Fitzgerald v Fitzgerald

Case [2020] FCA 1615

FEDERAL COURT OF AUSTRALIA

Fitzgerald v Fitzgerald [2020] FCA 1615

File number: QUD 107 of 2020
Judgment of: REEVES J
Date of judgment: 6 November 2020
Catchwords:  BANKRUPTCY AND INSOLVENCY – application for review of a Registrar’s decision under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) – where the Registrar dismissed an application under s 40(1)(g) of the Bankruptcy Act 1966 (Cth) and r 3.02(3) of the Federal Court (Bankruptcy) Rules 2016 (Cth) to set aside a bankruptcy notice – whether the applicant has a counter-claim, set-off or cross demand equal to, or in excess of, the judgment debt – whether there is sufficient substance to the counter-claim, set-off or cross demand – whether the Court should go behind the judgment debt – application dismissed  
Legislation:

Bankruptcy Act 1966 (Cth)

Federal Court (Bankruptcy) Rules 2016 (Cth)

Federal Court of Australia Act 1976 (Cth)

Supreme Court of Queensland Act 1991 (Qld)

Uniform Civil Procedure Rules 1999 (Qld)
Cases cited:

Deputy Commissioner of Taxation v Commercial & General Law (SA) Pty Ltd (2011) 198 FCR 417; [2011] FCA 1269

Deputy Commissioner of Taxation v NRA Engineering Pty Ltd (in liq) (No 2) [2019] FCA 1755

Glew v Harrowell, in the matter of Glew (2003) 198 ALR 331; [2003] FCA 373

Royal v Nazloomian, in the matter of Royal [2019] FCA 555

Wren v Mahony (1972) 126 CLR 212

Macquarie Dictionary (8th ed, Macquarie Dictionary Publishers, 2020)

Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 44
Date of hearing: 2 June 2020
Counsel for the Applicant: Mr DR Edwards
Solicitor for the Applicant: Lillas & Loel Lawyers
Counsel for the Respondents: Mr C Johnstone
Solicitor for the Respondents: McCullough Robertson Lawyers

ORDERS

QUD 107 of 2020
BETWEEN:

MARK ANDREW FITZGERALD

Applicant
AND:

ROSLYN MARY FITZGERALD

First Respondent

ROSLYN FITZGERALD PTY LTD ACN 159 299 171

Second Respondent

ROSLYN FITZGERALD NO 3 PTY LIMITED
ACN 607 478 606

Third Respondent

ORDER MADE BY:

REEVES J

DATE OF ORDER:

6 NOVEMBER 2020

THE COURT ORDERS THAT:

1.The application filed 14 May 2020 is dismissed.

2.The applicant is to pay the respondents’ costs of this application, including the costs of the interlocutory application filed 17 July 2020, to be taxed failing agreement.

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


REASONS FOR JUDGMENT

REEVES J:

INTRODUCTION

  1. Mr Mark Fitzgerald has applied under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (the FCA) for a review of the Registrar’s decision made in this matter on 23 April 2020.

  2. In his decision the Registrar dismissed Mr Fitzgerald’s application for an order under s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Act) and r 3.02(3) of the Federal Court (Bankruptcy) Rules 2016 (Cth) to set aside a bankruptcy notice served on Mr Fitzgerald on 24 March 2020. His application was made on the ground that he had a…

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AGLC
Fitzgerald v Fitzgerald [2020] FCA 1615
Case
[2020] FCA 1615
Decision Date

CaseChat Overview and Summary

The case of Fitzgerald v Fitzgerald involved an application by Mr Fitzgerald seeking a review of a decision made by a Registrar under section 35A(5) of the Federal Court of Australia Act 1976. The Registrar had dismissed Mr Fitzgerald’s application to set aside a bankruptcy notice under section 40(1)(g) of the Bankruptcy Act 1966 and rule 3.02(3) of the Federal Court (Bankruptcy) Rules 2016. The central issue before the Court was whether Mr Fitzgerald had a counter-claim, set-off or cross demand that was equal to or exceeded the judgment debt, and if so, whether there was sufficient substance to that counter-claim, set-off or cross demand to warrant the Court going behind the judgment debt. The Registrar had ruled that Mr Fitzgerald had not established a prima facie case that the Supreme Court proceeding supported a set-off or counter-claim for an amount greater than the debt in the bankruptcy notice.

