Commonwealth Bank of Australia v Oswal
[2012] FMCA 1082
•21 November 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COMMONWEALTH BANK OF AUSTRALIA v OSWAL | [2012] FMCA 1082 |
| BANKRUPTCY – Substituted service of creditors petition – service outside of Australia – whether respondent carrying on business in Australia at the time of act of bankruptcy – whether abnormal difficulty in effecting personal service on respondent – whether reasonable probability proposed means of service will inform respondent of creditors petition. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g), 43(1)(b)(iii), 44(1), 309(2) |
| Commonwealth Bank of Australia v Oswal [2012] FCA 772 Commonwealth Bank of Australia v Pankaj Oswal (In His Personal Capacity And As Trustee Of The Burrup Trust) [2012] WASC 128 Deputy Commissioner of Taxation v Barnes (2008) 70 ATR 776; [2008] FMCA 7 Deputy Commissioner of Taxation v Cranswick (2010) 80 ATR 88; [2010] FCA 891 Equititrust Limited v Bosiljevac [2007] FCA 323 Ginnane v Diners Club Limited (1993) 120 ALR 375 Re Mendoca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 Re Vassis; Ex parte Leung (1986) 9 FCR 518 Westpac Banking Corporation v Faress [2011] FMCA 26 |
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA |
| Respondent: | PANKAJ OSWAL |
| File Number: | PEG 249 of 2012 |
| Judgment of: | Lucev FM |
| Hearing date: | 19 November 2012 |
| Date of Last Submission: | 19 November 2012 |
| Delivered at: | Perth |
| Delivered on: | 21 November 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr C Lockhart |
| Solicitors for the Applicant: | Corrs Chambers Westgarth |
| For the Respondent: | No appearance |
ORDERS
Leave is granted to serve the documents required to be served in accordance with Rule 4.05 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), namely:
(a)the affidavit of Brynn Horner sworn on 10 October 2012;
(b)the Creditors Petition in PEG 249 of 2012;
(c)the affidavit of Peter Ficko sworn on 10 October 2012 verifying the Creditors Petition;
(d)the affidavit of Todd Allen sworn 16 October 2012;
(e)the affidavit of Victoria MacMillan sworn 25 October 2012;
(f)the supplementary affidavit of Victoria MacMillan sworn 16 November 2012;
(g)the affidavit of Peter Ficko sworn 16 November 2012;
(h)the affidavit of Todd Allen sworn 16 November 2012,
together with:
(i)the consent to act as trustee dated 8 November 2012; and
(j)these orders;
(“Documents”) on the respondent by means of substituted service and service outside Australia in the manner contemplated by these orders.
The Documents be served on the respondent by way of substituted service, and personal service be dispensed with.
Service of the Documents be effected by:
(a)posting a copy of the Documents by ordinary pre-paid post to:
(i)Hotchkin Hanly, 1st Floor, BGC Centre, 28 The Esplanade, Perth WA 6000; and
(ii)Murcia Pestell Hillard, MPH Building, Level 3, 23 Barrack Street, Perth WA 6000; and
(b)personal service on any person apparently over the age of 16 years at:
(i)Hotchkin Hanly, 1st Floor, BGC Centre, 28 The Esplanade, Perth WA 6000; and
(ii)Murcia Pestell Hillard, MPH Building, Level 3, 23 Barrack Street, Perth WA 6000;
(c)sending an electronic copy of the documents to Hotchkin Hanly at [email protected]; and
(d)posting a copy of the Creditors Petition by pre-paid airmail (or equivalent) to:
Sanraj Bhawan, Bhupindera Road, Patiala. Pim 1470001, Punjab, India.
Service in accordance with these orders shall be deemed good and sufficient service of the Documents on the respondent.
Service of the Documents be deemed to have been effected on the respondent 2 weeks (14 days) after posting in accordance with paragraphs 3(a) and 3(d) of these orders and service in accordance with paragraph 3(b) of these orders.
The hearing of the Creditors Petition be adjourned to 2.15pm on 17 December 2012 before Federal Magistrate Lucev.
