Frigger v Kitay

Case [2017] FCA 1278

FEDERAL COURT OF AUSTRALIA

Frigger v Kitay [2017] FCA 1278

File number(s): WAD 428 of 2016
Judge(s): SIOPIS J
Date of judgment: 1 November 2017
Catchwords: BANKRUPTCY – application to set aside a bankruptcy notice – whether there was an implied stay of the judgment debt on which the bankruptcy notice was based – whether events giving rise to the judgment debt occurred after the company had gone into liquidation – whether the liability incurred by the debtors could be set-off under s 553C of the Corporations Act 2001 (Cth) – whether the debtors had a counterclaim, set-off or cross demand which exceeded the amount of the judgment debt – whether affidavit evidence was sufficiently probative to permit consideration of the legal and factual merits of the counterclaim, set-off or cross demand.
Legislation:

Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(6A), 41(7)

Corporations Act 2001 (Cth) ss 553C(1), 553C(2), 1324

Federal Court (Bankruptcy) Rules 2016 (Cth) r 3.02  
Cases cited:

Re Computer Accounting and Tax Pty Ltd; Ex parte Mervyn Jonathan Kitay in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) [No 4] [2014] WASC 169

Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572

Ebert v Union Trustee Company of Australia Limited (1960) 104 CLR 346

Re Brink, Ex parte The Commercial Banking Company of Sydney Limited (1980) 44 FLR 135

Guss v Johnstone (2000) 171 ALR 598

Re Parker (1997) 80 FCR 1

Gye v McIntyre (1991) 171 CLR 609

Thomas v St George Bank Ltd [1999] FCA 166

Biztole Developments Pty Ltd v McLean (1995) 57 FCR 36

Frigger v Mervyn Jonathon Kitay in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq) [No 14] [2017] WASC 120

Dudzinski v Kellow [2002] FCA 665

Re Geard; Ex parte Reid (1994) 217 ALR 191

Date of hearing: 15 June 2017
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 92
Counsel for the First and Second Applicants: Mr M Richards
Solicitor for the First and Second Applicants: Rowe Bristol Lawyers
Counsel for the First and Second Respondents: Mr D John
Solicitor for the First and Second Respondents: Herbert Smith Freehills
Table of Corrections
2 November 2017 Order 1, [6] and [90], the date is amended to read “28 February 2017”.

ORDERS

WAD 428 of 2016
BETWEEN:

ANGELA CECILIA THERESA FRIGGER

First Applicant

HARTMUT FRIGGER

Second Applicant
AND:

MERVYN JONATHAN KITAY IN HIS CAPACITY AS LIQUIDATOR OF COMPUTER ACCOUNTING AND TAX PTY LTD (ACN 009 470 491) (IN LIQ)

First Respondent

COMPUTER ACCOUNTING AND TAX PTY LTD (ACN 009 470 491) (IN LIQ)

Second Respondent

JUDGE:

SIOPIS J

DATE OF ORDER:

1 NOVEMBER 2017

THE COURT ORDERS THAT:

1.The applicants’ application for review of Deputy District Registrar Trott’s decision of 28 February 2017 is dismissed.

2.The applicants’ application filed 20 September 2016 to set aside bankruptcy notice number BN 196967 of 29 August 2016 (the bankruptcy notice) is dismissed.

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Details
AGLC
Frigger v Kitay [2017] FCA 1278
Case
[2017] FCA 1278
Decision Date

CaseChat Overview and Summary

The case of Frigger v Kitay involved the Friggers, who were the respondents, and Kitay, the applicant. The dispute was regarding the validity of a bankruptcy notice issued against the Friggers. The matter was heard in the Federal Court of Australia. The primary legal issue the court had to address was whether the bankruptcy notice could be set aside due to various grounds presented by the Friggers, including the existence of an implied stay of the judgment debt, the timing of events relative to the company's liquidation, and whether the debtors had any counterclaims or set-offs that could be considered. Additionally, the court examined whether the affidavit evidence provided was sufficient to assess the merits of the counterclaims.

