Coshott v Burke

Case [2012] FCA 517

FEDERAL COURT OF AUSTRALIA

Coshott v Burke [2012] FCA 517

Citation: Coshott v Burke [2012] FCA 517
Parties: ROBERT GILBERT COSHOTT v JOHN CHRISTOPHER BURKE and COMMONWEALTH BANK OF AUSTRALIA
File number: NSD 2086 of 2011
Judge: RARES J
Date of judgment: 27 April 2012
Catchwords:

BANKRUPTCY ­­– annulment of bankruptcy pursuant to s153A Bankruptcy Act 1966 (Cth) – trustee gives notice of intention to declare final dividend under s 145 and requires proof of debt by specified date to facilitate annulment – application under s 104 by bankrupt for review of decision by trustee pursuant to s102(1)(b) to partially admit creditor’s proof of debt – where creditor delays lodging proof of debt for a period after specified date in notice – whether Court should reject late proof of debt on a review of trustee’s decision under s 104 in respect of bankrupt seeking annulment under s 153A

Held:  Court conducts a review de novo under s 104 of the trustee’s decision to admit or reject creditor’s proof of debt – when considering whether trustee (or Court) satisfied for the purposes of s 153A(1) that bankrupt has paid all provable debts in full, trustee (or Court) not constrained by time specified in notice to creditors under s 145(3)

Legislation:

Bankruptcy Act 1966 (Cth) ss 82, 83, 102(1)(b), 140, 140(1), 144, 145, 145(5), 153, 154

Evidence Act 1995 (Cth) s 48(1)
Legal Profession Act 2004 (NSW)

Cases cited:

BDT Holdings Pty Limited v Piscopo [2009] FCA 151 applied
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 applied
Coshott v Commonwealth Bank of Australia [2004] NSWCA 189 referred to
Hingston v Westpac Banking Corporation [2012] FCAFC 41 considered
Macdonald v Raupach [2011] NSWCA 320 considered
Oates v Commissioner of Taxation (1990) 27 FCR 289 considered
Payne;  Ex parte Levi [1986] FCA 439 applied
Pozniac Estate:  Morgan v Reuben [2005] NSWSC 766 referred to
Qantas Airways Limited v Gama (2008) 167 FCR 537 applied
Re Coyle (1993) 42 FCR 72 considered
Re DK Rogers;  Ex parte v CMV Parts Distributors Pty Limited (1989) 20 FCR 561 applied
Re Wong:  Ex parte Wong v Donnelly (1995) 63 FCR 426 applied

Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 referred to

Union Club v Lord Battenberg (2006) 66 NSWLR 1 considered

Date of hearing: 27 April 2012
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 59
The applicant appeared in person
The first respondent submitted to any order except as to costs
Counsel for the Second Respondent: Mr B Skinner
Solicitor for the Second Respondent: Gadens Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2086 of 2011
BETWEEN:

ROBERT GILBERT COSHOTT
Applicant
AND:

JOHN CHRISTOPHER BURKE
First Respondent

COMMONWEALTH BANK OF AUSTRALIA
Second Respondent

JUDGE:

RARES J

DATE OF ORDER:

27 APRIL 2012

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        The application is dismissed.

2.        The applicant pay…

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AGLC
Coshott v Burke [2012] FCA 517
Case
[2012] FCA 517
Decision Date

CaseChat Overview and Summary

In the case of Coshott v Burke, the applicant, Robert Coshott, sought to review a decision of the trustee in bankruptcy, which was to partially admit the Commonwealth Bank of Australia's proof of debt for a judgment debt and an estimation of the value of orders for costs in its favour. The trustee had previously advertised that it proposed to distribute a final dividend to creditors within five business days, and creditors were required to provide proofs of debt by a specified date. The bank did not file a proof of debt with the trustee prior to the specified date, but later lodged proofs of debt with the trustee. The trustee admitted the proofs of debt in part and rejected the balance of the amounts claimed by the bank.

The legal issues in this case were whether the Court should reject the late proof of debt on a review of the trustee’s decision under s 104 in respect of the bankrupt seeking annulment under s 153A, and whether the Court should conduct a review de novo under s 104 of the trustee’s decision to admit or reject the creditor’s proof of debt.

The Court conducted a review de novo under s 104 of the trustee’s decision to admit or reject the creditor’s proof of debt. When considering whether the trustee (or Court) was satisfied for the purposes of s 153A(1) that the bankrupt had paid all provable debts in full, the trustee (or Court) was not constrained by the time specified in the notice to creditors under s 145(3). The Court found that the trustee’s decision to admit the proofs of debt in part and reject the balance of the amounts claimed by the bank was not unreasonable.

