (Cth) (“Corporations Act”). At the commencement of the hearing the Liquidator sought to raise a preliminary issue which did not appear in the Liquidator’s written submissions. The Liquidator submitted that Mr Forgione’s ground of opposition ought to be struck out on the basis of an Anshun estoppel.
This judgment is concerned with the preliminary Anshun estoppel issue.
Background
The basic background to the matter is as follows:
a)between 1 July 1991 and 3 June 2004, Mr Forgione was one of the directors of Forgione Family Group Pty Ltd (“Forgione Family Group”);
b)Forgione Family Group appointed a voluntary administrator on 1 November 2004, and on 20 December 2004 Forgione Family Group was placed into liquidation;
c)on 28 May 2009, the liquidator of Forgione Family Group commenced proceedings in the Federal Court of Australia (“Federal Court Proceedings”) seeking compensation pursuant to s.588M of the Corporations Act from Mr Forgione and another director for insolvent trading;
d)the Federal Court delivered judgment in the Federal Court Proceedings on 26 June 2015: Trinick v Forgione & Anor [2015] FCA 642; (2015) 239 FCR 285; (2015) 106 ACSR 600 (“Trinick”);
e)on 23 December 2015 orders were made by consent in the Federal Court Proceedings (“December 2015 Orders”), including the following order:
Judgment be entered in favour of the applicant [the Liquidator] against the respondents [of whom Mr Forgione was one] jointly and severally in the sum of $90,279.75 together with interest from 20 December 2004 to 16 December 2015 in the amount of $39, 128.99;
f)the Liquidator served a bankruptcy notice on Mr Forgione on 8 August 2017 (“Bankruptcy Notice”);
g)on 10 August 2017, Mr Forgione served a notice on the Liquidator pursuant to s.41(5) of the Bankruptcy Act, relying on his right to a set-off under s.553C(1) of the Corporations Act (“Set-Off Claim”);
h)on 20 September 2017, the Liquidator commenced these proceedings against Mr Forgione, seeking a sequestration order;
i)on 13 October 2017 Mr Forgione filed a “Notice stating grounds of opposition to the petition” (“Notice of Opposition”); and
j)the matter came on for hearing on 9 April 2018, at which time the Liquidator raised the Anshun estoppel issue in relation to the Notice of Opposition.
Trinick
The judgment in Trinick is long: it is 522 paragraphs, and 98 pages in length. In considering the issue in the present proceedings it is necessary to refer to Trinick in some detail.
At the outset it is relevant to note that in Trinick at [4] per Siopis J the Federal Court observed that:
The debt alleged by Mr Frank Forgione in his proof of debt was in respect of unpaid loans made by Mr Frank Forgione to the company. The loans to the company were made by Mr Forgione discharging from his own monies a number of the company's debts.
Otherwise, a brief overview of some of the relevant facts in Trinick is as follows:
a)Forgione Family Group was incorporated in 1989, and Mr Forgione and Mr Peter Forgione (“Mr Forgione the Younger”) were directors of Forgione Family Group: Trinick at [23] per Siopis J;
b)between 2001 and 2003:
i)Forgione Family Group incurred significant debts and accrued penalties imposed by the Australian Taxation Office (“ATO”); and
ii)Forgione Family Group’s cheques were not honoured on some occasions: Trinick at [31]-[76] per Siopis J;
c)from March 2001 and May 2004 Forgione Family Group failed to meet a number of financial obligations to the ATO, Bank of Western Australia Limited (“BankWest”), and National Australia Bank Limited (“NAB”): Trinick at [23]-[48] per Siopis J;
d)Forgione Family Group ceased trading in November 2003, and upon creditors demanding payment:
…at some time during the period around March to June 2004, Mr Frank Forgione commenced making payments from his own monies to pay a number of other creditors of the company which Mr Peter Forgione had identified. Records were not produced at the trial evidencing the precise date on which the payments to these creditors were made. The precise date on which each of these debts was paid is, therefore, not known. However, the payments included the payment of an outstanding balance of $55,099.88 owed by the company under its BankWest loan facility, $19,569.18 in respect of its BankWest visa card account, and $24,000 owed under a vehicle financing arrangement Mr Peter Forgione had entered into in respect of an Alfa Romeo motor vehicle which Mr Peter Forgione had purchased from a car dealer, Barbagallo. It was not disputed that during the period, Mr Frank Forgione paid a total sum of $122,832.39. Mr Frank Forgione claimed in his proof of debt that the payment of these monies comprised a loan by him to the company.
Trinick at [78] per Siopis J;
e)on the advice of Mr Forgione’s taxation and accounting agent, Mr Forgione resigned as a director of Forgione Family Group on 3 June 2004: Trinick at [80] per Siopis J;
f)a meeting of creditors of Forgione Family Group was held on 20 December 2004 where it was resolved that Forgione Family Group be placed into liquidation and that Mr Graeme Lean, then the administrator of Forgione Family Group, be appointed as the liquidator: Trinick at [1] per Siopis J; and
g)the Deputy Commissioner of Taxation filed a proof of debt in respect of unpaid tax, interest charges, penalties and superannuation contributions incurred by Forgione Family Group, and Mr Forgione filed a proof of debt in respect of unpaid loans made to Forgione Family Group: Trinick at [3] per Siopis J.
The Liquidator commenced the Federal Court Proceedings alleging that Mr Forgione and Mr Forgione the Younger were jointly and severally liable for debts incurred during the period when both were directors of Forgione Family Group, and that Mr Forgione the Younger was individually liable for debts incurred when he was Forgione Family Group’s sole director. The Liquidator claimed that at the time Forgione Family Group incurred the debts it was presumed to have been insolvent by virtue of s.588E(4) of the Corporations Act. This presumption was said to arise because of its failure to comply with its obligations under s.286(1) and (2) of the Corporations Act by failing, firstly, to keep financial records, and, secondly, to retain those records for 7 years, or, alternatively, that Forgione Family Group was actually insolvent during that period: Trinick at [3]-[4] per Siopis J.