Costs of and incidental to this application be reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 249 of 2012
| COMMONWEALTH BANK OF AUSTRALIA |
Applicant
And
| PANKAJ OSWAL |
Respondent
REASONS FOR JUDGMENT
Introduction – the application and background circumstances
This is an interim application for service of a creditors petition[1] and associated documents[2] outside of the jurisdiction, and arises in the following circumstances:
a)by the Creditors Petition, filed on 16 October 2012, the applicant, the Commonwealth Bank of Australia,[3] seeks to have the Court issue a sequestration order against the estate of the respondent, Pankaj Oswal;[4]
b)the Creditors Petition alleges Mr Oswal owes CBA US$4,821,655.46. It is alleged that those monies are owing pursuant to a judgment of the Supreme Court of Western Australia on 11 May 2012 in Commonwealth Bank of Australia v Pankaj Oswal (In His Personal Capacity And As Trustee Of The Burrup Trust)[5] and represents money owing to the CBA by Mr Oswal in his capacity as guarantor of a debt owed to the CBA by Garuda Aviation Pty Ltd,[6] an Australian registered company of which Mr Oswal was, and remains, a director,[7] and which had defaulted on a loan agreement[8] with the CBA;
c)a bankruptcy notice[9] was served on Mr Oswal on 30 July 2012, in accordance with orders for service out of the jurisdiction made by the Federal Court on 12 July 2012 as a consequence of the judgment in Commonwealth Bank of Australia v Oswal.[10] Mr Oswal did not comply with the requirements of the Bankruptcy Notice by 20 August 2012, or satisfy a court exercising bankruptcy jurisdiction that he had a counterclaim, set-off or cross-demand that he could not have set up in the action in which the Guarantor Action Judgment was obtained.[11] No applications have been made by Mr Oswal in either the Federal Court or this Court in relation to the Bankruptcy Notice;[12] and
d)the debt the subject of the Guarantor Action Judgment remains unpaid, and is therefore still owing,[13] and there is no evidence that a stay of execution of the Guarantor Action Judgment has been ordered.
An arguable case
[1] “Creditors Petition”.
[2] “Documents” (which description includes the Creditors Petition).
[3] “CBA”.
[4] “Mr Oswal”.
[5] [2012] WASC 128 (“Guarantor Action Judgment”).
[6] “Garuda”.
[7] Affidavit of Victoria Ashley MacMillan, sworn 16 November 2012, Annexure VAM 25 (“Ms MacMillan’s November 2012 Affidavit”); Guarantor Action Judgment at para.3 per Le Miere J.
[8] “Loan Agreement”.
[9] “Bankruptcy Notice”.
[10] [2012] FCA 772 (“Bankruptcy Notice Judgment”).
[11] Bankruptcy Act 1966 (Cth), s.40(1)(g).
[12] Affidavit of Todd Ross Stafford, sworn 16 November 2012 at para.2.
[13] Affidavit of Peter William Ficko, sworn 16 November 2012 at para.3 (“Mr Ficko’s Affidavit”).
Principles
Prior to granting leave to serve a creditors petition outside the jurisdiction the Court must reach a provisional conclusion that the applicant for leave to serve a creditors petition outside the jurisdiction has an arguable case.[14]
[14] Deputy Commissioner of Taxation v Cranswick (2010) 80 ATR 88 at 91 per McKerracher J; [2010] FCA 891 at para.7 per McKerracher J (“Cranswick”).
Having regard to the background circumstances set out above it is apparent that there is an act of bankruptcy in respect of a debt in excess of $5,000 payable immediately, committed within six months before the presentation of the creditors petition.[15]
[15] Bankruptcy Act, ss.44(1) and 40(1)(g).
In order to satisfy the requirement of an arguable case for the issuance of a sequestration order the CBA must also show that Mr Oswal was “carrying on business in Australia” at the time of the act of bankruptcy.[16]
[16] Bankruptcy Act, s.43(1)(b)(iii).
Carrying on business in Australia
With respect to whether Mr Oswal was carrying on business in Australia for the purposes of s.43(1)(b)(iii) of the Bankruptcy Act at the date of the act of bankruptcy, the law provides that a party who has carried on business in Australia continues to do so until their affairs are concluded, by amongst other things, the payment of their debts.[17]
[17] Re Vassis; Ex parte Leung (1986) 9 FCR 518 at 526 per Burchett J; Westpac Banking Corporation v Faress [2011] FMCA 26 at para.15 per Jarrett FM (“Faress”).
