Deronjic v Debt Fix Pty Ltd
[2022] FedCFamC2G 845
Federal Circuit and Family Court of Australia
(DIVISION 2)
Deronjic v Debt Fix Pty Ltd [2022] FedCFamC2G 845
File number(s): PEG 135 of 2021 Judgment of: JUDGE LUCEV Date of judgment: 14 October 2022 Catchwords: BANKRUPTCY – Debt proposal agreement – whether obligations fulfilled – whether release from any further obligations - whether operative exclusion to discharge provisions - whether Court can terminate debt agreement where already terminated by Official Receiver - whether proposal to vary debt agreement - provisions for processing variation of debt agreement
BANKRUPTCY – Offences - necessary proof - time limitation - whether necessary proof of offences made out
PRACTICE AND PROCEDURE - Declaratory relief - whether conditions for declaratory relief met
PRACTICE AND PROCEDURE – Summary dismissal – whether legislative provisions relied upon able to be made out – whether reasonable prospect of success
PRACTICE AND PROCEDURE – Whether leave to file amended application – where no reasonable prospect of success – where no draft amended originating application – whether amendment futile - objects and overarching purpose of legislation
PRACTICE AND PROCEDURE – Time limitation on bankruptcy offences
WORDS AND PHRASES – “unless”
Legislation: Bankruptcy Act 1966 (Cth) ss 30, 185E, 185EC, 185M, 185MC, 185N, 185NA, 185Q, 185QA
Bankruptcy Regulations 2021 (Cth)
Crimes Act 1914 (Cth) s 15B
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 143
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) r 2.01
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) r 13.13(a)
Cases cited: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; (1992) 66 ALJR 271; (1992) 59 A Crim R
Australian Securities and Investments Commission v Cassimatis [2013] FCA 641; (2013) 220 FCR 256; (2013) 302 ALR 671; (2013) 94 ACSR 623
Baronian v Potter Constructions Pty Ltd (1979) 22 SASR 215; (1979) 42 LGRA 219
Council of the Law Society of New South Wales v Levitt [2018] NSWCA 247
Krajniw v Newman (No 2) [2015] FCA 673
Leigh v Lillee (1860) 30 LJ Ex 25
Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118; (2010) 84 ALJR 612; (2010) 269 ALR 233
Division: Division 2 General Federal Law Number of paragraphs: 59 Date of last submission/s: 25 October 2021 Date of hearing: 25 October 2021 Place: Perth Counsel for the Applicant: Mr PG Brunner Solicitor for the Applicant: Bailiwick Legal Counsel for the Respondent: Dr R Collins Solicitor for the Respondent: Chamberlains ORDERS
PEG 135 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF NIKOLA DERONJIC V DEBT FIX PTY LTD
BETWEEN: NIKOLA DERONJIC
Applicant
AND: DEBT FIX PTY LTD
Respondent
order made by:
JUDGE LUCEV
DATE OF ORDER:
14 OCTOBER 2022
THE COURT ORDERS THAT:
1.The applicant’s application pursuant to r 7.01 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) for leave to amend the Originating Application and file accompanying affidavits be dismissed.
2.Pursuant to rule 13.13(a) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) these proceedings be summarily dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE LUCEV
Introduction
Before the Court is an Application in a Case filed by Debt Fix Pty Ltd (“Debt Fix”) the Respondent in these proceedings, seeking to have the Originating Application filed on 22 June 2021 by Mr Nikola Deronjic (“Mr Deronjic”):
(a)summarily dismissed, or alternatively, that there be summary judgment in favour of Debt Fix;
(b)further, and in the alternative, that the proceedings be dismissed and that Mr Deronjic be prohibited from instituting proceedings of this type in the Court;
(c)that Debt Fix be removed as a party to the proceedings; and
(d)further in the alternative, that Mr Deronjic provide security for costs.
In reply Mr Deronjic seeks that:
(a)the Application in a Case be dismissed or stayed; and
(b)leave be granted to file an amended Originating Application and accompanying affidavits.
Originating Application
The Originating Application concerns a debt agreement proposal entered into by Mr Deronjic with Debt Fix on 29 March 2017. The Originating Application was prepared at a time when Mr Deronjic was not legally represented, and is the subject of an application in reply to the Application in a Case which seeks to amend the Originating Application. Presently, the Originating Application, sets out certain alleged material facts, and at [12] and [13] provides as follows (unaltered and emphasis in original):
12.As per above, Proceedings are brought as per following Bankruptcy Act;
a.Bankruptcy Act 1966 - Part IX Debt Agreement - Division 5 - Ending a debt agreement - 185N(1) Time of end of debt agreement
b.Bankruptcy Act 1966 - Part IX Debt Agreement - Division 5 - Ending a debt agreement - 185N(3) Certificate of the end of a debt agreement
c.Bankruptcy Act 1966 - Part IX Debt Agreement - Division 5 - Ending a debt agreement - 185N(5) Notification of end of debt agreement
d.Bankruptcy Act 1966 -Part IX Debt Agreement - Division 5 - Ending a debt agreement - 185NA(1) Time and effect of release
e.Bankruptcy Act 1966 - Part IX Debt Agreement - Division 5 – Ending a debt agreement - 185Q(4) Prerequisites for making an order terminating a debt agreement; (b), (ba)
f.Bankruptcy Act 1966 - Part IX Debt Agreement - Division 5 - Ending a debt agreement - 185EC(6) A person commits an offence if; (a), (b), (c)
g.Bankruptcy Act 1966 - Part IX Debt Agreement - Division 5 - Ending a debt agreement - 185MC(6) A person commits an offence if; (a), (b), (c)
13.Applicant is seeking:
a.Federal Circuit Court of Australia to determine if Applicant has fulfilled his part of the Agreement.
b.Federal Circuit Court of Australia to free Applicant of any further contract obligations if court is satisfied that Agreement was fulfilled
c.Financial relief for all legal expanses encounter by Applicant in relation to this matter.
