Cardcall Pty Ltd v Dhody
[2012] FMCA 54
•31 January 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CARDCALL PTY LTD & ANOR v DHODY | [2012] FMCA 54 |
| BANKRUPTCY – Application seeking leave pursuant to s.58(3) of the Bankruptcy Act 1966 to proceed against the bankrupt respondent – leave granted. Matter to remain in the District Court where the proceedings had progressed to a stage ready for final hearing – Interim Application seeking dismissal or permanent stay – Application dismissed. |
| Bankruptcy Act 1966, ss.58(3), 82, 153(2) Federal Court of Australia Act, s.31A Federal Court Rules2011, rr.1.34, 26.01 Federal Magistrates CourtRules2001, r.1.05 Migration Legislation Reform Act 2005 |
| Allanson v Midland Credit Ltd (1977) 16 ALR 43 Macquarie Bank Ltd v Bardetta [2005] FCA 507 Mango Media Pty Ltd v Velingos [2008] NSWSC 202 Re Coles & Ravenshear [1907] 1 KB 1 |
| First Applicant: | CARDCALL PTY LTD |
| Second Applicant: | GOTALK LIMITED |
| Respondent: | SHYAM DHODY |
| File Number: | SYG 1999 of 2011 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 27 September 2011 |
| Delivered at: | Sydney |
| Delivered on: | 31 January 2012 |
REPRESENTATION
| Solicitors for the Applicant: | Mr J.F. Hassett of Hassett Dixon Solicitors |
| Counsel for the Respondents: | Mr C. Garlick |
| Solicitors for the Respondents: | P.A.T Law and Associates |
ORDERS
Cardcall Pty Ltd and Gotalk Ltd are granted leave pursuant to s.58(3) of the Bankruptcy Act 1966 to proceed against the bankrupt, Shyam Dhody, in the District Court of New South Wales proceedings No.2010/256036.
The Interim Application filed on 21 September 2011 is dismissed.
The Applicant Creditors’ costs be taxed and paid for from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
A Copy of these Orders be given to the Registrar of the District Court of New South Wales and the Official Receiver in Brisbane within 2 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1999 of 2011
| CARDCALL PTY LTD |
First Applicant
| GOTALK LIMITED |
Second Applicant
And
| SHYAM DHODY |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter was in the Registrar’s list on 27 September 2011 and at the request of the parties, was referred to this Court for resolution. This is an Application filed on 6 September 2011 seeking the following final orders:
1. The applicants be granted leave pursuant to s.58(3) Bankruptcy Act 1966 to proceed against the bankrupt respondent in District Court of New South Wales proceedings numbered 2010/256036.
2. Further or in the alternative, a declaration that the debt of $380,000 disclosed in the Insolvency and Trustee Service Australia Statement of Affairs for Shyam Dhody WLD3073/11/7 dated 7 July 2011 was incurred by means of fraud or fraudulent breach of trust within the meaning of Section 153(2) of the Bankruptcy Act 1966 (Commonwealth).
3. A direction that the case materials pertaining to District Court of New South Wales proceedings numbered 2010/256036 be referred to the Attorney-General.
4. The applicants’ costs, be taxed in accordance with the Federal Court Rules and paid from the estate of the bankrupt respondent in accordance with the Bankruptcy Act 1966 (Commonwealth).
The affidavit in support sworn by Jonathan Francis Hassett, solicitor for the First and Second Applicant companies, indicates that on 2 August 2010, the Applicants, in their role as Plaintiffs, filed in the District Court of New South Wales a Statement of Claim and commenced proceedings No.2010/256036. That claim alleges that the Respondent, Shyam Dhody, fraudulently misappropriated funds of the Applicant company Cardcall Pty Ltd and Gotalk Ltd money, fraudulently incurring expenses and causing the Applicants to pay for them and made secret profits as an employee of Gotalk Ltd and breached contractual and fiduciary duties owed as an employee of Gotalk Ltd.
It is alleged that while employed as General Manager of Cardcall Pty Ltd’s Philippines operation, and allowed to work unsupervised in that role, Shyam Dhody had stolen cash from monies allocated for employee entitlements, purportedly brought non-existent assets and pocketed the purchase price and set up companies to sell non-existent assets to subsidiary companies of Cardcall Pty Ltd. The allegations in the Statement of Claim were to be proved by way of affidavit evidence including over 500 pages of exhibits comprising documents such as bank statements, accounting records, transfer and deposit confirmations and company extracts. All of the evidence which the Applicants had intended to rely upon in support of their Statement of Claim before the District Court was tendered in these proceedings and is marked Exhibit “JH1”.
