Gomez v Koroneos Trading as Koroneos Lawyers
[2019] FCCA 2065
•2 August 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| GOMEZ & ANOR v KORONEOS TRADING AS KORONEOS LAWYERS | [2019] FCCA 2065 |
| Catchwords: BANKRUPTCY – Application for judicial review of revision of a Registrar not to set aside a bankruptcy notice – applicants asserting failure to set aside bankruptcy notice would under directions of the Supreme Court and/or VCAT nugatory– applicants not demonstrating counter claim, set off or cross-demand within meaning of s 40(1)(a) of the Act – asserted cross claim capable of being set up in original proceeding in any event – application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth) Competition and Consumer Act 2010 (Cth) |
| Cases cited: Jensen v Queensland Law Society [2004] FCA 1630 Glew v Harrowell [2003] FCA 373 |
| First Applicant: | IRWIN GOMEZ |
| Second Applicant: | KALAISELVI GOMEZ |
| Respondent: | MARK KORONEOS TRADING AS KORONEOS LAWYERS |
| File Number: | MLG 2768 of 2018 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 27 June 2019 |
| Date of Last Submission: | 27 June 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 2 August 2019 |
REPRESENTATION
The Second Applicant appeared in person and on behalf of the First Applicant.
The Respondent appeared in person.
ORDERS
(1) The Applicants’ application filed on 2 November 2018 for review of the decision of Registrar Ryan given on 11 October 2018 is dismissed.
(2) The Applicants pay the respondent’s costs fixed at $2,000.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT melbourne |
No. MLG 2768 of 2018
| irwin gomez |
First Applicant
And
KALAISELVI GOMEZ
Second Applicant
And
| mark koroneos trading as koroneos lawyers |
Respondent
REASONS FOR JUDGMENT
Introductory
1. By an application filed on 2 November 2018, the Applicants seek review of a decision of Registrar Ryan given on 11 October 2018. The Registrar dismissed the Applicants’ original application seeking to set aside a bankruptcy notice served upon them by the Respondent.
2. The kernel of the application is based on the fact that the Applicants have a proceeding underway in the Supreme Court and an application in the Victoria Civil and Administrative Tribunal (‘VCAT’), which is stayed pending the conclusion of the Supreme Court proceeding, the effect of which, if successful, would be to set aside the debt upon which the bankruptcy notice is based. It is strongly submitted by the Applicants that to allow the bankruptcy notice to stand would be to render the appeal in the Supreme Court and the VCAT proceeding nugatory.
3. For the reasons that follow, I do not accept the Applicants’ propositions, and the application for review will be dismissed.
4. It should be noted that although this is, of course, a hearing de novo, the Court has been provided with the reasons for decision of Registrar Ryan, and the Applicant has been given an opportunity to make any further submissions arising from the receipt of that document.
The Procedural History
5. On 26 July 2018, the Respondent filed a complaint in the Magistrates Court of Victoria, seeking to recover slightly over $12,000 in fees for work allegedly performed.
6. On 13 August 2018, the Respondents filed a notice of defence, which relevantly said:
1. “The defendants intend to transfer this matter to VCAT for defence. An application in VCAT has been lodged accordingly.”
7. That defence was rejected on the basis that there were insufficient particulars of defence, and on 16 August 2018, an officer of the Magistrates Court of Victoria wrote to the Applicants informing them of this. On 20 August 2018, the Magistrates Court entered default judgment in favour of the Respondent. The Applicants filed a summons in the Victorian Magistrates Court, seeking to set judgement aside and there is, annexed to the affidavit of Kalaiselvi Gomez, affirmed 3 April 2019, a copy of what appears to be a defence, dated 10 September 2018, which puts in issue the matters pleaded by the Applicants, including the denial that they owed the amount claimed.
8. In paragraphs 8-9 of the defence, the Applicants pleaded:
1. The defendants have suffered considerable financial loss due to negligence of the plaintiff. The defendants have lodged a counter claim in VCAT for loss suffered due to the plaintiff’s negligence.