Application in a Case
The Application in a Case seeks the following orders:
1. An order pursuant to rule 13.13 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (Rules) that these proceedings be summarily dismissed.
2. In the alternative to order [1] above, an order pursuant to section 143(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (Act) and rule 13.10 of the Rules that summary judgment be awarded in favour of the Respondent in these proceedings (being the Applicant in this application).
3.In the alternative to orders [1]-[2] above, orders pursuant to section 239(2) of the Act for:
a. These proceedings to be dismissed; and
b.The Applicant in these proceedings (being the Respondent in this application) to be prohibited from instituting proceedings of this type in the Court.
4.In the alternative to orders [1]-[3] above, an order pursuant to rule 11.04(1) of the Rules that the Respondent in these proceedings (being the Applicant in this application) be removed as a party to these proceedings for want of jurisdiction.
5.In the alternative to orders [1]-[4] above, an order pursuant to rule 22.01 (1) of the Rules and section 215 of the Act that the Applicant in these proceedings (being the Respondent in this application) give security for costs to the Respondent in these proceedings (being the Applicant in this application) for the Respondent's costs of and incidental to these proceedings for the period of 29 June 2021 to the conclusion of these proceedings in the amount of $70,000.00.
6.In the alternative to orders [1]-[5] above, an order pursuant to section 239(2)(c) of the Act that the Applicant in these proceedings (being the Respondent in this application) give security for costs to the Respondent in these proceedings (being the Applicant in this application) for the Respondent's costs of and incidental to these proceedings for the period of 29 June 2021 to the conclusion of these proceedings in the amount of $70,000.00.
7. Further to orders [5]-[6] above, an order that the security to be given by the Applicant in these proceedings (being the Respondent in this application) pursuant to order [5] or [6] above be by payment into Court within 14 days of the date of such an order being entered.
8.Further to orders [5]-[7] above, an order pursuant to section 215(5)(a) of the Act that these proceedings be dismissed in the event that the security for costs pursuant to order [5] or [6] above is not provided by the Applicant in these proceedings (being the Respondent in this application) in the manner or within the time period specified in order [7] above.
9.An order pursuant to rule 22.02(1) of the Rules and section 214 of the Act that the Respondent's costs of this application be paid by the Applicant in these proceedings (being the Respondent in this application) on an indemnity basis.
10.In the alternative to order [9] above, an order pursuant to rule 22.02(1) of the Rules and section 214 of the Act that the Respondent's costs of this application be paid by the Applicant in these proceedings (being the Respondent in this application) on a solicitor/client basis.
11.In the alternative to orders [9]-[10] above, an order pursuant to rule 22.02(1) of the Rules and section 214 of the Act that the Respondent's costs of this application be paid by the Applicant in these proceedings (being the Respondent in this application) on a party/party basis.
Response
In his Response Mr Deronjic has sought that (reproduced unaltered):
1.The Respondent's Interlocutory Application dated 10 September 2021 be dismissed;
2.In the alternate to the above, the Respondent's Interlocutory Application dated 10 September 2021 be stayed;
3.Pursuant to rule 7.01 of the Federal Circuit Court Rules 2001, leave of the court to file an amended application and any accompanying affidavit/s in these proceedings be granted in favour of the Applicant;
4.The Applicant file and serve said amended Application and accompying affidavit/s within 14 days of these orders being made; and
5.Costs to be in the cause.
Materials
The Court has before it the following affidavits:
(a)Affidavit of Nikola Deronjic sworn 22 June 2021 (“First Deronjic Affidavit”);
(b)Affidavit of Grant Daniel O’Donnell sworn 10 September 2021 (“First O’Donnell Affidavit”);
(c)Affidavit of Stipe Vuleta affirmed 10 September 2021 (“Vuleta Affidavit”);
(d)Affidavit of Nikola Deronjic sworn 24 September 2021 (“Second Deronjic Affidavit”); and
(e)Affidavit of Grant Daniel O’Donnell sworn 1 October 2021 (“Second O’Donnell Affidavit”).
The Court had the benefit of written submissions from Debt Fix. No written submissions were filed or tendered on behalf of Mr Deronjic. The Court has also had regard to the transcript of the hearing of the Application in a Case.