Mr Forgione and Mr Forgione the Younger denied the claims that Forgione Family Group was presumed to have been or was actually insolvent and relied on the defences set out in s.588H(2) and (3) of the Corporations Act. Mr Forgione contended, and gave evidence in the Federal Court Proceedings, that he had the actual expectation that Forgione Family Group would remain solvent because he knew and believed that he would provide all necessary support to pay Forgione Family Group’s debts as and when they fell due: Trinick at [346] per Siopis J. Mr Forgione pleaded three grounds of defence against the Liquidator’s claims that Mr Forgione was liable for debts accrued by Forgione Family Group while it was actually, or he ought to have been reasonably aware it was, insolvent. Those three grounds (and an additional ground raised at hearing in the Federal Court Proceedings) were as follows:
a)section 588H(2) of the Corporations Act, which the Federal Court noted amounted to no more than simply pleading the words of the provision, and a submission by Counsel for Mr Forgione that Mr Forgione had the actual expectation that Forgione Family Group was and would continue to be solvent because he knew and firmly believed that he would provide all the necessary support to pay all of Forgione Family Group’s debts as and when they fell due: Trinick at [346] per Siopis J;
b)section 588H(3) of the Corporations Act, stating he had reasonable grounds to believe and did believe that at the time when the debts were allegedly incurred, that his taxation and accounting agent:
i)was a competent and reliable person for providing Mr Forgione with adequate information about whether Forgione Family Group was solvent; and
ii)was fulfilling his responsibility concerning the provision of that information: Trinick at [352] per Siopis J;
c)section 1317S of the Corporations Act, pleading that if Mr Forgione had contravened s.558G of the Corporations Act he ought to be excused, for at all times he acted “honestly in the performance of his duties as a director:” Trinick at [385] per Siopis J; and
d)the additional ground raised under s.1317S of the Corporations Act contended that Mr Forgione ought to be partially relieved from liability in respect of the loss claimed by the Liquidator by being given credit for an amount said to be equal to the tax refund that Forgione Family Group would have received for PAYG instalment tax for the 2003 and 2004 financial years if tax returns based on financial statements already prepared had been filed by the Liquidator: Trinick at [457] per Siopis J.
In finding Mr Forgione failed to establish a defence as set out is s.588H(2) and (3) of the Corporations Act, the Federal Court found that:
a)Mr Forgione was not at all times prior to late 2004 ready, willing and able to provide funding to Forgione Family Group to pay its debts as and when they fell due, therefore Forgione Family Group was insolvent during the period 1 July 2001 to 30 June 2004: Trinick at [230]-[246] per Siopis J;
b)Forgione Family Group was actually insolvent from, at the latest, 29 October 2001, until it was wound up on 20 December 2004: Trinick at [286]-[302] per Siopis J;
c)a person of ordinary competence would objectively have suspected that Forgione Family Group was not able to pay all of its debts as and when they fell due, and would not have considered Mr Forgione as being able to meet all of Forgione Family Group’s debts as and when they fell due, thus, in the absence of evidence or pleadings that there were any other sources of finance available to Forgione Family Group, there were reasonable grounds for suspecting that Forgione Family Group was insolvent at the time that it incurred each debt: Trinick at [318]-[319] per Siopis J; and
d)from October 2002 Mr Forgione was actually aware there were reasonable grounds to suspect that Forgione Family Group was unable to pay its debts as and when they fell due, and as a director of Forgione Family Group, Mr Forgione would have been aware that there were reasonable grounds to suspect that from, at the latest, 29 October 2001, until 3 June 2004, Forgione Family Group was unable to pay its debts as and when they fell due, yet did not prevent Forgione Family Group from incurring debts in this period: Trinick at [340]-[344] per Siopis J.
In respect of the two alternative claims made under s.1317S of the Corporations Act, the Federal Court rejected them on the basis of findings that:
a)Mr Forgione had not acted honestly in his performance and duty as a director of Forgione Family Group;
b)the “reduction” ground was insufficiently pleaded; and
c)Mr Forgione had not made good the factual basis upon which the claim was based: Trinick at [430] and [481] per Siopis J.
The December 2015 Orders were made by consent and imposed joint and several liability upon Mr Forgione in the amount of $129,408.74.
Bankruptcy Notice
The Bankruptcy Notice appears as an annexure to the affidavit of Gary Jack McNamara dated 11 August 2017 (“McNamara Affidavit”), being Bankruptcy Notice BN215694 issued by the Official Receiver on 31 July 2017, and which claims the Judgment Debt of $129,408.74: McNamara Affidavit, Annexure A. Appearing with the Bankruptcy Notice are the December 2015 Orders made by consent in the Federal Court Proceedings.
Creditor’s petition
The Creditor’s Petition filed on 20 September 2017 sought a sequestration order under s.43 of the Bankruptcy Act against Mr Forgione’s estate on the basis that he owed the Judgment Debt to the Liquidator, Mr Boyle (Mr Boyle having been substituted as Liquidator for Mr Trinick on 18 July 2017). The act of bankruptcy relied upon was said to have been committed by Mr Forgione within six months before the presentation of the Creditor’s Petition, and was that Mr Forgione had failed to comply on or before 29 August 2017 with the requirements of the Bankruptcy Notice which was served on him on 8 August 2017, “or to satisfy the Court that he had a counterclaim, set-off or cross-demand equal to or more than the sum claimed in the Bankruptcy Notice, being a counter-claim, set-off or cross-demand that he could not have set up in the action in which the judgment referred to in the Bankruptcy Notice was obtained”.
Notice of Opposition
The Notice of Opposition filed on 13 October 2017 indicates that Mr Forgione intends to oppose the Creditor’s Petition on the basis of notice provided pursuant to s.41(5) of the Bankruptcy Act of the misstatement of the amount in the Bankruptcy Notice by correspondence dated 10 August 2017 (“Section 41(5) Notice”). An affidavit of Mr Forgione sworn 11 October 2017 was filed in support of the Notice of Opposition (“Forgione Affidavit”). Annexure FF6 to the Forgione Affidavit is a copy of the Section 41(5) Notice signed by Mr Forgione’s lawyers, which is in the following terms:
1. our client disputes the validity of the Bankruptcy Notice on the ground of misstatement, which renders the Bankruptcy Notice invalid from the date of the Bankruptcy Notice, pursuant to section 41 (5) of the Bankruptcy Act 1966 (Cth); and
2. your client has an obligation pursuant to section 553C of the Corporations Act 2001 (Cth) to account in respect of mutual dealings between the parties and admit only the balance payable. Please refer to the attached DCS Advisory correspondence to our client dated 11 May 2017, which admits our client's Proof of Debt issued to the Creditor for $122,415, being the amount to be set off against the sum now claimed in the Bankruptcy Notice.
At Annexure FF4 to the Forgione Affidavit is a letter from the Liquidator dated 11 May 2017 allowing a claim made by Mr Forgione in a proof of debt dated 19 March 2013 (“2013 POD”) in the sum of $122,415, “as there is sufficient evidence to substantiate a loan account”. It would appear that the same claim for $122,415 had been made by Mr Forgione in a proof of debt submitted on 5 November 2004 (“2004 POD”), and the claim in the 2004 POD was rejected on the basis of double proofing because the same claim was made in the 2013 PD: Forgione Affidavit, Annexure FF4 (Notice of Rejection of Formal Proof of Debt or Claim dated 11 May 2017).
Anshun estoppel
The Anshun estoppel principle is derived from the judgment of the High Court in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589; (1981) 55 ALJR 621; (1981) 26 ALR 3 (“Anshun”).