The court carefully evaluated each ground presented by the Friggers. It found that the notion of an implied stay of the judgment debt did not provide a valid basis to set aside the bankruptcy notice. The court also considered the timing of events in relation to the company's liquidation, concluding that it did not affect the validity of the bankruptcy notice. Regarding the set-off and cross-demand arguments, the court found that the affidavit evidence was not sufficiently probative to warrant consideration of the merits of these claims. The court highlighted the importance of providing clear and detailed evidence to support such arguments. Ultimately, the court dismissed the Friggers' application to set aside the bankruptcy notice but extended the time for compliance with it.

In conclusion, the Federal Court dismissed the Friggers' application to set aside the bankruptcy notice. It also extended the time for compliance with the notice to 8 November 2017, while ordering the Friggers to pay the respondents' costs. The court's decision underscored the necessity for clear and detailed evidence to support claims of set-off and cross-demand, and it emphasised the importance of adhering to procedural requirements in bankruptcy proceedings.

Orders

Orders of the court

1. The applicants’ application for review of Deputy District Registrar Trott’s decision of 28 February 2017 is dismissed.

2. The applicants’ application filed 20 September 2016 to set aside bankruptcy notice number BN 196967 of 29 August 2016 (the bankruptcy notice) is dismissed.

3. The time for compliance with the bankruptcy notice is extended to 8 November 2017.

4. The applicants are to pay the respondents’ costs.

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

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

It follows that this ground does not comprise a basis on which to set aside the bankruptcy notice.APPLICATION TO SET ASIDE COSTS JUDGMENT Although the Friggers have not expressly sought an order for an extension of time under s 41(6A) of the Bankruptcy Act to comply with the bankruptcy notice until the resolution of proceedings to set aside the judgment on which the bankruptcy notice is based, such a claim is implicit in their submissions. Section 41(6A) provides as follows:Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:(a)proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or(b)an application has been made to the Court to set aside the bankruptcy notice;the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice. As mentioned at [58]-[59] above, the Friggers have filed in the Supreme Court a proceeding in COR 2 of 2010 which sought 13 orders. One of those orders sought, namely, order 9, seeks an injunction restraining the respondents from enforcing the allocator of $61,000.42 which, as I have said, is the judgment sum which founds the demand in the bankruptcy notice. The process claims that the injunction is sought pursuant to s 1324 of the Corporations Act and/or s 15 of the Civil Judgments Enforcement Act 2004 (WA). The COR 2 of 2010 support affidavit by Mrs Frigger states in support of the making of order 9: “I will rely on evidence from the Confidential Affidavit in support of this order.” As mentioned at [64] above, on 28 April 2017, Martino J in the Supreme Court rejected the Friggers’ application for leave to refer to the confidential affidavit in support of the orders sought in the Interlocutory Process. This decision would, therefore, appear to affect adversely the applicants’ claim for the injunction sought in order 9. Section 41(6A) of the Bankruptcy Act provides for the exercise of a discretion by the Court in determining whether to extend the time for compliance with a bankruptcy notice until the conclusion of the proceedings to set aside the relevant judgment. The discretion was discussed in Re Geard; Ex parte Reid (1994) 217 ALR 191 (Geard). In that case the debtor sought an extension of time until the determination of an appeal against the order for the paying of the judgment debt which founded the basis for the demand in the bankruptcy notice. At 193‑194, Sheppard J observed:The critical question then is how that discretion should be exercised. As earlier stated, the parties have made, both orally and in writing, detailed submissions concerning the issues which will arise for determination on the appeal and have invited the court in effect to express a view, provisional though it may be, on the likely outcome of the appeal. To a degree I have felt obliged to look at the matter for myself, but I think it most undesirable that a judge of this court should in effect undertake some provisional review to determine the correctness or otherwise of the judgment of another court especially when that judgment is under appeal to the Court of Appeal which has jurisdiction to hear appeals in the normal course. I prefer to approach the matter in a different way.The debtor has not made any application for a stay of proceedings pending the outcome of the appeal. Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution upon it has not been stayed. It would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made. If one were to contemplate taking of such a course, one would usually require evidence of the means of the debtor and would wish to consider whether or not it were appropriate to order that security for the amount of the judgment should be provided. Those are matters which a court exercising jurisdiction to stay the execution of a judgment would wish to consider.

Ratio Decidendi

Legal Principle Established

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