Facts
The principal facts relevant to this matter are as follows:
(a)Mr Deronjic signed a Debt Agreement Proposal and Explanatory Statement (“Proposal”) on or about 29 March 2017: First O’Donnell Affidavit at [8] and Exhibit GDO1, pp 3-7;
(b)in the Proposal, Mr Deronjic provided information to his creditors to enable them to consider the Proposal and make a decision on whether to accept the Proposal: First O’Donnell Affidavit at [10] and Exhibit GDO1, pp 3-7, the essential terms of which were as follows:
(i)175 payments of $125 on a weekly basis were to be made by Mr Deronjic to Debt Fix (as proposed Administrator of the proposed Debt Agreement) commencing 26 July 2017;
(ii)the total amount of the payments offered by Mr Deronjic to his creditors was therefore $21,875 (“Total Amount Proposed”);
(iii)the Proposal noted that it was expected that most of the Application Fee charged by Debt Fix would be paid by Mr Deronjic prior to the start of the Proposed Debt Agreement, leaving a residual balance to be captured in dividends; and
(iv)if the Proposal was accepted by creditors, then the fees for Debt Fix, as Administrator, to administer the Debt Agreement (“Debt Agreement Administration Fee”) of $4,900 would be paid from the Total Amount Proposed;
(c)a letter enclosing the Proposal (“Confirmation Letter”) stated that:
(i)if Mr Deronjic did not pay the Application Fee in full by the time the Debt Agreement payments were due to commence on 26 July 2017 in accordance with the Proposal, then any residual amount owing would form part of the Proposal, and Debt Fix would be an unsecured creditor for the residual amount and be entitled to a proportionate distribution along with other unsecured creditors, from the Total Amount Proposed: First O’Donnell Affidavit at [12] and Exhibit GDO1 at [18]; and
(ii)the Government charged a lodgment fee (“Lodgment Fee”) for the Proposal and that this would be paid by Debt Fix on Mr Deronjic’s behalf from payments made by Mr Deronjic to Debt Fix;
(d)Mr Deronjic confirmed, in writing, that he had read, understood and agreed with all the information contained in the Confirmation Letter: First O’Donnell Affidavit, Exhibit GDO1 at p 18;
(e)as at 29 March 2017:
(i)the application fee of $1950 (“Application Fee”) was due and payable by Mr Deronjic in accordance with the Proposal;
(ii)the Lodgment Fee had been paid by Debt Fix and was to be reimbursed by Mr Deronjic from payments made to Debt Fix;
(iii)the debts owed to Debt Fix totalled $2,150 (“Debt Fix Debts”), being the sum of $1,950 for the Application Fee and the $200 Lodgment Fee; and
(iv)Mr Deronjic had agreed that if the Proposal was approved by creditors and he had not paid the Application Fee in full by 26 July 2017 then any residual amount would be included in the Proposal and Debt Fix would be treated as an unsecured creditor entitled to a proportionate distribution from the Total Amount Proposed: First O’Donnell Affidavit at [14]-[15];
(f)Mr Deronjic’s creditors subsequently approved the Proposal (“Debt Agreement”);
(g)on or about 30 March 2017 Mr Deronjic replied “yes” to a welcome call which included words to the effect that between 30 March 2017 and 26 July 2017 any payments made by Mr Deronjic would be voluntary payments that would be used to first offset the Government’s Lodgment Fee and the Application Fee: First O’Donnell Affidavit at [15];
(h)payments of $1,625.01 were made by Mr Deronjic towards the Application Fee and Lodgment Fee in three instalments prior to the Debt Agreement taking effect (“Voluntary Payments”), and as agreed by Mr Deronjic in the Proposal and the Confirmation Letter, the Voluntary Payments were used to first offset the Application Fee and the Lodgment Fee, and an amount of $528.03 remained outstanding as at 26 July 2017 when payments under the Debt Agreement commenced: First O’Donnell Affidavit at [17] and [19]; and
(i)payments of $20,251.09 were made pursuant to the Debt Agreement by Mr Deronjic, with his last payment being made around 26 July 2020.
Relevant provisions of the bankruptcy act
The Originating Application refers to and relies upon a number of sections of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”), which, together with another relevant section (s 185QA of the Bankruptcy Act), are set out hereunder.
Section 185N of the Bankruptcy Act provides as follows:
Time of end of debt agreement
(1) A debt agreement ends when all the obligations that it created have been discharged, unless the agreement has been terminated earlier under section 185P, 185Q, 185QA or 185R.
Keeping surplus property that was subject to an agreement
(2) When a debt agreement ends under subsection (1), the debtor is entitled to any property that was subject to the debt agreement but that was not required by the agreement to be distributed to creditors.
Example: Rhea entered into a debt agreement that required her to sell her boat and car and to pay her creditors $15,000 from the proceeds. The debt agreement ended when she sold her boat and car for $16,000 and paid her creditors $15,000. She may keep the remaining $1,000 received from the sale.
Certificate of the end of a debt agreement
(3) If a debt agreement ends under subsection (1), the Official Receiver must give the debtor a certificate to that effect.
Evidentiary value of certificate
(4) The certificate is prima facie evidence of the facts stated in it.
Notification of end of debt agreement
(5) If a debt agreement ends under subsection (1), the person who was the administrator of the agreement immediately before it ended must, within 5 business days after the end of the agreement, notify the Official Receiver, in writing, of the end of the agreement.
(6) A notification under subsection (5) must be in the approved form.
Section 185NA of the Bankruptcy Act provides as follows:
Time and effect of release
(1) When a debt agreement ends under subsection 185N(1), the debtor is released from provable debts from which the debtor would have been released if the debtor had been discharged from bankruptcy immediately after the acceptance of the relevant debt agreement proposal for processing was recorded on the National Personal Insolvency Index.
Limits on release
(2) The release ceases to operate if the debt agreement is declared void by the Court.
(3) The release does not:
(a) release anyone else from a debt that he or she owes jointly with the debtor; or
(b) release a guarantor from the guarantee that the guarantor gave for the debtor’s debt.
Section 185Q of the Bankruptcy Act provides as follows:
Applying for an order
(1) Any of the following persons may apply to the Court for an order terminating a debt agreement:
(a) the debtor (or the debtor’s personal representative if the debtor has died);
(b) a creditor of the debtor;
(c) the Official Receiver.
Simultaneous application for a sequestration order
(2) A creditor may include an application for a sequestration order in an application for an order terminating a debt agreement.
Effect of applying for a sequestration order
(3) For the purposes of this Act, making an application for a sequestration order under subsection (2) is taken to be presenting a creditor’s petition against the debtor, but subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to the application.
Prerequisites for making an order terminating a debt agreement
(4) The Court may make an order terminating a debt agreement if it is satisfied:
(a) that the debtor (or the debtor’s personal representative if the debtor has died) has failed to carry out a term of the agreement and that it is in the creditors’ interest to terminate the agreement; or
(b)that carrying out the agreement would cause injustice or undue delay to the creditors or the debtor (or the debtor’s estate if the debtor has died); or
(ba) that one of the following applies:
(i)the administrator of the agreement has contravened subsection 185EC(6) in relation to the relevant debt agreement proposal;
(ii)the administrator of the agreement has contravened subsection 185MC(6) in relation to the agreement, whether or not the proposal to vary the agreement was accepted;
(iii)the administrator of the agreement has contravened subsection 185PC(6) in relation to the agreement, where the proposal to terminate the agreement was not accepted; or
(c)that for any other reason the agreement should be terminated and that it is in the creditors’ interest to do so.