The matter was to be heard in the District Court of New South Wales on 18 July 2011. As at that date, all evidence for that hearing had been finalised and the matter was ready to proceed to hearing. However, just prior to the scheduled hearing, Shyam Dhody filed a debtors petition and was declared to become an undischarged bankrupt. Mr Hassett, in his affidavit states that on 13 July 2011 he received from the Insolvency and Trustee Service of Australia a copy of the Notice of Bankruptcy – Debtors Petition. On the same date, Mr Hassett also received a document dated 7 July 2011 titled “Shyam Dhody QLD 3073/11/7 Creditors Disclosed on Statement of Affairs”. In that document Gotalk Ltd is listed as a creditor for the sum of $380,000.00.
Mr Hassett in his affidavit indicates that on 27 July 2011 he received a letter from the Official Receiver in Bankruptcy, Mr Gary Hopson, that he regarded the Applicant’s claim (as Plaintiffs in the NSW District Court) as a provable debt in bankruptcy.
In paragraph 11 of Mr Hassett’s affidavit he states:
11. Having regard to the nature of the allegations in the [statement of] claim, particularly those concerning fraud and the breach of trust, the applicants may prove its debt will survive past any discharge of the bankrupt respondent under s.153(2) of the Bankruptcy Act. Further, given the complexity of the case and its close proximity to the hearing, it would not be in the interest of efficiency except to prove the applicant’s debt by way of a contested hearing in the District Court. It would be near impossible to prove the debt through the use of the proof of debt forms and in the absence of a trial.
Mr Hassett further indicates that Shyam Dhody, in the period since his entrance into bankruptcy, has indicated through his legal representatives that he wishes to contest the issues in the Statement of Claim filed in the District Court if leave is granted by this Court to pursue it. Mr Hassett indicates that to his knowledge, the bankrupt estate of Shyam Dhody is not financing the defence to the Statement of Claim and other creditors of Shyam Dhody will not be prejudiced should steps be taken towards the Applicants District Court action to proceed to hearing.
Mr Garlick of counsel indicated to the Court that he was appointed to represent Mr Dhody in July 2011 and had not been part of the proceedings prior to that. He also indicated that PAT Law, solicitors, were also appointed sometime around July or probably early August and they were not part of the proceedings prior to that date.
Trustee
The proceedings in the District Court are stayed by the operation of s.58(3) of the Bankruptcy Act 1966 which states:
(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
Consequently, until there is a decision in this Court, the proceedings in the District Court are stayed.
The affidavit of Shyam Dhody sworn 22 December 2011 contains the following information:
(1)I am the defendant/respondent in District Court proceedings 2010/256036.
(2)I am the cross claimant against the first cross defendant, Cardcall Pty Ltd and the second cross defendant is Mr Stephen Frank Picton who is the Chief Executive Officer of the First and Second Applicants in the District Court proceedings No.2010/256036.
In the material tendered in Court during the hearing there is no documentation referencing any cross-claim. In correspondence received from Mr Garlick since the matter was reserved, he indicates that Mr Hassett did state that there was no application for a cross-claim to proceed and as such he wished to ensure that the Court is aware that if the matter is stayed, that matter will be at an end, however if the action is not stayed, his client requests permission to continue with the cross-claim.
Should leave be granted?
The initial question before the Court is whether leave should be granted to the Applicant companies to proceed with their claim contained in the Statement of Claim.
The circumstances in which a Court exercising jurisdiction under the Bankruptcy Act 1966 may grant leave to a creditor to proceed in an action against a bankrupt is addressed in Allanson v Midland Credit Ltd (1977) 16 ALR 43. That case specifically noted that cases where complex questions may arise may be appropriately dealt with by leave being granted so that they can be properly determined in one Court, thereby likely resulting in less costs and complexity in the future conduct of the case. In Macquarie Bank Ltd v Bardetta [2005] FCA 507 his Honour Conti J applied Allanson for the reason that the order sought that all parties be joined and that the Tribunal proposed for the content was one to whom all necessary disclosures would be made. Significantly, his Honour stated at [25]:
[25] The relevant question for the Full Court in Fraser then became whether or not Davies J, as the primary judge in Fraser, had been right in granting leave to proceed under s 58(3)(b) of the Bankruptcy Act. Beaumont J considered that the grant of leave by Davies J ‘but only on conditions having as their objective the protection of the position of the Official Trustee, in effect as dominus litus, in the interests of the general body of creditors’ involved a proper exercise of the Court’s discretion (at 115). His Honour’s essential words, to my mind, are ‘in the interests of the general body of creditors’. As I have acknowledged above, the Trustee in Bankruptcy, Mr Palmer, has not the funds to litigate on behalf of the bankrupt estate of Mr Bardetta in the Family Court. The willingness of the Bank to enter into an undertaking in terms discussed below render in my opinion the proposed proceedings ‘in the interests of the general body of creditors’.