Mr Oswal was a director of Garuda, which entered into the Loan Agreement[18] with CBA on 25 October 2007 in the sum of US$27,000,000 in connection with the acquisition and operation of an aircraft.[19]
[18] “Loan Agreement”.
[19] The Loan Agreement is Annexure VAM 1 to the affidavit of Victoria Ashley MacMillan, sworn 25 October 2012 (“Ms MacMillan’s October 2012 Affidavit”).
The Loan Agreement provides, amongst other things, that:
a)it was a condition precedent of the agreement that the CBA conducted a “satisfactory review of the Burrup Trust”;[20]
[20] Loan Agreement, cl.2.1(g).
b)the Burrup Trust is the “trust constituted by the trust deed dated 22 June 2001 between Peter Miltoni and [Mr Oswal] as trustee”;[21]
c)by 30 November 2007, Garuda would provide the CBA with the final annual accounts of the Burrup Trust for the year ending 31 March 2007;
d)Garuda Aviation Group means Garuda “and its Related Parties”;[22]
e)Garuda would furnish to the CBA within 120 days after the close of each relevant financial year copies of its accounts and those of the Burrup Trust and Burrup Fertilisers Pty Ltd;[23]
f)Garuda would provide to the CBA by 31 July each year, or within 30 days of any material change, the “updated financial forecast model for the Burrup Fertilisers Pty Ltd liquid ammonia plant”;[24]
g)Garuda would ensure that Burrup Fertilisers Pty Ltd maintained a minimum US$15 million per annum in net cash flow available for distribution to shareholders;[25]
h)notices issued to Garuda under the agreement were to be forwarded to Mr Oswal;[26]
i)events of default included the Facility Guarantor (defined as Mr Oswal, as trustee for the Burrup Trust):[27] “ceas[ing] to carry on the whole or a material part of its business or disposes of the whole or a material part of its business”;
j)events of default also included the appointment of a receiver to “all or any part of the Assets of [Mr Oswal]”;[28] and
k)a Review Event would occur pursuant to the Loan Agreement if there was an event of default under the Senior Debt Facility.[29] The Senior Debt Facility is the “Senior Debt Facility Agreement dated 16/12/05 between Burrup Fertilisers Pty Ltd and Australia and New Zealand Banking Group Ltd”.[30]
[21] Loan Agreement, cl.1.1.
[22] Loan Agreement, cl.1.1.
[23] Loan Agreement, cl. 0.1(a)(i).
[24] Loan Agreement, cl.10.1(a)(ii).
[25] Loan Agreement, cl.10.1(r).
[26] Loan Agreement, cl.20.1(a)(ii).
[27] Loan Agreement, cl.1.1.
[28] Loan Agreement, cl.11.1(h).
[29] Loan Agreement, cl.11.3.
[30] Loan Agreement, cl.1.1.
By a guarantee agreement dated 25 October 2007,[31] Mr Oswal guaranteed the performance by Garuda of Garuda’s obligations under the Loan Agreement.[32] The Guarantee provided, amongst other things, that Mr Oswal:
a)entered the agreement on his own behalf and as trustee for the Burrup Trust;[33] and
b)“as trustee of the Burrup Trust undertakes not to reduce its 70% interest in the Burrup Fertilisers Pty Ltd liquid ammonia plant (held via Burrup Holdings Pty Ltd) without the prior consent of [CBA]”.[34]
[31] “Guarantee”. The Guarantee is Annexure VAM 24 to Ms MacMillan’s November 2012 Affidavit.
[32] Guarantee, cl.3.2.
[33] Guarantee, Details.
[34] Guarantee, cl.3.5.
Receivers were appointed to the shares in Burrup Holdings owned by Mr Oswal. This constituted an event of default under the Loan Agreement. This resulted in the CBA demanding, on 23 December 2010, that Garuda repay the Secured Monies. Upon Garuda’s failure to do so, the CBA demanded payment of those monies by Mr Oswal as guarantor.[35] Those monies were not paid by Mr Oswal, and remain unpaid.[36]
[35] Guarantor Action Judgment at paras.6-10 per Le Miere J; Loan Agreement, cl.11.1(h); Guarantee, cl.3.2.
[36] Mr Ficko’s Affidavit, para.3.