Sequestration order
(5) If the Court makes an order terminating a debt agreement, the Court may also make a sequestration order if a creditor applied for the sequestration order.
Section 185QA of the Bankruptcy Act provides as follows:
(1) If:
(a)the administrator of a debt agreement notifies the Official Receiver that a designated 6‑month arrears default by the debtor has occurred; and
(b) the Official Receiver is satisfied that the designated 6‑month arrears default has occurred;
the Official Receiver must:
(c) declare in writing that the agreement is terminated; and
(d) record the declaration on the National Personal Insolvency Index.
(2) The debt agreement is terminated when the declaration is recorded on the National Personal Insolvency Index.
Section 185EC(6) of the Bankruptcy Act provides as follows:
(6) A person commits an offence if:
(a)the person is the proposed administrator in relation to a debt agreement proposal; and
(b)the person gives, or agrees or offers to give, to an affected creditor any valuable consideration; and
(c)the person does so with the intention of securing the affected creditor’s acceptance or non‑acceptance of the proposal.
Penalty for contravention of this subsection: Imprisonment for 6 months.
Section 185MC(6) of the Bankruptcy Act provides as follows:
(6) A person commits an offence if:
(a) the person is the administrator of a debt agreement; and
(b)the person gives, or agrees or offers to give, to an affected creditor any valuable consideration; and
(c)the person does so with the intention of securing the affected creditor’s acceptance or non‑acceptance of the proposal to vary the agreement.
Penalty for contravention of this subsection: Imprisonment for 6 months.
Summary dismissal
Legislative provisions and legal principles with respect to summary dismissal of proceedings
It is convenient to first set out the relevant legislative provisions and the principles concerning the summary dismissal of proceedings.
Section 143 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (“FCAFCOA Act”) provides as follows:
(1) The Federal Circuit and Family Court of Australia (Division 2) may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a)the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2) The Federal Circuit and Family Court of Australia (Division 2) may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Federal Circuit and Family Court of Australia (Division 2) has apart from this section.
(5) This section does not apply if the Federal Circuit and Family Court of Australia (Division 2) is exercising jurisdiction under the Family Law Act 1975.
Rule 13.13(a) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (“FCAFCOA GFL Rules”) provides as follows:
The Court may order that a proceeding be stayed, or dismissed generally or in relation to any claim for relief in the proceeding, if the Court is satisfied that:
(a)the party prosecuting the proceeding or claim for relief has no reasonable prospect of successfully prosecuting the proceeding or claim;
The legal principles applicable to an application for summary dismissal of proceedings are well established.
In relation to summary dismissal the High Court’s made observations in Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118; (2010) 84 ALJR 612; (2010) 269 ALR 233 (“Spencer”) at [58]-[60] per Hayne, Crennan, Kiefel and Bell JJ from which the following principles can be taken:
(a)no paraphrase of the expression “no reasonable prospect” can be adopted as a sufficient explanation of its operation, let alone definition of its content: at [58];
(b)the expression cannot usefully be understood by the creation of some antinomy intended to capture most or all of the cases in which it can be said that there is “no reasonable prospect”: at [58];
(c)the creation of a lexicon of words or phrases intended to capture the operation of the phrase is to be avoided: at [58];
(d)where a plaintiff has no reasonable prospect of prosecuting a proceeding the proceeding could be described as “frivolous”, “untenable”, “groundless” or “faulty”, but these expressions, either alone or in combination, should not be understood as providing a sufficient chart of the metes and bounds of the relevant power, nor can reasonableness be sufficiently or completely illuminated by contrast with a claim which would be “frivolous,” “untenable,” “groundless” or “faulty”: at [59];
(e)the power may only be exercised if a court is satisfied that the application has no reasonable prospect of success: at [60];
(f)the power to dismiss an action summarily is not to be exercised lightly: at [60]; and
(g)full weight must be given to the expression as a whole, and it is sufficient, but important, to emphasize that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different procedural regimes: at [60].
Debt Fix’s submissions
Debt Fix submitted that:
(a)it is clear from the terms of the Debt Agreement that Mr Deronjic was obliged to pay $21,750. The Voluntary Payments did not change the amount owed by Mr Deronjic under the Debt Agreement, and under the Debt Agreement the expectation was that most of the Application Fee would already be paid before payments under the Debt Agreement commenced; and
(b)Mr Deronjic failed to pay the Total Amount Proposed by 2 March 2021 and, pursuant to s 185QA of the Bankruptcy Act, the Official Receiver was obliged to terminate the Debt Agreement if satisfied that a six month arrears default had occurred, and accordingly, on 17 March 2021, the Official Receiver terminated the Debt Agreement: Second O’Donnell Affidavit at [13]-[14], Annexure GDO4.
(c)it is pertinent in this case to observe that the power to order summary dismissal ought to be exercised where there are no reasonable prospects of success because there was no attempt by a party to link the conduct of the party with the provisions of the legislation cited: citing, Krajniw v Newman (No 2) [2015] FCA 673 at [34] and [41] per Reeves J and Australian Securities and Investments Commission v Cassimatis [2013] FCA 641; (2013) 220 FCR 256; (2013) 302 ALR 671; (2013) 94 ACSR 623 at [50] per Reeves J: and
(d)although Mr Deronjic claimed in the Originating Application that proceedings were brought under ss 185N(1), (3) and (5), 185NA(1), 185Q(4), 185EC(6) and 185MC(6) of the Bankruptcy Act the Originating Application contains no details of the claims made under these sections of the Bankruptcy Act.