In Truthful Endeavour Pty Ltd v Condon [2015] FCAFC 70; (2015) 233 FCR 174; (2015) 321 ALR 483; (2015) 13 ABC(NS) 162 (“Truthful Endeavour”) at [10] per Allsop CJ, Katzmann and Gleeson JJ the Full Court of the Federal Court of Australia said that “in order to understand how the [Anshun estoppel] principles operate, it is useful to recall the circumstances in which they were enunciated” and then further observed as follows at [11]-[14] per Allsop CJ, Katzmann and Gleeson JJ:
11. Before the proceeding with which Anshun was concerned, a dock worker who had suffered injury by the operation of a crane brought a suit for damages against the Port of Melbourne Authority, the owner of the crane, and his employer, Anshun Pty Ltd, which had hired it. By notices given under the Supreme Court (General Civil Procedure) Rules 2005 (Vic), the defendants sought contribution from each other under the Wrongs Act 1958 (Vic). The notice served by the Authority did not claim an indemnity, although the hire agreement contained a clause obliging Anshun to indemnify the Authority in respect of actions and claims in relation to injury or loss of life arising out of the hire, the Wrongs Act provided for an indemnity in an appropriate case, and the indemnity would have been a defence to Anshun’s claim for contribution. The jury found in favour of the worker and apportioned liability 90% to the Authority and 10% to Anshun. Judgment was entered accordingly. In Anshun the Authority sued to enforce an indemnity under a clause in the hiring contract, a claim that could have been made in the earlier proceeding. Gibbs CJ, Mason and Aickin JJ said at 602-603, in a passage cited by the primary judge at [101] of her reasons, that in a situation in which a plaintiff is said to be estopped because of its omission to plead a defence in an earlier action:
[T]here will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings, e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few …
It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment …
12. The Authority’s application failed because the High Court held that a judgment enforcing the indemnity would conflict with the earlier judgment for 10% contribution. The Anshun principle is based on unreasonable conduct in litigation. It should be noted that in Anshun, Gibbs CJ, Mason and Aickin JJ referred to the inutility of founding the test on abuse of process: Anshun at 602-603; see generally Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 (Champerslife) at [1]-[4], [89].
13. Anshun was itself an application (possibly even an extension) of the principle expressed by Wigram VC in Henderson v Henderson (1843) 3 Hare 100 at 115; 67 ER 313 at 319:
[W]here a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
14. The Anshun principle may apply to cross-claims as well as defences: Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 (Bryant).
In Spalla v St George Motor Finance Ltd (No.6) [2004] FCA 1699 at [65] per French J the Federal Court said that the application of the Anshun principle “requires the evaluative judgment whether it would have been ‘reasonable’ to have raised in the first proceedings the matter now raised in the second”, or whether, as the Full Court of the Federal Court observed in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287; (1995) 130 ALR 129; [1995] ATPR 41-421, FCR at 295 per Beaumont, Wilcox and Moore JJ that it was unreasonable for the party asserting the cause of action in the second proceeding to refrain from raising it in the earlier proceeding against the same opponent. In Truthful Endeavour the Full Court of the Federal Court made a number of observations in relation to Anshun estoppel, including the following:
a)the question of whether conduct was unreasonable called for an evaluative judgment as to the proper conduct of modern litigation: at [71] per Allsop CJ, Katzmann and Gleeson JJ;
b)whether a case of the kind to be propounded in a court could have been part of the case in an earlier court is relevant to an Anshun enquiry, but that alone is insufficient for the Anshun estoppel to operate, and merely because a matter could have been raised in earlier proceedings does not mean it should have been raised, and whether it should have been raised depends on whether the matter was so relevant as to make it unreasonable not to raise it: at [74] per Allsop CJ, Katzmann and Gleeson JJ;
c)a mechanistic approach should not be taken to the identification of common factual issues because there are a variety of circumstances which might justify a party who has not raised an issue in one proceeding agitating it in another: at [75] per Allsop CJ, Katzmann and Gleeson JJ; and
d)in each case it is necessary to decide whether the issues raised in the later proceedings were so relevant to the issues raised in the earlier proceedings that it would be unreasonable to permit them being agitated in the later proceedings: at [77] per Allsop CJ, Katzmann and Gleeson JJ.
For the purposes of determining the unreasonableness required for Anshun estoppel to operate, the possibility of conflicting judgments has been said to be strongly indicative of unreasonableness: Egglishaw v Australian Crime Commission [2007] FCAFC 183; (2007) 164 FCR 224; (2007) 69 ATR 210; (2007) 243 ALR 177 (“Egglishaw”) at [32] per Finn, Kenny and Edmonds JJ; Anshun, CLR at 603 per Gibbs CJ, Mason and Aickin JJ. Where the Anshun estoppel test is met, a court still has a discretion to allow the later proceeding to continue if “special circumstances” exist: Egglishaw at [35] per Finn, Kenny and Edmonds JJ; Wong v Minister for Immigration & Multicultural & Indigenous Affairs [2004] FCA 51; (2004) 204 ALR 722 (“Wong”) at [49] per Lindgren J. More recently the Full Court of the Federal Court has observed that the approach adopted in Australia “is to focus at the outset on all the relevant circumstances or, as Wilcox J put it in Ling v Commonwealth at 184, ‘all aspects of the case’”: Truthful Endeavour at [112] per Allsop CJ, Katzmann and Gleeson JJ (but in which case it is not apparent that the attention of the Full Court of the Federal Court was drawn to the earlier judgment of the Full Court of the Federal Court in Egglishaw, or the judgment of the Federal Court in Wong).
In Ling v Commonwealth (1996) 68 FCR 180; (1996) 139 ALR 159 (“Ling”) (a case preceding both Egglishaw and Wong) the Federal Court said regard must be had to all aspects of the case, including the extent of the overlap between the underlying facts in each claim and difficulties that existed, or might reasonably have been perceived to exist, in raising the matter earlier, and that where a cross-claim, in particular, involved additional facts it was a question of degree as to whether the additional facts were substantial, and whether it may be appropriate to accept the reasonableness of separate proceedings where they were substantial: Ling, FCR at 183-184 per Wilcox J.
Duties and role of a liquidator
It is necessary to say something, albeit brief, about the duties and role of a liquidator.
A court appointed liquidator is undoubtedly an officer of the Court: Corporate Affairs Commission (Vic) v Harvey [1980] VR 669; (1979) 4 ACLR 259; (1979) CLC 40-564, VR at 695 per Marks J; Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170 at [39] per Dodds-Streeton J. In circumstances where a voluntary liquidator is appointed, that liquidator is not an officer of the Court, but rather an agent of the company: Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209; (1997) 24 ACSR 79; (1997) 15 ACLC 833, NSWLR at 212 per Young J. The liquidator is subject to the duties imposed upon “officers” of a company as defined in the s.9 of the Corporations Act. In Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529 per Lord Denning MR it was said:
It is the duty of a liquidator to inquire into all claims, to see whether they are well founded or not, to pay the good claims, to reject the bad, to settle the doubtful, or, if need be, to contest them. It is only in this way that a liquidator can fulfil his duty … of seeing that the property of the company is applied in satisfaction of its liabilities pari passu.