The court examined the nature of Mr Fitzgerald’s claims in the Supreme Court proceeding, where he alleged a joint venture agreement with Ms Fitzgerald for property development. He claimed he was owed his share of the profits from two completed developments and damages for a third property. Ms Fitzgerald countered that the agreement was a consultancy arrangement, not a joint venture. The court also noted the indemnity costs order made by Flanagan J, which required Mr Fitzgerald to pay Ms Fitzgerald’s costs on an indemnity basis. The court concluded that the indemnity costs order constituted a debt owed by Mr Fitzgerald to Ms Fitzgerald, and thus there was a debt that could be satisfied by the bankruptcy notice. Consequently, the court found that there was no substantial reason to go behind the judgment debt and dismissed Mr Fitzgerald’s application for review.

In dismissing the application, the court held that the principles governing the discretion to go behind a judgment debt in bankruptcy matters required the court to ensure there was satisfactory proof of the petitioning creditor’s debt. The court found no substantial reason to question the existence of the debt due to Ms Fitzgerald. The court also rejected Mr Fitzgerald’s contention that his claims had sufficient substance to warrant setting aside the bankruptcy notice. The court ordered that Mr Fitzgerald’s application be dismissed and that he pay the respondents' costs of the application.

Orders

Orders of the court

1. The application filed 14 May 2020 is dismissed.

2. The applicant is to pay the respondents’ costs of this application, including the costs of the interlocutory application filed 17 July 2020, to be taxed failing agreement.

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

Background

Background to the litigation

The Registrar’s decision was delivered orally. However, from the transcript, it appears that he was not satisfied that Mr Fitzgerald had established a prima facie case that the Supreme Court proceeding supported a set-off or counter-claim for an amount greater than the amount of the debt in the bankruptcy notice. In coming to that conclusion, he had regard to the comments of Stewart J in Royal v Nazloomian, in the matter of Royal [2019] FCA 555.FACTUAL BACKGROUND Mr Fitzgerald commenced the Supreme Court proceeding on 22 January 2017. In it he alleged that, in or about 2014, he and Ms Fitzgerald made an oral agreement to enter into a joint venture by which he would identify suitable properties for development and Ms Fitzgerald would fund the purchase of those properties. Under this agreement, Mr Fitzgerald claimed that he identified three properties and, through the second and third respondents, Ms Fitzgerald subsequently purchased those properties. He claimed that he then managed the development of those properties until he was hospitalised in February 2015. He claimed that two of the developments were completed and, despite having made a demand, he had not received his share of the profits that were made. Mr Fitzgerald also claimed damages for loss of opportunity regarding a third property with respect to which he alleges Ms Fitzgerald acted in breach of the joint venture agreement. In her defence, Ms Fitzgerald claimed that the oral agreement she and her brother entered into was not a joint venture, but rather comprised a consultancy arrangement pursuant to which Mr Fitzgerald would be paid a fee, but would not be entitled to a share of any profits. The Supreme Court proceeding was set down for a three day trial to commence on 3 June 2019. On 27 May 2019, following an application made by Mr Fitzgerald, Flanagan J made orders adjourning the trial and requiring Mr Fitzgerald to pay Ms Fitzgerald’s costs thrown away by the adjournment, on an indemnity basis. The precise terms of that order were as follows:The plaintiff is to pay forthwith, and in each case on the indemnity basis, the defendants’ costs of this application and thrown away as a consequence of the adjournment, such costs to include the costs of the case conference on 13 May 2019 before the Resolution Registrar, and correspondence and other costs incurred as a result of the plaintiff’s non-compliance with the orders of the Court made on 2 April 2019 and on 13 May 2019. For convenience, I will refer to this order hereafter as “the indemnity costs order”. Two things are to be noted about it. First, it does not include any limitation under r 682(2) of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) that: “[T]he costs not be assessed until the proceeding ends”. To the contrary, it expressly states that the costs are to be paid “forthwith”. Secondly, there is no evidence before me that Mr Fitzgerald sought leave, from Flanagan J, to appeal this order under s 64 of the Supreme Court of Queensland Act 1991 (Qld).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The position with respect to both orders is, therefore, the opposite of that for which Mr Fitzgerald contends. That is to say, there is, in truth and reality, a debt due to Ms Fitzgerald under them. It follows that there is no reason, let alone a substantial reason, to go behind the judgment debt. Accordingly, there is no merit to this second ground of Mr Fitzgerald’s application.CONCLUSION For these reasons, Mr Fitzgerald’s application filed 14 May 2020 to review the Registrar’s decision of 23 April 2020 must be dismissed. The orders will be:1.The application filed 14 May 2020 is dismissed.2.The applicant is to pay the respondents’ costs of this application, including the costs of the interlocutory application filed 17 July 2020, to be taxed failing agreement. I will hear from the parties as to what orders are required with respect to the bankruptcy notice.