In relation to ss 185N and 185NA of the Bankruptcy Act Debt Fix submits that:
(a)section 185N(1) of the Bankruptcy Act provides that a debt agreement ends when all the obligations that it created have been discharged, unless the Debt Agreement has been terminated earlier, including under s 185QA of the Bankruptcy Act. Section 185QA of the Bankruptcy Act has no application in circumstances where the Debt Agreement has been terminated earlier by the Official Receiver under that section;
(b)sections 185N(3) and 185NA of the Bankruptcy Act are all conditional on the Debt Agreement ending in accordance with s 185N(1) of the Bankruptcy Act, and as the Debt Agreement ended by termination by the Official Receiver, those sections can have no application to those circumstances. In any event, only the Official Receiver can provide a certificate that a debt agreement has come to an end, and Debt Fix does not have the power to provide any such certificate to Mr Deronjic in relation to the Debt Agreement; and
(c)Mr Deronjic therefore has no reasonable prospect of successfully prosecuting any claim against Debt Fix under ss 185N(1), (3) and (5) and 185NA of the Bankruptcy Act because those sections have no application in circumstances where the Official Receiver has already terminated the Debt Agreement and Debt Fix has no power to carry out the matters set out in s 185N(3) and (5) of the Bankruptcy Act.
In relation to s 185Q(4) of the Bankruptcy Act Debt Fix submits that the section has no application to the circumstances of this case because the Debt Agreement has already been terminated (by the Official Receiver), and in the circumstances it is not open to the Court to exercise the power in s 185Q(4) of the Bankruptcy Act by making a further order to terminate the Debt Agreement.
In relation to ss 185EC(6) and 185MC(6) of the Bankruptcy Act Debt Fix submits that those provisions relate to the commission of offences, first, in relation to a proposed administrator of a debt agreement committing an offence if they give an affected creditor any valuable consideration with the intention of securing that creditor’s acceptance or non-acceptance of a proposal: Bankruptcy Act, s 185EC(6); and second, an offence in relation to the giving of consideration with the intention of securing a creditor’s acceptance or non-acceptance of a proposal to vary a debt agreement: Bankruptcy Act, s 185MC(6).
Debt Fix submits that:
(a)Mr Deronjic has failed to provide any material facts or evidence to establish that Debt Fix has committed any such offences, nor to even identify the affected creditor, and on that basis he has no reasonable prospect of successfully prosecuting this claim;
(b)significantly, the relief sought by Mr Deronjic is for the Court to determine if Mr Deronjic has fulfilled his part of the Debt Agreement, and for the Court to free Mr Deronjic of any further contractual obligations if the Court is satisfied that the Debt Agreement was fulfilled, but in circumstances where the Official Receiver has already terminated the Debt Agreement, there is no reasonable prospect of Mr Deronjic obtaining the relief sought; and
(c)pursuant to a third party authority executed by Mr Deronjic he accepted that Debt Fix had excluded its liability and would have no liability including in respect of any claims brought against it: First O’Donnell Affidavit at [11] and page 8 at cl 5, and Mr Deronjic is therefore barred or estopped from bringing the claims in the Originating Application against Debt Fix.
Mr Deronjic’s submissions
Mr Deronjic submitted that:
(a)in relation to ss 185N and 185NA of the Bankruptcy Act that the total amount owing under the Debt Agreement had been paid (by two instalments of $1,625.01 and $20,251.09), and that Mr Deronjic’s obligations under the Debt Agreement had thereby been discharged, and that the Court could make a declaration to that effect for the purposes of s 185N(1) of the Bankruptcy Act. For these purposes it was effectively conceded by Mr Deronjic that it would be necessary to make an application to add the Official Receiver as a party to the Originating Application, because it was the Official Receiver who had terminated the Debt Agreement, not Debt Fix; and
(b)Debt Fix, as either the proposed administrator or the administrator of the Debt Agreement, gave to an affected creditor (being Debt Fix itself), valuable consideration with the intention of securing the affected creditor’s acceptance or non-acceptance of the proposed Debt Agreement or a variation of the Debt Agreement for the purposes of ss 185EC(6) or 185MC(6) of the Bankruptcy Act respectively.
Mr Deronjic made no particular argument with respect to s 185Q of the Bankruptcy Act.
Consideration – summary dismissal
As set out at [10]-[15] above the relevant statutory provisions relied upon in the Originating Application as the basis for a cause of action were ss 185N, 185NA, 185Q, 185EC and 185MC of the Bankruptcy Act, and those provisions, together with a related provision, namely s 185QA of the Bankruptcy Act, are discussed below in considering whether or not there is a reasonable prospect of success in relation to the Originating Application.
Sections 185N and 185NA of the Bankruptcy Act
In relation to ss 185N and 185NA of the Bankruptcy Act it was common ground that any relief to be obtained from this would be by way of a declaratory order under s 30(1)(b) of the Bankruptcy Act. Declaratory relief will not, however, be granted in relation to a purely hypothetical question, or if the relief claimed relates to circumstances which have not occurred or might never occur or if the declaration will produce no foreseeable consequences for the parties: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; (1992) 66 ALJR 271; (1992) 59 A Crim R, CLR at 582 per Mason CJ, Dawson, Toohey and Gaudron JJ. The Court has no doubt that, in an appropriate case, such a declaratory order might be made as to whether or not a person had discharged their obligations under a debt agreement for the purposes of s 185N of the Bankruptcy Act, or whether a person has been released from provable debts by reason of a debt agreement having ended under s185NA(1) of the Bankruptcy Act.
This case is not an appropriate case for declaratory relief for three reasons set out hereunder.