Liquidators are governed, and subject to the standards imposed, by:
a)Pt 2D.1 of the Corporations Act concerning duties of officers of corporations;
b)equitable principles concerning fiduciaries: Ex Parte James (1874) LR 9 Ch App 609 (“Ex Parte James”); and
c)the relevant court in its control of liquidators pursuant to s.536 of the Corporations Act: Magarditch v ANZ Banking Group Ltd (1999) 32 ACSR 367; (1999) 17 ACLC 1275.
While deriving from the law of bankruptcy, what is known as known as the rule in Ex Parte James has been found to be equally applicable to liquidators, both court appointed and, though contested, apparently voluntary: Re Tyler [1907] 1 KB 865; Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (in liq) (1948) 76 CLR 463; (1948) 22 ALJR 286, CLR at 482 per Williams J (“Downs Distributing”). The rule was expressed as follows in Ex Parte James at 614 pe James LJ:
a trustee in bankruptcy is an officer of the Court. He has inquisitorial powers given him by the Court, and the Court regards him as its officer, and he is to hold money in his hands upon trust for its equitable distribution among the creditors. The Court, then, finding that he has in his hands money which in equity belongs to someone else, ought set an example to the world by paying it to the person really entitled to it. In my opinion the Court of bankruptcy ought to be as honest as other people.
The rule in Ex Parte James is a rule of fair dealing that has been developed to address circumstances where it would be unjust to allow a liquidator to press a claim. The Court notes that in:
a)Re Harry Simpson & Co Pty Ltd [1966] 2 NSWR 445; (1966) 84 WN (NSW) 455 at 460 per Asprey JA it was noted that although a voluntary liquidator was not an officer of the court but an agent of company it was the liquidator’s duty to keep an even hand in relation to all persons claiming to be creditors of a company;
b)McDonald v Hanselmann (1998) 28 ACSR 49 at 51 per Young J it was said that even though voluntary liquidators are not officers of the court, the court would still not permit them to behave in an unworthy fashion; and
c)The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd [2007] NSWSC 676 per Young CJ at [178] reference was made to the court keeping control over liquidators, and that the statutory powers of the court were such that voluntary liquidators may be treated as if they were officers of the court.
Relevant legislative provisions
Bankruptcy Act
Section 41(5) of the Bankruptcy Act provides as follows:
A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.
Corporations Act
Section 553C of the Corporations Act provides as follows:
(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
(b) the sum due from the one party is to be set off against any sum due from the other party; and
(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.
(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.
Section 588G of the Corporations Act relevantly provides as follows:
(1) This section applies if:
(a) a person is a director of a company at the time when the company incurs a debt; and
(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d) that time is at or after the commencement of this Act.
(1A) …
(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a) the person is aware at that time that there are such grounds for so suspecting; or
(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.
(3) A person commits an offence if:
(a) a company incurs a debt at a particular time; and
(aa) at that time, a person is a director of the company; and
(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c) the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and
(d) the person's failure to prevent the company incurring the debt was dishonest.
(3A) …
(3B) …
(4) ….
Section 588M of the Corporations Act relevantly provides as follows:
Recovery of compensation for loss resulting from insolvent trading
(1) This section applies where:
(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and
(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and
(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and
(d) the company is being wound up;
whether or not:
(e) the director has been convicted of an offence in relation to the contravention; or
(f) a civil penalty order has been made against the director in relation to the contravention.
(2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.
(3) The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.
(4) Proceedings under this section may only be begun within 6 years after the beginning of the winding up.
Liquidator’s submissions
The Liquidator submitted that:
a)proceedings under s.588G of the Corporations Act relate to matters of solvency of a company and they relate to the knowledge of the relevant director as to issues of solvency, and whether or not there were reasons to suspect that the relevant company was insolvent;
b)an important aspect of a defence under s.588G of the Corporations Act, and one ultimately rejected by the Federal Court in Trinick, was the contention that Mr Forgione was ready, willing and able to provide funding from time to time to pay the debts of the Forgione Family Group, when they fell due;
c)the payments that now comprise the Set-Off Claim were before the Federal Court in Trinick, and as such went to the issue of the solvency of the Forgione Family Group and the knowledge of Mr Forgione at the time, both of which are relevant to the different tests under ss.553C and 588G of the Corporations Act;
d)the nature of the information as to the insolvency of the Forgione Family Group, and when it effectively came to the attention of Mr Forgione, was precisely the issue in Trinick, just as it is a significant issue in these proceedings;
e)the test in relation to s.588G of the Corporations Act is whether or not there was information that, or would lead someone reasonably to suspect that, Forgione Family Group was insolvent, which is a different test from that under s.553C(2) of the Corporations Act which is notice of the fact of insolvency of the Forgione Family Group. It was not, however, open to the Federal Court to make that second finding in Trinick because, although the issue could have been run as a defence by Mr Forgione in Trinick, it was not run and as such is the cornerstone of the claim for Anshun estoppel;
f)although the tests under ss.553C and 588G of the Corporations Act are different, the evidence of matters which go to those tests is the same evidence, namely what Mr Forgione knew about the circumstances of the Forgione Family Group at the time the payments were made, and whether there was a failure to raise the Set-Off Claim under s.553C of the Corporations Act, and to have the Set-Off Claim determined in the Federal Court Proceedings. The Federal Court was not asked in the Federal Court Proceedings to make a finding or findings concerning the Set-Off Claim when it could have been asked, and Mr Forgione ought to be estopped from making the Set-Off Claim in these proceedings where there is potentially a risk of inconsistent judgments;
g)the question of the payments forming the basis for the Set-Off Claim was before the Federal Court in Trinick and it was a defence that one would expect to be run, particularly so as it is now being run years later, and it cannot now be said “well, I didn’t run it before but I would like to run it now because of these bankruptcy proceedings”: Transcript, 9 April 2018, page 4;
h)running the Set-Off Claim in the Federal Court Proceedings would simply have been a matter of pleading it, as the evidence would have been the same, and having made what appears to be a forensic decision not to run the Set-Off Claim, Mr Forgione should now be estopped from doing so, similar to the plaintiff Port Authority in Anshun;
i)in Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528 (“Bone”) the Federal Court accepted that in a case where a liquidator is seeking compensation for insolvent trading pursuant to s.588G of the Corporations Act, or similar provisions, it is open to a respondent to raise payments made to the company, and in Bone a set-off was in fact applied to some of the amount sought in relation to compensation. It was, therefore, open to Mr Forgione to raise the Set-Off Claim in the Federal Court Proceedings;
j)there is no basis for limiting the Anshun principle to any particular type of litigation, rather the High Court in Anshun simply indicated that it was not open for a party to fail to raise an issue that plainly ought to have been raised in earlier proceedings, and then come to a court and try and have that issue re-litigated in subsequent proceedings; and
k)in Trinick at [503] per Siopis J the Federal Court states:
The next question is the quantum of the loss or damage which the applicant is entitled to claim as a debt due to the company under section 558M(2) of the Corporations Act,
and thus the Federal Court dealt with what was owed by Mr Forgione to the Forgione Family Group, and Mr Forgione did not plead the Set-Off Claim, and that is what now founds the Anshun estoppel.
