Coshott v Prentice

Case [2018] FCAFC 179

FEDERAL COURT OF AUSTRALIA

Coshott v Prentice [2018] FCAFC 179

Appeal from:

Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531

Prentice v Fewin Pty Limited, in the matter of Prentice [2017] FCA 490

File numbers: NSD 1 of 2017
NSD 2 of 2017
NSD 788 of 2017
Judges: KERR, FARRELL AND GLEESON JJ
Date of judgment: 19 October 2018
Catchwords:

BANKRUPTCY – appeals from decision of single judge of Federal Court of Australia to dismiss applications to set aside appellants’ bankruptcy notices – where bankruptcy notices issued as appellants failed to pay debts arising from taxation of costs certificate issued against them in related proceeding – where appellants argued that notices should be set aside due to offsetting claim – whether debt the subject of offsetting claim efficaciously assigned to appellants – whether primary judge erred in extending time for compliance with bankruptcy notice in absence of application – whether taxation of costs certificate misleading or defective – appeals dismissed

BANKRUPTCY – appeal from another decision of single judge of Federal Court of Australia to grant application to set aside respondent’s bankruptcy notice – where bankruptcy notice issued as respondent failed to pay debt incurred as trustee arising from taxation of costs certificate issued against him in related proceeding – whether bankruptcy notice an abuse of process – appeal dismissed

Legislation:

Bankruptcy Act 1966 (Cth) ss 30(1), 40(1), 41(5), 41(6A), 41(6C), 41(7), 306(1)

Federal Court (Bankruptcy) Rules 2016 r 3.02

Federal Court Rules 2011 r 40.32(2)
Cases cited:

Australian Workers Union v Bowen [1946] HCA 24; (1946) 72 CLR 575

Derek George Shephard v Chiquita Brands South Pacific Limited [2004] FCAFC 76

Eastick v Australia and New Zealand Banking Group Ltd [1981] FCA 77; (1981) 53 FLR 91

Equitrust Ltd & Anor v Franks [2009] NSWCA; (2009) 258 ALR 388

Gye v McIntyre [1991] HCA 60; (1991) 171 CLR 609

House v the King [1936] HCA 40; (1936) 55 CLR 499

ICM Agriculture Pty Ltd v Young [2009] FCA 109

Re Donkin; Ex parte AGC Advances Limited [1994] FCA 1285; (1994) 52 FCR 271

Re Fewin Pty Ltd [2016] NSWSC 1945

Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183

Stec v Orfanos [1999] FCA 457

Webb v Hunter [1995] FCA 1443; (1995) 59 FCR 24

West Street Properties Pty Ltd v Jamison [1974] 2 NSWLR 435
Date of hearing: 17 August 2017
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 89
Counsel for the Appellant: Mr AP Cheshire SC with Mr O Jones
Solicitor for the Appellant: Comino Prasses
Counsel for the Respondent: Mr JT Johnson
Solicitor for the Respondent: O’Neill Partners

ORDERS

NSD 1 of 2017
BETWEEN:

JAMES COSHOTT

Appellant
AND:

MAXWELL WILLIAM PRENTICE

Respondent

JUDGES:

KERR, FARRELL AND GLEESON JJ

DATE OF ORDER:

19 OCTOBER 2018

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The…

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Coshott v Prentice [2018] FCAFC 179
Case
[2018] FCAFC 179
Decision Date

CaseChat Overview and Summary

In the matter of Coshott v Prentice, the appellants, Ljiljana Coshott and Schlotzsky’s Nominee Company Pty Ltd, appealed against the dismissal of their applications to set aside bankruptcy notices issued due to their failure to pay debts arising from a taxation of costs certificate. The respondents, Mr Prentice and Fewin, defended the notices on the grounds that the appellants had not successfully established an offsetting claim and that the notices were not an abuse of process. The primary judge dismissed the appellants' applications, and they sought review by the Full Court of Australia.

The key legal issues before the court were whether the debt was efficaciously assigned to the appellants, if the primary judge erred in extending the time for compliance with the bankruptcy notice, and if the taxation of costs certificate was misleading or defective. Additionally, the court had to determine whether the bankruptcy notice was an abuse of process. The appellants argued that the absence of mutuality in the debts and the potential lack of enforceability of the taxation certificate were sufficient to set aside the notices. However, the respondents maintained that these issues did not negate the primary judge's findings of an abuse of process.

The court found that the primary judge's conclusions on the abuse of process and the setting aside of the bankruptcy notice were correct. The appellants' arguments did not challenge the primary judge's factual findings or legal principles, and thus their appeals failed. The court held that the absence of mutuality and the potential lack of enforceability of the taxation certificate did not undermine the primary judge's determination. Consequently, the primary judge's decision to set aside the bankruptcy notice was upheld, and the appeals were dismissed.