Ratio Decidendi

Legal Principle Established

The principles bearing on the Court’s discretion to go behind a judgment debt in a bankruptcy matter, that being the second leg of Mr Fitzgerald’s application, were expressed by Barwick CJ in Wren v Mahony (1972) 126 CLR 212 as follows (at 224-225):… The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration … the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.CONSIDERATION As noted in the contentions above, there are two grounds to Mr Fitzgerald’s application. For the reasons that follow, both are rejected. On the first ground, having regard to the observations of Lindgren J in Glew, the issue is whether Mr Fitzgerald has satisfied me that “there is sufficient substance” to his claims that they “deserv[e] to be finally determined” before he is forced to comply with the bankruptcy notice (see the emphasis in Glew at [21] above). Answering this question requires an examination of the claims that have been advanced, and the evidence that has been adduced in respect of them, to determine whether they have the requisite substance, that is, whether they are of a “substantial or solid character or quality” (Macquarie Dictionary (8th ed, Macquarie Dictionary Publishers, 2020)). That does not usually require an examination of the strength or cogency of those claims. Nor does it involve conducting what is, in effect, a mini trial. The most appropriate starting point for that examination is the claims set out in the pleadings in the Supreme Court proceeding. In one of his affidavits, Mr Fitzgerald’s lawyer, Mr Cusack, described the state of those pleadings in the following terms:23.Annexure “WPC3-1” is [a] true copy of [Ms Fitzgerald’s] further amended defence and further counterclaim filed 7 November 2018.24.Annexure “WPC3-2” is a true copy of [Ms Fitzgerald’s] proposed second further amended defence and amended counterclaim served on 15 May 2019 shortly before the scheduled trial date. Leave to file this pleading was to be sought at the trial but this never happened because the trial was adjourned.25.For the reasons mentioned below the pleading in “WPC3-2” represents a major turnaround from the case pleaded by [Ms Fitzgerald] in “WPC3-1”.26.Annexure “WPC4-1” is a true copy [of] Mr Fitzgerald’s further amended Statement of claim filed 8 February 2019 [sic – 2018].27.Annexure “WPC4-2” is Counsel’s draft Second Further Amended Statement of claim served shortly before the trial -13 [sic] May 2019. Leave to file this pleading was to be sought at the trial, which was adjourned, and leave was not granted.28.A true copy of Mr Fitzgerald’s proposed second further amended statement of claim which is annexure “WPC4-3” has been compiled by me. The draft needs further work (to integrate the two previous pleadings and confirm particulars) but I do verily believe contains a summary of the chronology of the events and the issues in dispute. Since becoming directly involved in the matter (and as mentioned later in relation to [Ms Fitzgerald’s] solicitors[’] request in relation to Mr Fitzgerald’s disclosure) I have had cause to review the large number of documents upon which Mr Fitzgerald relies from his own and third party sources and I have interviewed him to clarify his claim on a number of occasions.29.As a result, it is my conclusion which I say is reasonable, that Mr Fitzgerald has more than reasonable prospects of successfully concluding his claim with a reasonable prospect of an award of damages and[/]or compensation up to a total of $ [sic] $2,866,886.00. [sic] on the grounds and for the reasons as alleged in “WPC4-3” (subject to proper disclosure and accounting by the Judgment Creditors).(Emphasis in original)