Mr Forgione’s submissions
Mr Forgione submitted that:
a)in this case, there is no possibility of inconsistent outcomes because the tests are different. In the Federal Court Proceedings the question was whether there were reasonable grounds for suspecting Forgione Family Group was insolvent or would so become insolvent. The Federal Court did not have to decide whether Mr Forgione had actual knowledge or actual notice of the fact of insolvency for the purposes of s.553C(2) of the Corporations Act;
b)the issue to be decided in the Federal Court Proceedings was whether the state of things amounted to reasonable grounds for suspecting insolvency, and there was no occasion to raise anything higher than that because the bar in insolvent trading on the basis of knowledge is considerably lower than the bar in the set-off provision under s.41(5) of the Bankruptcy Act;
c)set-off pursuant to s.553C of the Corporations Act is mandatory, it is a species of set-off peculiar to insolvency law and whilst, as in Bone, one could raise it in court in company insolvency proceedings, there is no need to raise it as it is a mandatory direction to the liquidator as much as to the creditor or the court concerned that this is how mutual dealing claims are to be dealt with and in that respect, it is different to equitable set-off run as a defence;
d)there is no need to run set-off under s.553C of the Corporations Act as a defence as it is simply a direction to all involved as to how inter-woven claims are to be dealt with, and typically it takes effect at the proof of debt stage and Mr Forgione might have expected the Liquidator to set-off the amounts now claimed in the Set-Off Claim, because that is what s.553C of the Corporations Act tells a liquidator to do; and
e)it was not unreasonable not to raise the Set-Off Claim in Trinick, because:
i)Mr Forgione and his advisors were perfectly entitled to assume that, given its mandatory nature, the Set-Off Claim would be applied at a later stage; and
ii)the nature of an insolvent trading claim is not precisely the same as a claim for a debt owing to a company, but is rather a claim for compensation for loss and damage caused to a company by a director who allows it to trade whilst it is insolvent and the damages tend to be quantified by the amount of debt that the company incurred in that phase, and it is not until a finding is made that the “award” or damages becomes recoverable as a debt owing to the company, and until then the insolvent trading claim is a claim brought by a liquidator against a person.
Consideration
Section 553C of the Corporations Act
Section 553C of the Corporations Act is derived from s.86 of the Bankruptcy Act, which prior to the enactment of s.553C of the Corporations Act applied in the winding up of an insolvent company (that is prior to the enactment of amendments under the Corporate Law Reform Act 1992 (Cth) which came into effect on 23 June 1993 and incorporated s.553C into what is now the Corporations Act: see GM & AM Pearce & Co Pty Ltd v RGM Australia Pty Ltd [1998] 4 VR 888; (1998) 143 FLR 1; (1998) 26 ACSR 639; VR at 894 per Batt JA (“Pearce”); Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in Liquidation) (Receivers and Managers Appointed) [2017] WASC 152; (2017) 52 WAR 90; (2017) 320 FLR 259; (2017) 15 ABC(NS) 59 at [152] per Tottle J (“Hamersley Iron”)). Save for the obvious distinction that s.553C of the Corporations Act applies to corporate insolvency and s.86 of the Bankruptcy Act to personal insolvency, there is no reason to adopt a different interpretation of the relevant provisions which are otherwise substantially similar, and as was observed by the Supreme Court of Victoria in Pearce, VR at 899 per Batt JA:
Provisions equivalent or substantially equivalent to s 553C have, as the appellant submitted, been part of the law of corporate and personal insolvency for very many years indeed and it would require clear words in the new section to abrogate the principles embodied in them as expounded in Gye v McIntyre. But, as the cases there cited show, those principles were not new, but of considerable antiquity. The phrase descriptive of the person who has had mutual dealings with the insolvent company that is used in s 553C(1), in my view, not only lacks the requisite clarity of indication of intention to abrogate or alter the principles, but on its true construction has the same or virtually the same meaning as the long-standing and well-understood corresponding description found in s 86(1). The change in language seems merely to be a modernising elegant — or rather inelegant — variation. In short, I see no reason to adopt a different interpretation of the description in s 553C(1) from the interpretation of the description in s 86(1).
Section 86 of the Bankruptcy Act has an antique provenance, its statutory roots stemming from 18th century English bankruptcy legislation, which was arguably based upon a principle of bankruptcy law which pre-dated any statutory enactment, namely that where two persons had dealings with each other on mutual credit and one of them became bankrupt, the account should be settled between them and the balance only payable on either side: Re Anonymous 86 ER 837; (1676) 1 Mod Rep 215; Chapman v Derby 23 ER 684; (1689) 2 Vern 117.
In the United Kingdom the provisions of s.31 of the Bankruptcy Act 1914 (UK) were considered in National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785 (“Halesowen Presswork”) in which the House of Lords considered the question of whether parties could contract out of the insolvency set-off provision. The majority held that the insolvency set-off provisions could not be contracted out of, and particularly so because the set-off provision regulated matters of public interest, and not merely the private rights of contracting parties, and as such constituted a code of procedure for the proper and orderly administration of a bankruptcy: Halesowen Presswork at 809 per Lord Simon of Glaisdale and 824 per Lord Kilbrandon, such that they made it “impossible for persons effectively to contract, either before or after an act of bankruptcy has occurred, with a view to the bankruptcy being administered otherwise than in accordance with the statutory directives”: Halesowen Presswork at 824 per Lord Kilbrandon. See also: Rolls Razor Ltd v Cox [1967] 1 QB 552 and Re Cushla Ltd [1979] 3 All ER 415 (“Re Cushla”) to the effect that parties to mutual dealings cannot contract out of the bankruptcy statute.
In Re Paddington Town Hall Centre Ltd (in Liquidation) (1979) 41 FLR 239; (1979) 4 ACLR 673 (“Paddington Town Hall Centre”) a company had, at the date when a winding-up order was made, bank accounts with a credit balance in excess of $8,000, and loan accounts with a debit balance of some $70,000. The bank, at the request of the liquidator of the company, transferred the credit of $8,218.17 into new accounts opened by the liquidator at the bank. The bank subsequently claimed reimbursement of the $8,218.17, and the liquidator sought directions whether he was required to repay, or justified in repaying, that sum. The Supreme Court of New South Wales held that s.86 of the Bankruptcy Act, made applicable in the winding-up by s.291 of the then Companies Act 1961 (New South Wales), entitled the bank to set-off the balance of the accounts in credit against those accounts in debit: Paddington Town Hall Centre, FLR at 240 per Needham J (applying Halesowen Presswork). In coming to the view that it was appropriate to direct the liquidator to repay the sum of money to the bank the Supreme Court of New South Wales observed that the parties had corresponded and that the liquidator had suggested that the bank was estopped from claiming back the sum of money: Paddington Town Hall Centre, FLR at 241 per Needham J, but in that respect the Supreme Court of New South Wales said as follows at FLR at 241 per Needham J:
It seems to me that if the provisions of s. 86 cannot be contracted out of, it would not be possible for an estoppel to negative the requirements of that section.