The Court dismissed the application and ordered the applicant to pay the second respondent's costs of the proceedings. The Court found that the bank's claim that it had released the judgment debt and costs orders in its favour for the sum of $1 was not credible, and that the bank had no documents relevant to the existence of the release or of any negotiations for bringing such a document into existence. The Court also found that the bank had not incurred the irrecoverable costs of proceeding to prepare a bill of costs for assessment in accordance with the Legal Profession Act 2004 (NSW).

Orders

Orders of the court

1. The application is dismissed.

2. The applicant pay the second respondent’s costs of the proceedings.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

This is an application by the bankrupt, Robert Coshott, to review a decision of his trustee in bankruptcy, partially to admit the Commonwealth Bank of Australia’s proof of debt for a judgment debt and an estimation of the value of orders for costs in its favour.BACKGROUND The bankrupt has been negotiating for some time with his trustee in bankruptcy to arrange an annulment of his bankruptcy. The trustee agreed on 30 March 2011 to facilitate the annulment by advertising that it proposed to distribute a final dividend to creditors within five business days. He did that in an advertisement published in the Sydney Morning Herald on 6 April 2011. That called for proofs of debt to be provided on or before 26 April 2011, pursuant to s 145 of the Bankruptcy Act 1966 (Cth). The bank, which is the second respondent, did not file a proof of debt with the trustee prior to 26 April 2011. The principal proceedings came before me on 21 July 2011, for the purpose of making orders that would enable an annulment to take place on the following day by payment of all the bankrupt’s proved debts in full, together with interest, in accordance with s 153A of the Act. During the course of the directions hearing on that day, a letter was received by the trustee from the solicitor acting for the bank that referred to an email from the trustee of 3 July 2011. The solicitor confirmed that costs orders had been made against the bankrupt in favour of the bank both at first instance and in the New South Wales Court of Appeal. The letter asserted that, because at the time it appeared to the bank that Mr Coshott’s bankruptcy was imminent at the suit of other creditors, the bank had not incurred what it considered to be the irrecoverable costs of proceeding to prepare a bill of costs for assessment in accordance with the Legal Profession Act 2004 (NSW). The letter referred to the bank’s accounting records of the costs and disbursements that it had incurred of about $340,000 and advised that it intended to include in its proven debt a claim for 90% of the disbursements and 60% of the solicitor’s costs, in the total sum of $253,072.10. As a result, the trustee said at the hearing on 21 July 2011 that he was not in a position to proceed with providing the bankrupt with a certificate of annulment because he could not be satisfied that all the bankrupt’s debts had been paid in full for the purposes of s 153A. The principal proceedings were then adjourned. Next, the bank proceeded to lodge to proofs of debt with the trustee, one on 11 August 2011, seeking to prove for costs of $253,072.10, the second on 27 September 2011, seeking to prove the underlying judgment debt based on a MasterCard debt and interest in a total sum of $137,221.31, together with the costs incurred on that matter. The trustee determined on 2 November 2011 to admit the two proofs of debt in the sums of $201,529.19 and $115,028.65, totalling $316,557.84, and to reject the balance of the amounts the bank claimed.THE PRESENT APPLICATION

