Dimitrov v Bendigo and Adelaide Bank Limited
[2020] FCCA 3149
•20 November 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DIMITROV v BENDIGO AND ADELAIDE BANK LIMITED & ORS | [2020] FCCA 3149 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – whether the Applicant had a counter-claim, set-off or cross-demand for purposes of ss.40(1)(g) and 41 of the Bankruptcy Act 1966 (Cth) – where the counter-claim lacks mutuality – Application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40, 41, 306 |
| Cases cited: Adams v Cape Industries Plc [1991] 1 All ER 929; [1990] 2 WLR 657 Kakavas v Crown Melbourne Ltd [2011] FMCA 11 Menniti v ACN 116 746 859 Pty Ltd [2019] FCCA 1856 Re Hansen; Ex parte Hansen (1985) 4 FCR 590 Stec v Orfanos [1999] FCA 457 V & J Removals; Ex parte Earl & Williams (unreported) 21 June 1985 Young v Cooke [2017] FCA 26 |
| Applicant: | PETER MICHAEL DIMITROV |
| First Respondent: | BENDIGO AND ADELAIDE BANK LIMITED |
| Second Respondent: | ABL NOMINEES PTY LTD |
| Third Respondent: | ABL CUSTODIAN SERVICES PTY LTD |
| Fourth Respondent: | PIRIE STREET HOLDINGS LTD |
| File Number: | SYG 370 of 2019 |
| Judgment of: | Judge Altobelli |
| Hearing date: | 19 October 2020 |
| Date of Last Submission: | 26 October 2020 |
| Delivered at: | Wollongong |
| Delivered on: | 20 November 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr Rares |
| Solicitors for the Applicant: | Lodestar Litigation Pty Ltd |
| Counsel for the Respondents: | Mr Oakes SC |
| Solicitors for the Respondents: | TurksLegal |
ORDERS
The Application filed 20 February 2019 be dismissed.
The Applicant is to pay the Respondents’ costs as agreed or as assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT WOLLONGONG |
SYG 370 of 2019
| PETER MICHAEL DIMITROV |
Applicant
And
| BENDIGO AND ADELAIDE BANK LIMITED |
First Respondent
| ABL NOMINEES PTY LTD |
Second Respondent
| ABL CUSTODIAN SERVICES PTY LTD |
Third Respondent
| PIRIE STREET HOLDINGS LTD |
Fourth Respondent
REASONS FOR JUDGMENT
Introduction
This case concerns a Bankruptcy Notice number 232882. The judgments on which the Bankruptcy Notice is based were costs judgments in the High Court of Australia in proceedings number S204 of 2017 and S291 of 2017. Costs were assessed in a total of $276,076.95, and this is the sum set out in the Bankruptcy Notice. In each case the costs assessments were in favour of the third, fourth, ninth and tenth defendants in those proceedings. Each of those parties caused the Bankruptcy Notice to issue, and each of those parties are the Respondents in the present proceedings. The liability for costs is a liability to the Respondents in the current proceedings as joint creditors.
By way of an Application filed 20 February 2019 the Applicant asks the Court to set aside the Bankruptcy Notice pursuant to the provisions of the Bankruptcy Act 1966 (Cth) (hereafter referred to as ‘the Bankruptcy Act’), being sections 40(1)(g) and 41(7). He contends, in effect, that he has a counterclaim, set-off or cross demand against Bendigo and Adelaide Bank Limited who was one of the defendants in the High Court proceedings, and a beneficiary of the order for costs. The Court notes that whilst the Application only specifically names Bendigo and Adelaide Bank Limited as the Respondent, it is clear from the way in which his case was conducted by his solicitor and Counsel that he could only succeed if the Bankruptcy Notice was set aside in its entirety as regards all parties, and not just as regards the Bank.
These are Reasons for Judgment to explain why the Application filed 20 February 2019 is dismissed.
The evidence before the Court
In the Applicant’s case, he relied on the following documents:
a)Application filed on 20 February 2019;
b)Affidavit of Peter Michael Dimitrov sworn on 19 February 2019 and filed on 20 February 2019; and
c)Outline of submissions filed on 25 September 2020; and
d)Further outline of submissions filed on 26 October 2020.
In the Respondents’ case, they relied on the following documents:
a)Notice stating grounds of opposition to application, interim application and petition filed on 13 March 2019;
b)Affidavit of Samantha Tawil sworn and filed on 13 March 2019;
c)Outline of submissions filed on 13 October 2020; and
d)Further outline of submissions filed on 21 October 2020.
The following material was tendered as evidence during the course of the proceedings:
a)Tender bundle prepared on behalf of the Applicant; and
b)Tender bundle prepared on behalf of the Respondents.