In Gye v McIntyre (1991) 171 CLR 609; (1991) 65 ALJR 221; (1991) 98 ALR 393 (“Gye”) the High Court was dealing with a case in which there had been a composition with creditors and which concerned the question as to whether or not there were mutual dealings for the purposes of s.86 of the Bankruptcy Act as between creditors and the bankrupt.
In Gye CLR at 618-619 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ the High Court observed as follows:
It has often been pointed out that the object of set-off in bankruptcy is, in the words of Parke B in Forster v Wilson “to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate”. Where there are genuine mutual debts, credits or other dealings, it would be unjust if the trustee in bankruptcy could insist upon having 100 cents in the dollar upon the whole of the debt owed to the bankrupt but at the same time insist that the bankrupt’s debtor must be satisfied with a dividend of some few cents in the dollar on the whole of the debt owed by the bankrupt to him. It was to prevent such injustice that the “mutual credits” and “mutual debts”, and later “mutual dealings”, provisions were introduced into bankruptcy legislation: see, eg, In re Daintrey; Ex parte Mant; Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd. To the extent necessary to achieve that legislative purpose of “substantial justice” to the parties, it is established by authority that a provision such as s 86 of the Act should be given “the widest possible scope”: see, eg, per Mason J, Day & Dent Constructions, quoting Lord Esher MR in Eberle’s Hotels and Restaurant Company v Jonas.
On the other hand, “substantial justice” requires that the operation of set-off in bankruptcy be confined within limits which protect the creditors of the bankrupt from being disadvantaged by a set-off being allowed in circumstances where debts, credits or other dealings have not been genuinely mutual as a matter of substance, such as where beneficial ownership is not the same or where, after bankruptcy or notice of an act of bankruptcy, a debtor of the bankrupt has bought up liabilities of the bankrupt at a discount for the purpose of setting them off against his own indebtedness: see, eg, Day & Dent Constructions. Thus, it is established by the cases that set-off under a provision such as s 86 is not available in circumstances where the beneficial entitlement and liability in respect of the countervailing credits and debits do not correspond: see, eg, In re City Life Assurance Co; Hiley v Peoples Prudential Assurance Co Ltd.
In Gye CLR at 622 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ the High Court further observed that s.86 of the Bankruptcy Act is:
a statutory directive (“shall be set off”) which operates as at the time the bankruptcy takes effect. It produces a balance upon the basis of which the bankruptcy administration can proceed. Only that balance can be claimed in the bankruptcy or recovered by the trustee. If its operation is to produce a nil balance, its effect will be that there is nothing at all which can be claimed in the bankruptcy or recovered in proceedings by the trustee. The section is self-executing in the sense that its operation is automatic and not dependent upon “the option of either party”: see, per Lord Selborne LC, In re Deveze; Ex parte Barnett. Indeed, the traditional and better view would appear to be that the statutory rule of set-off contained in s 86 will, where the requirements of the section are satisfied, prevail over a contrary agreement of the parties: see, eg, Mersey Steel and Iron Co v Naylor Benzon & Co; Victoria Products Ltd v Tosh & Co Ltd; Rolls Razor Ltd v Cox; National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd. It is, however, unnecessary to pursue that particular question. Even if one were to accept the dissenting view of Lord Cross of Chelsea in the National Westminster Bank Case, to the effect that the otherwise automatic operation of a provision such as s 86 may be excluded by an antecedent agreement, it would be wrong to attribute to the legislature the illogical intent that a directive which was intended to be otherwise automatic in its operation and to apply in circumstances where set-off produced a nil balance should not operate at all unless and until either the bankrupt’s creditor saw fit to exercise the option of lodging a formal proof of debt or the trustee in bankruptcy instituted proceedings for recovery of a debt due to the bankrupt.
An English equivalent of s.553C of the Corporations Act, being r.4.90 of the Insolvency Rules 1986 (UK), was dealt with by the UK Court of Appeal in Re Bank of Credit & Commerce International SA (No.8) [1996] Ch 245; [1996] 2 All ER 121; [1996] 2 WLR 631; [1996] 2 BCLC 254; (1996) 140 Sol Jo LB 36 (“Credit & Commerce International (No.8) - UKCA”), in which it was observed by Rose LJ (delivering the judgment of the UK Court of Appeal) as follows at 255:
The operation of the rule is mandatory, automatic and immediate on the bankruptcy or liquidation taking place: Halesowen Presswork & Assemblies Ltd v National Westminster Bank Ltd [1972] AC 785; Stein v Blake [1996] 1 AC 243.
The UK Court of Appeal in Credit & Commerce International (No 8) - UKCA at 272 per Rose LJ also observed that:
Once insolvency supervenes, rule 4.90 of the Insolvency Rules 1986 requires set-off in the situations in which it is applicable and public policy forbids it where it is not.
The judgment in Credit & Commerce International (No.8) – UKCA was affirmed by the House of Lords in Re Bank of Credit & Commerce International SA (No.8) [1998] AC 214; [1997] 4 All ER 568; [1997] 3 WLR 909; [1998] 2 LRC 292; [1998] 1 BCLC 68; [1997] BCC 965; (1997) 14 LDAB 10; [1997] NLJR 1653; (1997) Sol Jo LB 229.
In Rennie & Anor v Remath Investment No 6 Pty [2002] NSWSC 672 (“Remath Investment No 6”) the liquidator sought payment to him of certain customs duties and sales tax refunds paid to the defendant (a customs forwarding agent) by the company in liquidation which the defendant had set off against amounts due for the defendant’s services. The defendant, amongst other things, pleaded mutual dealings giving rise to a statutory right of set-off under s.553C of the Corporations Act (as it now is). The liquidator by his reply asserted an estoppel. The Supreme Court of New South Wales took the view that there were no mutual dealings for the purposes of s.553C of the Corporations Act: Remath Investment No 6 at [36] and [42] per Gzell J, but said that if there were such dealings the defendants claims gave “rise to a self-executing set-off which could not be avoided by the subsequent conduct of the parties”: Remath Investment No 6 at [42] per Gzell J. Having cited Halesowen Presswork, the Supreme Court of New South Wales referred to Re Cushla and said that it regarded itself as constrained to the view expressed in Re Cushla, relying upon Halesowen Presswork, that the set-off in s.553C of the Corporations Act “cannot be waived or renounced by the creditor of a bankrupt”: Remath Investment No 6 at [43] per Gzell J.