The first reason relates to s 185N(1) of the Bankruptcy Act. Section 185N(1) of the Bankruptcy Act provides that a debt agreement ends when all the obligations that it created have been discharged, “unless”, relevantly, the debt agreement has been terminated earlier under s 185QA of the Bankruptcy Act. The use of “unless” in s 185N(1) of the Bankruptcy Act excludes a debt agreement from ending thereunder where it has already been terminated under s 185QA of the Bankruptcy Act: Leigh v Lillee (1860) 30 LJ Ex 25 at 27-28 per Pollock CB; Baronian v Potter Constructions Pty Ltd (1979) 22 SASR 215; (1979) 42 LGRA 219, SASR at 218 per Walters J; Council of the Law Society of New South Wales v Levitt [2018] NSWCA 247 at [55] per McColl JA. Section 185N(1) of the Bankruptcy Act is therefore not engaged in circumstances where, as here, the Debt Agreement has already been terminated by the Official Receiver under s 185QA of the Bankruptcy Act by reason of the Official Receiver being satisfied that a six month arrears default on the part of Mr Deronjic had occurred.
Second, no challenge has been made in respect of the validity of the termination of the Debt Agreement by the Official Receiver under s 185QA of the Bankruptcy Act, and the Official Receiver is not a party to the Originating Application. The Originating Application does not seek to set aside or review the Official Receiver’s termination of the Debt Agreement by the Official Receiver under s 185QA of the Bankruptcy Act, and when the effect of the termination of the Debt Agreement by the Official Receiver under s 185QA of the Bankruptcy Act was raised with Mr Deronjic’s lawyer at hearing there was no suggestion that any application seeking to set aside or review or invalidate the Official Receiver’s termination of the Debt Agreement by the Official Receiver under s 185QA of the Bankruptcy Act might be made.
Third, even if, contrary to the reasoning at [31] above, s 185N(1) of the Bankruptcy Act is engaged, there is no basis on the facts to conclude that it is reasonably arguable that the obligations created by the Debt Agreement have been discharged by Mr Deronjic. In a convoluted and confusing submission Mr Deronjic’s lawyers sought to persuade the Court that the obligations created by the Debt Agreement had been discharged, in essence because Mr Deronjic had paid to Debt Fix the Total Amount Proposed. That contention cannot be made out because:
(a)Mr Deronjic agreed that the Voluntary Payments (that is payments towards the Application and Lodgement Fees) made prior to the Debt Agreement taking effect would be used to first offset the Application and Lodgement fees;
(b)Mr Deronjic paid $1,625.01 to Debt Fix by way of Voluntary Payments prior to the Debt Agreement taking effect;
(c)once the Debt Agreement took effect, Mr Deronjic paid a further $20,251.09 to Debt Fix, which left a balance outstanding of $1,623.91 to be paid under the Debt Agreement;
(d)the balance of $1,623.91 was not paid to Debt Fix by Mr Deronjic;
(e)the ongoing failure to pay the outstanding balance of $1,623.91 ultimately triggered a designated six month arrears default for the purposes of s 185QA(1) of the Bankruptcy Act.
It follows from the foregoing that there is no reasonable prospect of a declaration being made for the purposes of s185N(1) of the Bankruptcy Act to the effect that Mr Deronjic has discharged the obligations created under the Debt Agreement, and that the Debt Agreement is therefore at an end. Further, if there is no reasonable prospect of a declaration being made for the purposes of s 185N(1) of the Bankruptcy Act there is then no reasonable prospect of a declaration being made for the purposes of ss 185N(3) and (5) and 185NA(1) of the Bankruptcy Act because those provisions are conditional upon a debt agreement ending under s 185N(1) of the Bankruptcy Act, and for reasons set out at [31] above the Debt Agreement in this case did not end under s 185N(1) of the Bankruptcy Act.
Sections 185Q and 185QA of the Bankruptcy Act
As set out at [32] above Mr Deronjic did not address any particular argument to the provisions of s 185Q of the Bankruptcy Act. Section 185Q of the Bankruptcy Act, provides, relevantly, for a debtor, here Mr Deronjic, to apply to the Court for an order terminating a debt agreement. Section 185Q of the Bankruptcy Act has no application in this case because the Court cannot terminate the Debt Agreement because it has already been terminated by the Official Receiver under s 185QA(1) of the Bankruptcy Act because of Mr Deronjic’s six month arrears default. It follows that there is no reasonable prospect of the Originating Application succeeding on any basis arising from ss 185Q and 185QA of the Bankruptcy Act.
Sections 185EC(6) and 185MC(6) of the Bankruptcy Act
Mr Deronjic’s lawyer spent some time at hearing endeavouring, in the most general of terms, to explain how it might be that the offences set out in ss 185EC(6) and 185MC(6) of the Bankruptcy Act had been committed. Those endeavours did not, however, extend to detailed or proper analysis of the relevant provisions of the Bankruptcy Act.
Sections 185EC(6) and 185MC(6) of the Bankruptcy Act are offence provisions. As such they are criminal in nature and must be strictly construed and the necessary proof established to the relevant criminal standard: that is, beyond reasonable doubt: Henderson v Main (1918) 25 CLR 358 at 365 per Barton J and 368 per Isaacs J; Re Nancarrow [1916] SALR 198 at 213 per Murray CJ.
The Court notes that the penalty for contravention of ss 185EC(6) and 185MC(6) of the Bankruptcy Act is six months imprisonment. Because the maximum penalty is not more than six months it has the effect, pursuant to s 15B(1) of the Crimes Act 1914 (Cth), that “a prosecution of an individual for an offence against any law of the Commonwealth may be commenced … (b) .. at any time within one year after the commission of the offence”. The Court notes that neither party referred to, nor informed the Court of, this time limitation at hearing.