The applicable law
The relevant sections of the Bankruptcy Act are as follows:
Section 40(1)(g) - Acts of bankruptcy
(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 fixed for compliance with the notice; or
(ii) where the notice was served elsewhere--within the time specified 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;…
Section 41 - Bankruptcy notices
(7)Where, before the expiration of the time fixed for compliance with a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
In Stec v Orfanos [1999] FCA 457 (hereafter referred to as ‘Stec’), a decision of the Full Court of the Federal Court (Beaumont, Branson and Sundberg JJ), the Full Court stated at paragraphs 24 and 25:
[24] The primary judge then said that there was a more general answer to all the alleged cross demands. This was that in answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed by one or some of them individually. Mr Stec's claims were not against all those described in the notice as "the creditor". His Honour relied on James at 643 and on an earlier decision of his own, Emanuele v Grey (unreported 17 December 1997), which also relied on the passage in James. Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right: Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27. The requirement that the two claims be "in the same right" is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee. See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J 653; Vogwell v Vogwell (1939) 11 ABC 83 at 89. But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature. Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518. Here three of Mr Stec's claims were against ERI alone. There is thus no mutuality in relation to these claims. His other claim was against Messrs Conroy, Rybak and Georgopolos. Again there is no mutuality because one of the joint creditors, ERI, is not the subject of the cross claim.
[25] We agree with the primary judge's observations in Emanuele and in the present case that a debtor may only raise as an answer to a bankruptcy notice issued by several joint creditors a cross demand against those creditors jointly. However, we do not think that James provides any authority for this proposition.
Background
This case has a very complex background and history, only some of which is relevant to the decision that this Court must make. That complex history is set out in the evidence, and addressed by Counsel in written and oral submissions, and does not need to be referred to in these Reasons.
Despite the abbreviated nomenclature given to this case of Dimitrov v Bendigo and Adelaide Bank Limited (hereafter referred to as ‘the Bank’), as noted above the Bank is only the First Respondent to the Application. There are three other Respondents, ABL Nominees Pty Ltd as Second Respondent, ABL Custodian Services Pty Ltd as Third Respondent, and Pirie Street Holdings Ltd as Fourth Respondent. This is a significant fact. There was no dispute that the Bank was the holding company for the other 3 companies, who were subsidiaries of the Bank. Notwithstanding this, there was no evidence about whether, for example, the subsidiaries conducted the same business as the Bank or even the same business as each other.
Applicant’s case
The Applicant’s case, shortly stated, is that he does not owe any money to the Bank, and indeed the Bank owes him money. For present purposes the Court is prepared to accept the Applicant’s argument.
The Respondents’ case is that, even if the Applicant’s claim that he does not owe any monies to the Bank, and indeed the Bank owes him money, is correct, the Bankruptcy Notice should not be set aside, indeed cannot be set aside, against the other three joint creditors because there is no counterclaim, set-off or cross demand against those joint creditors.
Counsel for the Applicant was not able to articulate what, if any, was the counterclaim, set-off or cross demand against the non-bank joint creditors.
It is important, therefore, to seek to understand what was the Applicant’s case as regards the other joint creditors? At paragraph 32 of the Applicant Counsel’s outline of submissions filed 25 September 2020 he contends that if the Applicant succeeds in his claim against the Bank then the Bank will be entitled to set-off its judgments against that claim and ‘… at that point none of the respondents will have any remaining claim.’ In the oral submissions Counsel expanded on this further.
He submitted that the Court could not be satisfied that there was a debt owing to the Second, Third and Fourth Respondents in this case. The evidence indicated that the Bank, as First Respondent, had met all the legal bills and thus the contention was that it was the Bank’s debt, and not that of the other Respondents. The Court does not accept this proposition. The evidence of the Respondents’ witness Ms Tawil was that the First Respondent paid costs on behalf of the other Respondents, and that a single officer of the First Respondent provided instructions on behalf of the other Respondents. The Court does not accept that this, somehow, changes what is prima facie a joint debt to all of the creditors into the debt only of the First Respondent. But even if it were the case that the First Respondent had paid legal costs on behalf of the other Respondents, it is not inconceivable that such payment could be accounted between the companies internally. The costs judgments were clearly in favour of the creditors jointly. The Court was referred to a decision V & J Removals; Ex parte Earl & Williams (unreported) 21 June 1985. I cannot see how that assists the Applicant in this case.
Counsel submitted that it was an abuse of process to allow the First Respondent subsidiaries to run a case which prevents the Applicant from maintaining a cross-claim against the First Respondent, supposedly on the basis of some collateral purpose. The Court was referred to a decision Young v Cooke [2017] FCA 26 at [104].Again this decision does not assist the Applicant. In fact it confirms, at that paragraph, that it is not an abuse of process if the creditor genuinely intends to pursue the matter if there is default in complying with the Notice. The allegation of collateral purpose is easy to make, as is the allegation of abuse of process, but there was nothing in the evidence of Ms Tawil, or anywhere else, to suggest that this is the case.
Counsel submitted that the Bank was the holding company of the other three companies and thus a mutuality is created which results in all the companies being treated, in effect, as the same entity. The subsidiary exists to benefit the holding company. Thus, even if the subsidiaries were paid in full, that would benefit the parent because of loan accounts. The Court notes there is no evidence of these alleged loan accounts. The Court does not accept this submission. Counsel did not refer to any authority in support of the submission. It is a novel proposition, with respect. It challenges the separate entity doctrine. The Court notes the following statement from Ford, Austin & Ramsay's Principles of Corporations Law:-
The separate entity doctrine allows one company to be the controller of another company without the two being identified as one legal unit.