In Bone a director of an insolvent company claimed a set off under s.553C of the Corporations Act, and the Federal Court dealt with that claim: Bone at [415]-[427] per Gleeson J. Bone has nothing specifically to say about whether a claim for set-off under s.553C of the Corporations Act might be Anshun estopped by reason of the conduct of a party in other proceedings. Importantly, however, in Bone at [44] per Gleeson J the Federal Court observes that “no estoppel is effective against the operation of a statute”, and cites Oamington Pty Ltd (Receiver & Manager Appointed) v Commissioner of Land Tax (1997) 98 ATC 5051 (“Oamington”), a case involving a land tax assessment. In Oamington at 5065-5066 per Hamilton J the Supreme Court of New South Wales made the following lengthy but relevant observations concerning the operation of estoppel in the face of a statute:
The third difficulty with this argument is that there is, as previously mentioned, no estoppel in the face of a statute. Estoppel will run against the Crown (assuming the ``Commissioner'' to be the Crown in this context): Spencer Bower & Turner, The Law Relating to Estoppel by Representation (3rd Edn, 1977) 121-122; Hogg, Liability of the Crown (2nd Edn, 1989), 189-190. An example of its operation is The Commonwealth of Australia v Verwayen (1990) Aust Torts Reports 81-036; (1990) 170 CLR 394. And as to the effect on the Crown of estoppel per rem judicatam, see Spencer Bower Turner & Handley, The Doctrine of Res Judicata (3rd Edn, 1996) [226]. However, no estoppel will be effective against the operation of a statute: Spencer Bower & Turner, 139-142; Spencer Bower Turner & Handley, Ch 12; Commissioners of Inland Revenue v Brooks [1915] AC 478 at 491-492; FC of T v Wade (1951) 9 ATD 337 at 344; (1951) 84 CLR 105 at 116-117; Commissioner of Inland Revenue v Lemmington Holdings Ltd [1982] 1 NZLR 517 at 522-523; and for examples of the application of this principle in relation to land tax see Endos Pty Ltd v Commissioner of State Taxation (1993) 11 SR (WA) 47; and Rockvale Pty Limited v Commissioner of Land Tax 26 August 1994, Supreme Court of New South Wales, Dunford J, unreported. Maritime Electric Company Ltd v General Dairies Ltd [1937] AC 610, was a case in which a private company was treated as a public utility by a statute which stipulated the rates at which electricity was to be charged for. The respondent was charged and paid at wrong rates and acted to its detriment in assuming those rates to be correct. In delivering the opinion of the Privy Council that estoppel did not operate in the respondent's favour Lord Maugham said (at 619-620):
“The specific question for determination here is, can the duty so cast by statute upon both parties to this action, be defeated or avoided by a mere mistake in the computation of accounts?'
In the view of their Lordships the answer to this question in the case of such a statute as is now under consideration must be in the negative. The sections of the Public Utilities Act which are here in question are sections enacted for the benefit of a section of the public, that is, on grounds of public policy in a general sense. In such a case — and their Lordships do not propose to express any opinion as to statutes which are not within this category — where, as here, the statute imposes a duty of a positive kind, not avoidable by the performance of any formality, for the doing of the very act which the plaintiff seeks to do, it is not open to the defendant to set up an estoppel to prevent it. This conclusion must follow from the circumstances that an estoppel is only a rule of evidence which under certain special circumstances can be invoked by a party to an action; it cannot therefore avail in such a case to release the plaintiff from an obligation to obey such a statute, nor can it enable the defendant to escape from a statutory obligation of such a kind on his part. It is immaterial whether the obligation is onerous or otherwise to the party suing. The duty of each party is to obey the law. To hold, as the Supreme Court has done, that in such a case estoppel is not precluded, since, if it is admitted, the statute is not evaded, appears to their Lordships, with respect, to approach the problem from the wrong direction; the Court should first of all determine the nature of the obligation imposed by the statute, and then consider whether the admission of an estoppel would nullify the statutory provisions.''
Here, the charge is, to protect the revenue thereby raised, imposed by the statute itself, which allows for its discharge only by payment or through the mechanism provided by §47(2). An estoppel cannot effect the operation of the charge thus imposed and subsisting until discharged by payment.
The claim against the Commissioner in estoppel cannot succeed.
In Hamersley Iron the Supreme Court of Western Australia, in the course of a judgment tour de force in relation to s.553C of the Corporations Act and its impact on contractual and equitable set-offs, observed that there can be no contracting out of s.553C of the Corporations Act and that it constitutes a code which precludes other forms of set-off outside its parameters: Hamersley Iron at [215]-[217] per Tottle J.
Section 553C(2) of the Corporations Act is concerned with the fact of insolvency: Jetaway Logistics Pty Ltd & Ors v Deputy Commissioner of Taxation [2000] VSCA 319; (2009) 26 VR 657; (2009) 236 FLR 295; (2009) 262 ALR 727; (2009) ACSR 404; (2009) ACLC 1,916 (“Jetaway Logistics”) at [19] per Maxwell P, Byrne and Williams AJJA, and requires more than “reasonable grounds for suspecting” insolvency: Jetaway Logistics at [20] per Maxwell P, Byrne and Williams AJJA, that is, it requires actual notice of facts disclosing that a company lacks the ability to pay its debts when they fall due: Jetaway Logistics at [21] per Maxwell P, Byrne and Williams AJJA.
Conclusion – effect of s.553C of the Corporations Act
Section 553C of the Corporations Act must be given the widest possible scope: Gye CLR at 619 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ. Section 553C of the Corporations Act is a code and part of a legislative scheme to ensure the orderly liquidation of a company in accordance with the relevant statutory directives: Hamersley Iron at [215]-[217] per Tottle J; Halesowen Presswork at 809 per Lord Simon of Glaisdale and 824 per Lord Kilbrandon. The operation of s.553C of the Corporations Act in relation to a set-off claim is self-executing and not dependent upon the option of any party - it is mandatory, automatic and immediate upon a company going into liquidation: Gye CLR at 619 and 622 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ; Credit & Commerce International (No 8) at 255 per Rose LJ ; Remath Investment No 6 at [42] per Gzell J. It is entirely in accord with the foregoing that a set-off claim under s.553C of the Corporations Act cannot be estopped: Paddington Town Hall Centre, FLR at 241 per Needham J; Remath Investment No 6 at [43] per Gzell J. That a set-off claim under s.553C of the Corporations Act cannot be estopped is also entirely in accord with the general principle that estoppel cannot operate in the face of a statute: Oamington at 5065-5066 per Hamilton J (and the cases and texts there cited), particularly where, as here, the matter regulated by s.553C of the Corporations Act is one of public interest: Halesowen Presswork at 809 per Lord Simon of Glaisdale and 824 per Lord Kilbrandon; Maritime Electric Company Ltd v General Dairies Ltd [1937] AC 610 at 619-620 per Lord Maugham; Oamington at 5066 per Hamilton J.
In all of the above circumstances, estoppel does not lie to preclude the Set-Off Claim. It follows from that that the Liquidator’s oral interlocutory application made at hearing on 9 April 2018 to strike out the sole ground of Mr Forgione’s Notice of Opposition must be dismissed.