In Mango Media Pty Ltd v Velingos [2008] NSWSC 202 his Honour Barrett J addressed s.58(3) at [13] – [14]:
[13] I come back, therefore, to the objective of s 58(3)(b) which is, is clearly enough, to ensure that the bankrupt estate and the provable claims upon it remain under the control and supervision of the courts having jurisdiction in bankruptcy. The legislation as a whole is aimed at marshalling assets, ascertaining debts and claims and applying the former towards satisfaction of the latter. The procedures by which the process is to be conducted and the objective is to be achieved are set out in the Bankruptcy Act and administered by those courts to which exclusive jurisdiction in bankruptcy is given by Parliament. To the extent that an attempt is made to resort to any other process of dealing with debts and claims, particularly if resort is to be had to courts other than the bankruptcy courts, there must first be screening by a bankruptcy court.
[14] In the present case, this court is asked to make a binding declaration of right under s 75 of the Supreme Court Act 1970 recognising the existence of an interest in property of a bankrupt by way of security for a debt of the bankrupt. Given that the phrase “in respect of” only requires “some discernible and rational link” between the matters in question (Technical Products Pty Ltd v State Government Insurance Office (Q) [1989] HCA 24 ; (1989) 167 CLR 45 at CLR 47), the proceedings advancing the claim to have the court recognise the security for the debt seem to me clearly to be proceedings “in respect of” the debt claimed to be secured by the security. The security interest cannot be found to exist unless the debt is found to exist.
These authorities clearly indicate the importance of the position of the Trustee when making a decision in respect to the granting of leave under s.58(3). The Affidavit of Jonathon Francis Hassett sworn 2 August 2011, at annexure ‘D’ contains a letter addressed to him by the Insolvency and Trustee Service Australia, signed by Gary Hobson for the Official Receiver in Bankruptcy, Queensland Branch, which sets out the following:
Re: Bankrupt estate of Shyam Dhody QLD 3073/11/7
Your clients Cardcall Pty Ltd and Gotalk Limited.
I refer to your clients’ Statement of Claim filed in the District Court of New South Wales, being case number 2010/256036.
I understand that the proceeding in the District Court has stayed. The trustee has reviewed your clients’ Statement of Claim against the bankrupt and it would appear that the debt has arisen during the period of his employment at Cardcall Pty Limited, which was prior to his bankruptcy on 6 July 2011.
The trustee is of the opinion that your client’s claim is a provable debt in bankruptcy pursuant to s.82 of the Bankruptcy Act 1966 (“the Act”). As a result of your clients will require leave from the Federal Magistrates Court to continue the proceedings in the District Court pursuant to s.58(3) of the Act.
Please be advised that if you[r] clients continue and are successful in their claim in having the bankrupt convicted of fraud then the discharge of a bankrupt from a bankruptcy does not release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust. I draw your attention to section 153(2) of the Act.
Based on this material, I believe that leave should be granted pursuant to s.58(3) of the Bankruptcy Act1966 to proceed against the bankrupt respondent. The remaining issue to determine is whether the proceedings initiated by the Statement of Claim in the District Court of New South Wales No.2010/256036 should be heard in that jurisdiction or in this Court. In the submissions made by Mr Hassett, the matter was started in the District Court and was scheduled for trial in July 2011 and had been ready for trial for approximately 9-12 months prior to the listed hearing. All pleadings were filed and particulars given, the plaintiff had put its evidence on in full and the defendant had put his evidence on in reply. The plaintiff had put further affidavits in reply and all of that material was ready to go to trial in the District Court for three days on 18 July 2011. Further, as the nature of the claim is that the defendant, Shyam Dhody, was a senior employee of the Applicant companies who allegedly abused his position of trust by creating fictitious invoices and other business documents, some of which were of a criminal nature, in order to obtain money from the company. There were also various permutations and combinations on the theme which are claimed had been set up which purportedly were to provide services or materials to the companies which the companies paid for and the services and material were never provided. It is claimed that these were false instruments which obtained money by deception.
Due to the large volume of affidavit material filed in the District Court proceedings and the advanced stage of the preparation, I believe it is appropriate that the proceedings remain in the District Court of New South Wales. To re-plead the matter and reproduce affidavit material and exhibits for the Court would incur unnecessary costs already expended. Similarly, the issue of the proposed cross-claim should be determined by the District Court in accordance with its rules.