Section 185EC of the Bankruptcy Act is a provision directed, relevantly, to the requirements for, and timing of, acceptance of a debt agreement: Bankruptcy Act, s 185EC(1) and (2). Relevantly, a debt agreement proposal is accepted if:
(a)the Official Receiver writes to affected creditors under s 185EA(1) of the Bankruptcy Act, which provides that if the Official Receiver is required by s 185E(5) of the Bankruptcy Act to process a debt agreement proposal, then the Official Receiver must write to each of the affected creditors known to the Official Receiver asking them to indicate whether the debt agreement proposal should be accepted; and
(b)a majority in value of the creditors who reply before the applicable deadline state that the proposal should be accepted.
In this case the Debt Agreement proposal was accepted on 24 May 2017: First O’Donnell Affidavit at [8]. It follows that any offence under s 185EC(6) of the Bankruptcy Act as it relates to the “proposed administrator in relation to a debt agreement proposal” and the “intention of securing the affected creditor’s acceptance or non-acceptance of the proposal” cannot be an offence committed after 24 May 2017. Consequently, any prosecution had to be commenced within one year of 24 May 2017. Even if the Originating Application could be considered to be a prosecution for an offence under s 185EC(6) of the Bankruptcy Act (which is itself doubtful) any such purported prosecution would be out of time and therefore have no reasonable prospect of success.
Section 185MC of the Bankruptcy Act is a provision directed, relevantly, to the requirements for, and timing of, acceptance of a proposal to vary a debt agreement: Bankruptcy Act, s 185MC(1) and (2). Relevantly, a proposal to vary a debt agreement is accepted if:
(a)the Official Receiver writes to affected creditors under s 185MA(1) of the Bankruptcy Act, which provides that if the Official Receiver is required by s 185M(2) of the Bankruptcy Act to process a proposal to vary a debt agreement, then the Official Receiver must write to each of the affected creditors known to the Official Receiver asking them to indicate whether the proposal to vary the debt agreement should be accepted; and
(b)a majority in value of the creditors who reply before the applicable deadline state that the proposal should be accepted.
Section 185M(1) of the Bankruptcy Act provides that a debtor or creditor “who is a party to a debt agreement may give the Official Receiver a written proposal to vary” a debt agreement. In this case there is no evidence, and indeed no suggestion, that such a written proposal was ever given. That conclusion is reinforced when the statutory provisions governing the form and nature of any proposal to vary a debt agreement are considered: as to which see Bankruptcy Act, s 185M(1A), (1B), (1C), (1D), (1E) and (2).
Section 185M(2) of the Bankruptcy Act provides that the Official Receiver must process a proposal to vary a debt agreement if the Official Receiver is satisfied that s 185M(1A), (1B), (1C), (1D), (1E) and (1F) of the Bankruptcy Act has been complied with. It is unnecessary to address each of the subsections of s 185M of the Bankruptcy Act just referred to, and it suffices for present purposes to observe that in this case there is:
(a)no proposal to vary the Debt Agreement in the approved form: Bankruptcy Act, s 185M(1A), or at all; and
(b)no explanatory statement in the approved form accompanying or intended to accompany any proposal to vary the Debt Agreement: Bankruptcy Act, s 185M(1A),
and therefore no basis on which the Official Receiver could be satisfied that those requirements had been complied with, and therefore there could be no requirement to process a proposal to vary the Debt Agreement, even if such a proposal to vary the Debt Agreement had been made informally (a matter about which there is, again, no evidence).
Even if the Originating Application could be considered to be a prosecution for an offence under s 185MC(6) of the Bankruptcy Act (which is itself doubtful) any such purported prosecution would have no reasonable prospect of success because there was no proposal to vary the Debt Agreement, nor were the relevant preconditions for the processing of any proposal to vary the Debt Agreement met.
No issue as to whether the Court has jurisdiction to deal with offences under the Bankruptcy Act was raised in the proceedings, and it is unnecessary to determine that issue as the alleged offences cannot be made out in any event.
The Court further observes that insofar as Mr Deronjic alleges offences under ss 185EC(6) and 185MC(6) of the Bankruptcy Act those allegations are unspecified and unparticularised. Without such specification or particularisation neither Debt Fix nor this Court is able to discern precisely what is alleged against Debt Fix or any officer or employee of Debt Fix. In the circumstances, the bare allegations presently made have no reasonable prospect of success. Further, for the reasons set out at [37]-[45] above, and based upon the facts as principally set out in the First and Second Deronjic Affidavits and the First and Second O’Donnell Affidavits, no alleged offence under either of ss 185EC(6) and 185MC(6) of the Bankruptcy Act can be made out in these proceedings in any event, and there is therefore no reasonable prospect of success in relation to such alleged offences.
Conclusion - summary dismissal
The Court bears in mind the not insignificant caution to be exercised in deciding whether to summarily dismiss proceedings of this type, but nevertheless is satisfied that for the reasons set out at [29]-[46] above the Originating Application has no reasonable prospect of success. Subject to what is said below concerning Mr Deronjic’s application for leave to amend the Originating Application, it would ordinarily follow from the reasons set out at [29]-[46] above that an order would be made pursuant to rule 13.13(a) of the FCAFCOA GFL Rules that these proceedings be summarily dismissed.
Leave to amend
In the Response to the Application in a Case Mr Deronjic seeks leave to file an amended Originating Application and accompanying affidavits.
No draft amended Originating Application or draft accompanying affidavits were filed with the Court or handed up at hearing by Mr Deronjic.