The nature of the inter-relationship between Mr Oswal, Garuda and the Burrup Trust was explained in the Guarantor Action Judgment:
Burrup Trust and Burrup Holdings were to be the ultimate source of funds to meet the repayments by Garuda [pursuant to the Loan Agreement] over and above the revenue obtained by Garuda from hire of the aircraft to third parties.[37]
[37] Guarantor Action Judgment at para.31 per Le Miere J.
An overview of the relevant arrangement appears in the Guarantor Action Judgment, and is as follows:
· Burrup is the core asset owning and cash flow generating group within the Burrup Group of coys, headed by Holdco Burrup Holdings Ltd (BHL).
· The group is part of the larger Oswal Group, a group of coys headed by Pankaj Oswal. Pankaj owns 65% of BHL and the remaining 35% is owned by core offtaker, Yara International, a Norwegian fertiliser group.
· Burrup is a significant producer of liquid ammonia in Australia, with other interests in ammonium nitrate plant (FID expected opt OTC 2010), a growing shipping fleet and various other undisclosed projects.
· Garuda is an SPV for the operation of a gulfstream aircraft financed by CBA in 2007 for US$27 million. The plane is managed by AvWest under an arms length contract where the Burrup Group has first call on the plane, which is otherwise occasionally chartered to third parties. External charter fees are not sufficient to meet obligations and debt servicing and funding of maintenance is reliant on intercoy payments from Burrup cash flow.[38]
[38] Guarantor Action Judgment at para.31 per Le Miere J.
ASIC searches indicate that Mr Oswal was a director of, and a shareholder in, Burrup Fertilisers Pty Ltd and Burrup Holdings Pty Ltd on 25 October 2007, when the Loan Agreement and the Guarantee were entered into.[39]
[39] Ms MacMillan’s November 2012 Affidavit, Annexure VAM 25.
The evidence establishes that:
a)the Loan Agreement and the Guarantee were entered into in connection with the operation of a substantial business operation, namely Burrup Fertilisers’ liquid ammonia plant. Mr Oswal was concerned with that business, both as a shareholder and director of the corporations that operated and owned the plant. Mr Oswal used his personal shareholdings in those entities to guarantee the obligations of Garuda under the Loan Agreement, which obligations were expected to be met through the cash flow from the liquid ammonia plant;[40] and
b)Mr Oswal carried on business on his own account, and for that purpose utilised the various companies for the various projects in which he was interested.[41]
[40] See generally Guarantor Action Judgment.
[41] Applying Faress at para.19 per Jarrett FM to the evidence.
The Court is, therefore, able to conclude that it is arguable that Mr Oswal was “carrying on business” for the purposes of s.43(1)(b)(iii) of the Bankruptcy Act, when, on 20 August 2012, he committed an act of bankruptcy.
The above circumstances, based on the evidence as it stands, enable the Court to reach a provisional conclusion that the CBA has an arguable case for the issuance of a sequestration order, sufficient to warrant the granting of leave to serve the Creditors Petition outside the jurisdiction.[42]
Service
[42] Cranswick ATR at 91 per McKerracher J; FCA at para.7 per McKerracher J.
Provisions re service outside the jurisdiction
The Creditors Petition must of course be served on Mr Oswal.
The present interim application seeks orders for substituted service so as to enable CBA to meet the service requirements for the making of a sequestration order in due course.
There is no specific bankruptcy provision or rule dealing with service outside the jurisdiction. There are, however, provisions which might be utilised, and in this case the CBA seeks to rely upon s.309(2) of the Bankruptcy Act. Section 309(2) of the Bankruptcy Act provides that where a document is to be served on a person “the Court may, in a particular case, order that it be given or served in a manner specified by the Court, whether or not any other manner of giving or serving the notice or other document is prescribed.” Section 309(2) of the Bankruptcy Act empowers the Court to make an order for service outside of the jurisdiction, and to prescribe the means of service on a person outside of the jurisdiction, in the exercise of its discretionary powers under the Bankruptcy Act.[43]
[43] Bankruptcy Notice Judgment at para.14 per Siopis J; Deputy Commissioner of Taxation v Barnes (2008) 70 ATR 776 at 786 per Lucev FM; [2008] FMCA 7 at para.69 per Lucev FM (“Barnes”).