According to both Australian and English case law the subsidiary is a separate legal entity. The English Court of Appeal said in Adams v Cape Industries Plc [1991] 1 All ER 929 at 1019; [1990] 2 WLR 657:
Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.
The phenomenon of a parent company being a separate entity from its wholly-owned subsidiary is perhaps more striking than the separation of Salomon (see [4.150]) from his company.
There is no substance to this submission.
Counsel submitted that the Full Court’s decision in Stec was wrongly decided insofar as related entities are concerned. The Court appreciates that this argument was made in order to preserve his client’s appeal point in this regard. The Court does not agree that Stec was wrongly decided. In any event this Court considers that it is bound by the decision. There is no doubt that the Applicant stands in the relationship of debtor to the Second, Third and Fourth Respondents in this case. Even if he has a claim against the First Respondent which would result in a debt in favour of the Applicant, there would be no mutuality as between the Applicant and the Second, Third and Fourth Respondents.
Counsel’s last argument was that there was a an issue with the Bankruptcy Notice itself arising from the fact that 2 of the judgment creditors are not correctly identified either in the Bankruptcy Notice or the judgment, thus resulting in a situation where at its highest the debt could only be alleged to be owed to creditors. Thus, according to Counsel, a fair minded person would be misled by the Bankruptcy Notice. The Court agrees that there does seem to be a discrepancy in the identification of two of the creditors but disagrees that a minor error in the identification of a creditor would mislead a fair minded person about the Notice. The Applicant correctly identifies that the ACN for ABL Nominees Pty Ltd on the Notice is described as 105 758 521, instead of the correct 106 758 521. In addition, the ACN for Pirie Street Holdings Ltd is 061 461 559 on the Notice, instead of the last three digits correctly being 550. Counsel referred the Court to a decision of the Federal Court in Re Hansen; Ex parte Hansen (1985) 4 FCR 590 (4 March 1985).At paragraph 12 Beaumont J stated:
In my opinion, it is essential to the validity of a bankruptcy notice that the judgment debtor be in no reasonable doubt as to the identity of the judgment creditor. In the present case, the judgment creditor was identified by a name which it had abandoned some considerable time previously. That name was quite different from the name of the judgment creditor at the time of issue of the bankruptcy notice and the judgment debtor could hardly be expected to connect the two corporate names. The judgment debtor could thus have been misled as to the identity of the party with whom he had to deal in order to comply with the requirements of the bankruptcy notice. The notice was accordingly defective (cf. Re Gray; Ex parte Person to Person Financial Services Pty. Limited [1980] FCA 127; (1980) 48 FLR 379 per Lockhart, J. at p 382).
There is no similarity on the present facts. The error in the ACN was very difficult to discern. There was no mistake in the name of the judgment creditor. This is not a case where it could be said that the judgment debtor could have been misled as to the identity of the party with whom he had to deal in order to comply with the requirements of the Bankruptcy Notice. The Notice is therefore not defective. This is a case akin to the decision of His Honour Federal Magistrate Riethmuller in Kakavas v Crown Melbourne Ltd [2011] FMCA 11 (20 January 2011) where at paragraphs 3 and 4 His Honour addressed submissions about the issue of an incorrect ACN number. His Honour said:
[3] The first claim is that the ACN number on the bankruptcy notice is incorrect. This error is not disputed. However, there is no suggestion of any prejudice that arose from this error. There is no other company with a similar name that the creditor has had dealings with, nor is there any evidence to suggest that the applicant had not realised that the company was his creditor.
[4] This is nothing more than a technical defect which is cured by s.306 of the Bankruptcy Act. To the extent that the application concerns this defect it ought to be dismissed.
Counsel submitted that this decision should not be followed and that the relevant question is whether this error ‘could’ mislead the creditor. Reference was made to the decision of Judge Jarrett in Menniti v ACN 116 746 859 Pty Ltd [2019] FCCA 1856 (4 July 2019) where the judgment in question was given in favour of Palermo Seafoods Pty Ltd. No ACN but the Bankruptcy Notice had been issued in the name of ACN 116 746 859 Pty Ltd. In those circumstances it is hardly surprising, with respect, that His Honour would conclude that the Bankruptcy Notice was apt to mislead the Applicant in that case. Each case must be decided by reference to its own facts. The magnitude of the error in Menniti is much greater than the error in this case. The Court simply does not accept the contention that the error could reasonably mislead the Applicant debtor.
To the extent that it is necessary to do so the Court finds that the matters raised are no more than a technical defect which are cured by section 306 of the Bankruptcy Act.
Conclusion
The Court agrees with the submissions made by Senior Counsel for the Respondents to the effect that, therefore, the lack of mutuality is sufficient to dispose of the matter. Even if the Applicant had an arguable case as regards its debt to the Bank, there is no evidence of any such arguable case against the other Respondents. It must follow that the Application filed 20 February 2019 to set aside the Bankruptcy Notice is dismissed. The Applicant is to pay the Respondents costs as agreed or as assessed.
I certify that the preceding tweny-four (24) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Associate:
Date: 20 November 2020
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