Mr Deronjic’s submissions
At hearing Mr Deronjic’s lawyer submitted that there had not had been time in the fortnight since his law firm were first instructed to prepare a draft amended Originating Application or draft accompanying affidavits. At hearing Mr Deronjic’s lawyer did not articulate particular grounds which might appear in any amended Originating Application, and in so far as in the course of submissions there was discussion in relation to any amended Originating Application the scope of that discussion did not indicate that any amended Originating Application would rely upon statutory provisions other than those provisions of the Bankruptcy Act referred to in the Originating Application (as set out at [10]-[15] above and discussed at [29]-[46] above), save for the very vaguest and fleeting of references to possible, but unparticularised, claims in contract or for misleading and deceptive conduct.
Debt Fix’s submissions
Debt Fix submitted that the Court should not grant leave to Mr Deronjic to amend the Originating Application for the following reasons:
(a)the Originating Application was made in accordance with the Form B2, and pursuant to r 2.01 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (“FCAFCOA Bankruptcy Rules”), which provides in r 2.01(3) that an application filed in accordance with Form B2 must state each section of the Bankruptcy Act or Bankruptcy Regulations 2021 (Cth) under which this proceeding is brought, and the relief sought. As there is no merit to the bankruptcy claims and the only other proposed claims are non-bankruptcy claims, the appropriate course is for the proceedings to be dismissed and for Mr Deronjic to be at liberty to commence any other proceedings by way of a further application; and
(b)Debt Fix will suffer prejudice if leave is granted, and to some extent prejudice has already been suffered by reason of Debt Fix having incurred significant expense in successfully applying to have the proceedings dismissed in the Magistrates Court of Western Australia (“WA Magistrates Court”), and then having to make an application (with supporting affidavits) to have these proceedings dismissed. There would be further prejudice if the Court were to grant leave to make further amendments, which have not been properly identified or articulated, because Debt Fix would then have to incur the further expense of reviewing the amended Originating Application and bringing any appropriate application of its own. The prejudice suffered by Debt Fix is not, however, one which might be adequately compensated for by a costs order, as there is no evidence Mr Deronjic has the financial capacity to comply with any costs order, a matter previously conceded by him: Vuleta Affidavit at [21], and therefore any costs order might be futile; and
(c)the fact that Debt Fix will be prejudiced by a grant of leave to amend the Originating Application weighs against the exercise of the Court’s discretion to grant leave to amend. The appropriate course is that the Originating Application made in accordance with the FCAFCOA Bankruptcy Rules should be dismissed with appropriate costs orders and Mr Deronjic be at liberty to commence new proceedings in respect of any claim in contract or consumer law.
Consideration – leave to amend
Pursuant to r 7.01 of the FCAFCOA GFL Rules the Court may allow a party to amend a document, including an Originating Application, on conditions that the Court thinks fit.
The Court observes that:
(a)the Originating Application has no reasonable prospect of success for the reasons set out at [29]–[46] above;
(b)there is no draft amended Originating Application for the Court to consider;
(c)the oral submissions on behalf of Mr Deronjic neither articulated nor even adumbrated a possible case for future consideration by the Court beyond the scope of that which the Court has already determined has no reasonable prospect of success for the reasons set out at [29]–[46] above.
The Court further observes that:
(a)prior to these proceedings there were proceedings initiated in the WA Magistrates Court in relation to essentially the same matters as are raised in these proceedings, and that those proceedings were initially stayed by the WA Magistrates Court for want of jurisdiction, and then discontinued by Mr Deronjic. The fact that Mr Deronjic has made two unsuccessful attempts to articulate a claim, and that given a third opportunity to do so at this hearing (when represented by a lawyer) he was unable to either articulate or even adumbrate a possible case for future consideration by the Court, suggests that there is not a case which can be made out; and
(b)there is no evidence that Mr Deronjic has the financial capacity to meet any costs order which, if leave to amend the Originating Application were granted, might require Mr Deronjic to pay Debt Fix’s costs thrown away,
and for these reasons Debt Fix would suffer prejudice if leave to amend the Originating Application were to be granted.
In a very busy first instance hearing court it is not in the interests of justice, or the interests of the administration of justice, to allow leave for an amendment which in all likelihood would be futile, which appears to here be the case: Fair Work Ombudsman v Nerd Group Australia Pty Ltd [2010] FMCA 569; (2010) 197 IR 431 at [19] per Lucev FM. Moreover, it is not consistent with the objects or overarching purpose of the FCAFCOA Act and FCAFCOA GFL Rules to allow an amendment to the Originating Application in circumstances where, because of its likely futility, it would constitute an inappropriate and inefficient use of the Court’s judicial and administrative resources, and where it would be an unwarranted and inefficient addition to the Court’s overall caseload, and result in additional and unnecessary expense (to both Debt Fix and the Court) and delay in the resolution of those proceedings: FCAFCOA Act, s 190(1) and (2); FCAFCOA GFL Rules r 1.04(1) and (2); COF17 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs and Another [2021] FedCFamC2G 145; (2021) 365 FLR 1 at [14]-[19] per Judge Lucev.
Conclusion – leave to amend
In the circumstances set out at [53]-[55] above the Court has concluded that Mr Deronjic’s application pursuant to r 7.01 of the FCAFCOA GFL Rules for leave to amend the Originating Application and file accompanying affidavits must be dismissed.
Other Issues
As a consequence of the findings made above it is unnecessary for the Court to deal with the other issues identified at [1(b), (c) and (d)], [2(a)] and [25(c)] above.
Conclusion and Orders
The Court has concluded that:
(a)Mr Deronjic’s application pursuant to r 7.01 of the FCAFCOA GFL Rules for leave to amend the Originating Application and file accompanying affidavits must be dismissed; and
(b)pursuant to rule 13.13(a) of the FCAFCOA GFL Rules that these proceedings must be summarily dismissed,
and there will be orders accordingly.
The Court will hear the parties as to costs.
I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Lucev. Associate:
Dated: 14 October 2022
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