Under s.309(2) of the Bankruptcy Act the discretion conferred is unfettered, but not to be exercised lightly. The Court must be satisfied that:
a)abnormal difficulty exists in effecting personal service of the Creditors Petition on Mr Oswal; and
b)there is a reasonable probability that Mr Oswal will be informed of the Creditors Petition as a result of the form of service identified.[44]
[44] Ginnane v Diners Club Limited (1993) 120 ALR 375 at 378 and 381 per Northrop, Sheppard and Einfeld JJ; Equititrust Limited v Bosiljevac [2007] FCA 323 at paras. 7-12 per Collier J; Re Mendoca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 261 per Gibbs J; Barnes ATR at 786 per Lucev FM; FMCA at para.71 per Lucev FM.
Whether abnormal difficulty exist in effecting personal service
One way in which abnormal difficulty in effecting personal service manifests itself is by reason of the person to be served being outside of the jurisdiction.
In this case the evidence[45] indicates that:
[45] Ms MacMillan’s October 2012 Affidavit.
a)Mr Oswal has left Australia and has not returned;
b)Mr Oswal has no present plans or intention to return to Australia;
c)correspondence enclosing a copy of the Bankruptcy Notice in accordance with the Federal Court orders in the Bankruptcy Notice Judgment, and addressed to a residential address in Dubai previously utilised by Mr Oswal, again in accordance with those Federal Court orders, has been returned to the CBA’s lawyers unopened;
d)Western Australian lawyers instructed by Mr Oswal in an appeal against part of the Guarantor Action Judgment have indicated to the CBA’s lawyers that they do not have:
i)instructions to accept service of the Creditors Petition; or
ii)instructions to provide an address for service for Mr Oswal;
e)it was necessary:
i)for the Federal Court to make orders for service outside the jurisdiction in the Bankruptcy Notice Judgment action; and
ii)for the Western Australian Supreme Court to make orders for service outside the jurisdiction in a 2011 action to freeze Mr Oswal’s assets within Australia,
and in relation to those actions it is appropriate to note that the relevant circumstances of Mr Oswal being outside the jurisdiction do not appear to have changed; and
f)there is no reliable information available to the CBA’s lawyers as to Mr Oswal’s current address, be it residential or business.
Whether reasonable probability Mr Oswal will be informed of the Creditors Petition as a result of the proposed means of service
The Court must also be satisfied that Mr Oswal will be informed of the Creditors Petition as a result of the means of service sought by the CBA, or, if any, to be otherwise ordered by the Court.
The manner of service proposed for the Documents includes service by post, personally and electronically:
a)on lawyers acting for Mr Oswal both in his personal capacity and as a trustee in the appeal against the Guarantor Action Judgment, which is the very judgment giving rise to the monies owing which are the subject of the act of bankruptcy giving rise to the Creditors Petition, but in respect of which the appeal goes only to a sum of $945,000 of the Guarantor Action Judgment for US$4,821,655.46;[46]
b)to be effected by post, personally and electronically on lawyers acting for Mr Oswal in Federal Court proceedings numbered WAD 66 of 2011; and
c)on an address in India previously used by Mr Oswal as an address for service in proceedings in the Western Australian Supreme Court, to be effected by pre-paid airmail or its equivalent.
[46] Ms MacMillan’s October 2012 Affidavit, Annexure VAM 5.
Conclusion - service
In the circumstances, the Court is satisfied that:
a)abnormal difficulty exists in effecting personal service on Mr Oswal, particularly by reason of the fact that he is outside of the jurisdiction, and that no person within the jurisdiction has instructions to accept service of the Documents on his behalf; and
b)if the Documents are served in the manner proposed by the CBA they will be drawn to the attention of Mr Oswal. The Court observes that lawyers presently acting in other proceedings for Mr Oswal, and served with the Documents pursuant to orders of the Court, would not be acting in accordance with their responsibilities as officers of the Court were they to fail to draw, or attempt to draw, the Documents to Mr Oswal’s attention.
Conclusion and orders
Having regard to the conclusions reached above, the Court will make orders in terms of the orders sought by the CBA in the minute of proposed orders handed up at the interim hearing, but varied so as to renumber them consecutively, and to provide for adjournment of the hearing of the Creditors Petition to 2.15pm on 17 December 2012.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Lucev FM
Date: 21 November 2012
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