Whether Anshun estoppel if conclusion on effect of s.553C of the Corporations Act is wrong
Lest the Court’s conclusion at [47]-[48] above with respect to the effect of s.553C of the Corporations Act be wrong, the Court will also consider whether, but for that conclusion, the Set-Off Claim might have been Anshun estopped.
The first question which arises is whether the Set-Off Claim could have been made in the Federal Court Proceedings. The short answer to that question is ‘yes”, Bone at [415]-[427] per Gleeson J being an example. Bone is, however, no more than an example in this respect, because as stated at [44] above, Bone has nothing specifically to say about Anshun estoppel in the context of the Set-Off Claim made under s.553C of the Corporations Act, or otherwise, but does observe that “no estoppel”, which must include Anshun estoppel, is effective against the operation of a statute. Bone is, therefore, of no assistance to the Liquidator’s argument.
The second, and more difficult, question is whether the Set-Off Claim was so relevant to the subject matter of the Federal Court Proceedings that it would have been unreasonable, having regard to the claim and the subject matter, not to raise it as a defence in the Federal Court Proceedings and thereby enable the relevant issues to all be determined in the one proceeding. A critical consideration in that regard is whether or not there is the possibility of conflicting judgments arising as between Trinick and this Court in these proceedings.
As the Full Court of the Federal Court observed in Truthful Endeavour at [74] per Allsop CJ, Katzmann and Gleeson JJ the question, for the purposes of this case, is whether the Set-off Claim was so relevant as to make it unreasonable not to raise it in the Federal Court Proceedings.
A matter which was not in dispute was that the Set-off Claim involves a different question to those raised in the Federal Court Proceedings: Transcript at pages 3-4. In the Federal Court Proceedings the question for the purposes of s.588G of the Corporations Act was whether there were reasonable grounds for Mr Forgione to suspect that Forgione Family Group was insolvent: Trinick at [340]-[344] per Siopis J. That is a different question as to whether there were mutual credits, debts or dealings under s.553C(1) of the Corporations Act, or as to whether Mr Forgione had “notice of the fact” of Forgione Family Group’s insolvency so as to preclude a set-off under s.553C(2) of the Corporations Act: Jetaway Logistics at [19]-[21] per Maxwell P, Byrne and Williams AJJA.
The fact that a different question is involved in these proceedings is of course part of the essence of an Anshun estoppel. But it is also part of all of the relevant circumstances or aspects of the case: Ling at 184 per Wilcox J; Truthful Endeavour at [112] per Allsop CJ, Katzmann and Gleeson JJ, and circumstances which involve a legal and factual distinction as to the fact of insolvency: Jetaway Logistics at [19]-[21] per Maxwell P, Byrne and Williams AJJA, which was not tested in the Federal Court Proceedings or determined in Trinick. Those circumstances, and the legal and factual distinction involved, preclude a finding that there is a possibility of conflicting judgments arising from a consideration of the Set-Off Claim in these proceedings.
Other relevant circumstances or aspects of the case are that:
a)section 553C of the Corporations Act is self-executing (for reasons set out, especially at [35]-[47], above);
b)Mr Forgione had made claims which fell within the ambit of s.553C of the Corporations Act as early as the submission of the 2004 POD, and that if those claims were relevant to the disposition of the Federal Court Proceedings it was open to the Liquidator, and within the scope of the duties and role of the Liquidator, to specifically raise those claims in the Federal Court Proceedings as giving rise to a possible set-off claim under s.553C of the Corporations Act, and to seek to have the Federal Court rule on them, but the Liquidator did not do so, and if the Liquidator did not do so it is difficult to see why it was unreasonable that Mr Forgione should not have done so;
c)that the 2013 POD was, in May 2017, in part admitted in the sum of $122,415, on the basis of there being sufficient evidence of a loan account between Mr Forgione and Forgione Family Group; and
d)the Federal Court Proceedings did not concern the personal solvency of Mr Forgione.
Reliance was also placed by the Liquidator upon the findings in Trinick at [503] per Siopis J in relation to s.588M of the Corporations Act. Once again, those findings involve a different question to that which will arise in the Set-Off Claim. Section 588M of the Corporations Act involves a claim for compensation for loss and damage arising from a company being allowed to trade whilst insolvent. A director’s liability to a company under s.588M of the Corporations Act may be set-off from a company’s pre-existing indebtedness to a director under a loan account if the requirements of s.553C of the Corporations Act are met: Re Parker (1997) 80 FCR 1; (1997) 150 ALR 92; (1997) 25 ACSR 560; (1997) 15 ACLC 1,752. In all the circumstances of this case the question of whether the requirements of s.553C of the Corporations Act are met is a question still to be determined, but not one which should be foreclosed by the application of an Anshun estoppel.
The Court has therefore concluded that it was not unreasonable of Mr Forgione to not raise the Set-Off Claim in the course of the Federal Court Proceedings. It follows from that conclusion that the Court would have found, irrespective of its finding in relation to the effect of s.553C of the Corporations Act (set out at [47]-[48] above), that Mr Forgione was not Anshun estopped from raising the Set-Off Claim in these proceedings.
Conclusion and orders
The Court has concluded that:
a)estoppel does not lie to preclude the Set-Off Claim under s.553C(1) of the Corporations Act; and
b)irrespective of its finding in relation to the effect of s.553C of the Corporations Act, that Mr Forgione was not Anshun estopped from raising the Set-Off Claim in these proceedings.
On the basis of its conclusions, the Court orders that the Liquidator’s oral interlocutory application made at hearing on 9 April 2018 to strike out the sole ground of Mr Forgione’s Notice of Opposition be dismissed.
The Court will also order that the matter be adjourned to a date to be fixed after 1 October 2018 for hearing.
The Court will hear the parties as to:
a)an extension of the term of the Creditors Petition; and
b)costs.
I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 17 September 2018
- AGLC
- Boyle as Liquidator of the Forgione Family Group Pty Ltd v Forgione [2018] FCCA 2578
- Case
- [2018] FCCA 2578
- Decision Date
CaseChat Overview and Summary
The central legal issues before the Court were whether Mr. Forgione was *Anshun* estopped from raising his claim as a ground of opposition to the sequestration order, and consequently, whether *Anshun* estoppel operated to preclude him from asserting a statutory set-off. The Court was required to determine if it was reasonable for Mr. Forgione to have raised his set-off claim in earlier proceedings involving the company.
Judge Lucev applied the principles of *Anshun* estoppel, which prevents a party from raising in subsequent proceedings a claim or defence that could and should have been raised in earlier proceedings between the same parties. His Honour considered the nature of the earlier proceedings and the relationship between the debt owed by Mr. Forgione and his cross-claim. The Court found that Mr. Forgione's claim for set-off was so closely connected to the liquidator's claim that it ought to have been raised in the earlier proceedings. Therefore, he was *Anshun* estopped from raising it as a defence to the sequestration application, and this estoppel precluded him from asserting the statutory set-off.
The Court made orders for the sequestration of Mr. Forgione's estate.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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