Interim Application
Mr Garlick indicated that his instructing solicitors had filed an Interim Application on 21 September 2011 seeking the following orders:
1. The Defendant/Respondent Shyam Dhody be granted Summary Judgment against the First and Second Plaintiffs/Applicants Claim and the Statement of Claim in the District Court Proceeding Numbered 2010/256036 as there is no reasonable prospect of successfully prosecuting the whole proceeding or any part of the proceeding, as the case may be by the First and Second Plaintiffs/Applicants pursuant to s.31A of the Federal Court of Australia Act 1976 (Cth).
2. In the alternative, that the First and Second Plaintiffs/Applicants Claim and Statement of Claim in the District Court Proceedings Numbered 2010/256036 be dismissed and/or permanently stayed pursuant to the Federal Court of Australia Act 1976 (Cth) section 31A and the Federal Court Rules Order 20 Rule 2.
3. The Cross Claimant Shyam Dhody be granted Summary Judgment on the cross claim against the First Cross Defendant Cardcall Pty Ltd and the Second Cross Defendant Stephen Frank Picton in the District Court Proceeding Numbered 2010/256036 as there is no reasonable prospect of successfully defending the whole proceeding or any part of the proceeding, as the case may be by the First Cross Defendant Cardcall Pty Ltd and the Second Cross Defendant Stephen Frank Picton pursuant to s.31A of the Federal Court of Australia Act 1976 (Cth).
4. In the alternative, the Cross Claimant Shyam Dhody be granted leave to continue to prosecute the Cross Claim in the District Court Proceeding Numbered 2010/256036 against the Cross Defendant Cardcall Pty Ltd ACN 074079897 and the Second Cross Defendant Stephen Frank Picton.
5. Any other Orders as the Court deems appropriate.
6. Costs.
Mr Garlick sought to draw to the Court’s attention the operation of s.31A of the Federal Court of Australia Act and the operation of r.26.01 of the Federal Court Rules 2011. Section 31A was introduced into the Federal Court of Australia Act by the Migration Legislation Reform Act 2005 and has been operative since 1 December 2005. It provides, in summary, that the Court may give summary judgment in a matter where it is satisfied that a proceedings or part of a proceedings or an offence to a proceedings or part of a proceedings, has no reasonable prospects of success. In particular, s.31A(1) provides the judgment (in whole or part) may be given for one party against another if the Court is satisfied that the other party has no reasonable prospects of successfully defending the proceedings, wholly or as to that part. Rule 26.01 covers the administrative steps required to file an Application seeking summary judgment and stay of proceedings.
The Rules have the requirement of 14 days service whereas the Federal Court Act under s.31A does not. Mr Garlick correctly points out that the Interim Application filed by his instructing solicitors is Court date stamped 21 September 2011 which does not satisfy r.26.01 which requires:
(3) The application and the accompanying affidavit must be served on the party against whom the order is sought at least 14 days before the hearing of the application.
Mr Garlick indicated that he would be prepared to allow the matter to be stood down to another date even though there would be inconvenience and costs to the parties but would be guided by the Court and made no submissions in respect to the approach to be adopted. Mr Hassett made no submissions on this issue and did not raise any objection.
The Federal Court Rules provide for the dispensing of compliance with the Rules in r.1.34 which states:
1.34 The Court may dispense with compliance with any of these Rules, either before or after the occasion for compliance arises.
The general basis for this approach is expressed in Re Coles & Ravenshear [1907] 1 KB 1 per Collins MR at [4] where he stated:
Although I agree that a Court cannot conduct its business without a code of procedure, I think that the relation of the rules of practice to the work of justice is intended to be that of handmade rather than mistress, and the Court ought not to be so far bound and tied by rules, which are after or only intended as general rules of procedure as to be compelled to do what will cause injustice in a particular case.
As these proceedings are being held in the Federal Magistrates Court it has its own set of procedure rules, relevantly r.1.05 of the Federal Magistrates CourtRules states:
1.05 (1) It is intended that the practice and procedure of the Federal Magistrates Court be governed principally by these Rules.
(2) However, if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules…
To address the issues of this Interim Application and taking into consideration the rules set out above, I believe it is appropriate to dispense with the requirements of service of the Interim Application on the other party 14 days prior to the hearing. In the absence of objection in this Court, the hearing of the Interim Application should proceed.
As indicated above, the most appropriate jurisdiction for the hearing of the Statement of Claim alleging fraudulent activities on the part of the bankrupt, Shyam Dhody, is in the District Court of New South Wales where these proceedings were commenced and passed through all preparatory steps prior to trial. As the District Court had already set the matter down for hearing, any application seeking to strike out the Application should be heard in that Court. Consequently, the Interim Application filed on the 21 September 2011 should be dismissed.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Date: 31 January 2012
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