The final orders of the court were that the appeals be dismissed, and the appellants pay the costs of the appeal. This decision underscores the importance of the proper purpose in issuing bankruptcy notices and the consequences of an abuse of process in bankruptcy proceedings.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the costs of the appeal.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In the 2017 decision, the primary judge, relevantly, set aside bankruptcy notice BN208109 addressed to Mr Prentice.THE COSHOTTS’ APPEALS AGAINST THE 2016 JUDGMENTBackground On 23 September 2014, a Full Court of this Court ordered that Ljiljana Coshott and her co-appellant, Schlotzsky’s Nominee Company Pty Ltd, pay 90% of the costs of Mr Prentice in proceeding NSD2016/2013: see Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450. On 15 May 2015, a Registrar of the Court made orders, inter alia, confirming that Mr Prentice’s costs under order 1 of the Full Court made on 23 September 2014 were deemed to be $77,300 and a taxation certificate was to issue accordingly. On 15 May 2015, Mr Prentice’s solicitors electronically lodged a draft taxation certificate. At [96] of his Honour’s reasons, the primary judge found that on 22 May 2015, the taxation certificate was issued electronically by way of a notice of filing document, which became part of the taxation certificate, bearing the seal of the Court and the electronic signature of the Registrar. On 5 June 2015, Ljiljana Coshott, by her solicitors, Martin Place Lawyers, applied for a review of the taxation in proceeding NSD2016/2013, including an order that “the Certificate of Taxation issued herein be set aside”. The application for review was subsequently abandoned. On 20 October 2015, a taxation certificate was issued in favour of Mr Prentice as trustee of the property of Robert Coshott for costs as against Robert, James and Ljiljana Coshott in the sum of $576,018. Bankruptcy notice BN185797 addressed to James Coshott was issued on 30 October 2015. The debt specified in the notice is an amount of $574,018, based on the October 2015 taxation certificate less $2,000 for security for taxation that was forfeited by Mr Prentice. Bankruptcy notice BN187141 addressed to Ljiljana Coshott was issued on 23 December 2015. The debt specified in the notice is an amount of $649,318, based on the October 2015 taxation certificate plus the May 2015 taxation certificate for security for taxation that was forfeited by Mr Prentice. Section 40 of the Act provides relevantly:(1) A debtor commits an act of bankruptcy in each of the following cases:...(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:(i)where the notice was served in Australia—within the time specified in the notice; or(ii)where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service;comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

Ratio Decidendi

Legal Principle Established

Fewin argued:(1)It was not an abuse of process to resist the setting off of the two debts in the absence of mutuality: Fewin’s obligation was to pay money to Mr Prentice in his capacity as a trustee, such that those monies would then be available to the trust as a whole, whereas Mr Prentice’s obligation was to pay Fewin personally. Although Mr Prentice would ordinarily have a right of indemnity from the trust assets, that is not an unqualified right and might be challenged by the beneficiaries of the trust; and in the event of an insolvency, the right would be qualified by the available assets. It was thus not an abuse to serve a bankruptcy notice for as long as the debt owing to Fewin remained unpaid.(2)The argument as to an abuse rested upon there being an enforceable debt owing by Fewin to Mr Prentice. The certificate was not enforceable until it had been entered and issued.Consideration Fewin did not contend that the primary judge had made any error as to the relevant legal principles. Nor did Fewin challenge the primary judge’s factual findings that:(1)The $16,500 debt would be recoverable from the trust funds (at [51]).(2)Mr Prentice could not be insolvent in respect of the debt he owed Fewin personally (at [52]).(3)The purpose of issuing the bankruptcy notice was to put pressure on Mr Prentice to pay the debt rather than to genuinely invoke the Court’s jurisdiction in relation to insolvency (at [55]). In the absence of any challenge to the correctness of those findings, Fewin’s arguments must fail. As to the first argument, the mere absence of mutuality does not cast doubt upon the primary judge’s conclusion that there was an abuse of process arising from Fewin’s improper purpose in issuing the bankruptcy notice. Further, the primary judge’s findings do not support an argument based on qualifications to the right of indemnity. It was not suggested that the evidence before the primary judge required factual findings about matters which might qualify Mr Prentice’s right of indemnity. As to the second argument, any possible lack of enforceability of the taxation certificate does not detract from the improper purpose finding.Conclusion Fewin’s challenge to the 2017 judgment fails. The primary judge was correct to conclude that the bankruptcy notice was an abuse of process, and that it was otherwise in the interests of justice to set aside the notice, for the reasons given by his Honour.CONCLUSIONS ON ALL APPEALS Each of the three appeals must be dismissed. Costs should follow the event.