Evidence

Evidence Before The Court

The bank also led evidence that it had no documents relevant to the existence of the release or of any negotiations for bringing such a document into existence.ADDITIONAL EVIDENCE FROM THE BANK At the hearing on 20 April 2012, Mr Coshott relied on the bank’s failure to do anything to enforce the judgment or cost orders in the period between 2005 and 2009. On 20 November 2009, the bank lodged a proof of debt with the trustee, seeking only the principal of the MasterCard debt of $27,017.86, without relying at all on Sorby DCJ’s judgment. The trustee’s solicitors wrote to the bank, care of Mr Lanser, twice in late November 2010, referring to a direction I had given to the trustee to adjudicate on proofs of debt. The letters referred to the trustee’s understanding that the bank and Mr Coshott had been in litigation and that costs orders had been made in favour of the bank at trial and on appeal. The letters invited the bank to reconsider its earlier proof of debt. Those letters went unanswered, apparently because Mr Lanser was preparing to commence six months long service leave on 1 January 2011, immediately before his retirement from full-time employment. I infer that the trustee’s letters were simply placed on the bank’s file or their significance was overlooked at the time. On 19 April 2011, the trustee’s solicitors wrote to Maria Brucker, a vendor relationship officer of the bank. The letter notified the bank that Mr Coshott was seeking an annulment, and inquiring whether the bank sought interest on its proof of debt. The evidence is silent as to whether or not the trustee had written earlier to the bank giving it notice in accordance with his advertisement that it should prove for its debts no later than 26 April 2011 for the purposes of the declaration of a final dividend with a view to assisting in finalising an annulment of the bankruptcy. Next, Ms Brucker received an email from the trustee on 3 July 2011 informing her that the proposed settlement of Mr Coshott’s annulment had not gone ahead on 30 June 2011. The trustee asked her to calculate what the bank would be due as at 22 July 2011, when the settlement was now scheduled to occur. The letter explained that s 153A of the Act required the debtor to pay interest on the debts admitted to proof, unlike a normal bankruptcy. The trustee advised Ms Brucker to check with the bank’s legal department to ascertain if there were outstanding costs orders made in favour of the bank against the bankrupt. Ms Brucker reviewed the proof of debt and, on 7 July 2011, concluded that the debt was statute barred. She emailed the trustee on that day withdrawing the bank’s proof of debt stating that it was statute barred, which the trustee accepted. Self-evidently, Ms Brucker was no lawyer and had not made any sufficient inquiries. However, it appears that she must have done something after writing that withdrawal. Charles Tilley is now the solicitor employed as the bank’s head of major disputes and employee relations, legal. His involvement with Mr Coshott’s bankruptcy matters began on 21 July 2011 when he was made aware of the trustee’s earlier request to Ms Brucker of 3 July 2011. Mr Tilley reviewed the bank’s legal file in respect of Mr Coshott. He said the file contained “limited information”, but he ascertained that the bank had obtained costs orders in its favour against Mr Coshott. He said the legal file did not have any record of the trustee’s advertising of the annulment or calling for proofs of debt that had occurred in April 2011. However, Ms Brucker was aware of the annulment application from at least the receipt of the trustee’s letter of 19 April 2012, and she, on the bank’s behalf, had had subsequent correspondence with him on that matter. THE PARTIES’ SUBMISSIONS ABOUT THE AUTHENTICITY OF THE RELEASE

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Mr Coshott argued that before coming to a finding that the release is a concoction, I should be satisfied to a higher standard than the ordinary civil standard of proof on the basis of what he asserted Branson J had said in Qantas Airways Limited v Gama (2008) 167 FCR 537 at 576-577 [139].CONSIDERATION In Gama 167 FCR at 576-577 [139] Branson J discussed the principles applicable in a case like this: see too, per French and Jacobson JJ at 167 FCR at 571 [110] and Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 479-482 [29]-[39], where Weinburg, Bennett JJ and I discussed the provisions of s 140 as well. There, Branson J said, and I agree, that:“The correct approach to the standard of proof in a civil proceeding in a federal court is that for which s 140 of the Evidence Act provides. It is an approach which recognises, adopting the language of the High Court in Neat Holdings 67 ALJR 170; 110 ALR 449, that the strength of the evidence necessary to establish a fact in issue on the balance of probabilities will vary according to the nature of what is sought to be proved — and, I would add, the circumstances in which it is sought to be proved.” Ordinarily, the more serious the consequences of what is contested in litigation, the more a court will have regard to the strengths and weaknesses of evidence before it in coming to a conclusion. In deciding whether it is satisfied of a particular fact on the balance of probabilities, s140(2) requires the Court, relevantly, to take into account the nature of the claim in issue, the nature of the subject matter of the proceeding and the gravity of the matters alleged. The bank sought to lodge proof of debts in bankruptcy based on a judgment debt and costs orders established in its favour after contested and protracted litigation. The amounts in issue are substantial, now totalling well over $300,000, including interest. The nature of Mr Coshott’s defence to the proof of those debts in his bankruptcy is that the release was executed on 23 June 2005 during the pendency of the appeal, challenging the judgment debt and a costs order. The consideration for the release of what were then a judgment and costs orders worth well over $200,000 was stated as $1. There was no evidence of any settlement negotiations or contemporaneous recognition of the release. The gravity of the bank’s allegation is significant, namely, that the purported release is a fabrication. The only person who can benefit from the existence of the release is Mr Coshott. He has given no evidence of any basis upon which it could be inferred that there was any prospect of his claim succeeding before the Court of Appeal in 2005. The question then arises as to why the bank would give up its entitlement to a not insignificant monetary judgment, including interest, for the MasterCard debt and its right to have its substantial costs orders assessed in respect of lengthy hearings and contests in the Court of Appeal. There is no explanation in the evidence for the bank agreeing to do so.