2. The defendants will be requesting the magistrate that this matter be dealt with in VCAT as it is a more appropriate forum for consumer trader disputes.”
9. On 3 September 2019 (the copy in the Applicant’s affidavit is faint, and it may be the 5th), the Applicants filed an application for re-hearing, which was listed for and heard on 24 September 2018. In the meantime, the Applicants had made an application to the civil claims list of VCAT, certified on 4 September 2018.
10. It should be noted in parenthesis that that VCAT application was, on 6 December 2018, stayed, pending the outcome of the Supreme Court of Victoria proceedings to which have referred.
11. Mrs Gomez has added as an appendix or what appears to be the transcript of the hearing for the re-hearing application 24 September 2018. Discussion with the learned magistrate appears to have laid considerable emphasis on the fact that the application in VCAT was in a position to proceed, whatever happened in the re-hearing application. It was the position of Mrs Gomez (see paragraph 360) that under the Consumer Law and Fair Trading Act, the Magistrates Court had to transfer the proceeding to VCAT. The magistrate noted that the amended defence provided, to which have referred, was, essentially, a hold deny/deny defence. The learned magistrate found at 515 and following:
The application is an application to set aside and rehear a complaint, in order to do so, a respondent must prove 2 things, number 1, the reason why he or she did not file the defence in time and secondly whether the respondent has a good and arguable cause of action. I am prepared to accept as I’ve said through this case that the respondents tried to file a defence but were unsuccessful and the reason why they were unsuccessful is that the defence that was sought to be filed clearly did not comply with rule 13.02 of the rules. A further alleged defence, sorry a further alleged defence was sought to be filed today, but what is clear from Mr and Mrs Gomez’s claims is that essentially they have a claim for negligence against their lawyer in the way the case was handled by him and his costs in relation to certain matters, and those matters, it would appear, had a full hearing at the legal services commission and the legal services commissioner has rejected their claim against the lawyer they further seek to make a claim to VCAT, it would appear to be essentially reagitating those claims but making a claim under the Australian consumer law against those lawyers. In my view, that claim is a separate matter from the one in which I am about to determine today, it seems to me that Mr and Mrs Gomez are entitled to bring their claim in VCAT, and no doubt, that claim will be far ranging in terms of their dissatisfaction with the lawyer, they will argue that he has breached the consumer law in their dealings with him and he with them and their claim against him will no doubt legal costs expended by them, that is something which I can’t speculate on, I’m simply here to deal with the claim for costs, it seems to me that claim has been properly brought, it seems to me that a default judgment has been properly entered. In relation to the issues to whether the respondents have a good and arguable cause, a good and arguable defence, that action is not established to the satisfaction of the court and accordingly, the application for Mr and Mrs Gomez is refused, and I so order.
12. On 30 August 2018, the Applicant, by letter, posted a copy of the bankruptcy notice issued on the same date to the Applicants. On 13 September 2018, the original application in this proceeding was brought. It suffices to say that the matter came before Registrar Ryan, as I have already indicated, on 11 October 2018. Registrar Ryan was not satisfied that the Applicants’ proposed counter-claim was of sufficient merit to justify setting aside the bankruptcy notice. He observed:
1. “Apart from the assertions in the VCAT claim, there is no evidence to support any claim in negligence against the respondent.”
13. Registrar Ryan also found that the counter-claim could have been set up in the original proceeding.
The Written and Oral Submissions of the Parties
14. Mrs Gomez has filed submissions on 14 June 2019. The two matters raised in the written submissions are, essentially, the likely effect of not setting aside the bankruptcy notice would be to render any successful appeal in the Supreme Court nugatory. The second matter raised is the counter-claim in VCAT for damages suffered by the Respondent’s negligence. In oral submissions, Mrs Gomez, essentially, repeated those points.
15. The Respondent did not seek to make submissions (and Mrs Gomez objected on the basis that he had not filed written submissions in any event). It was not necessary to rule on that objection because the only matter the Respondent wished to raise was the reasons for judgment of Registrar Ryan, which have been forwarded to the Court.
Do the Applicants have a Counter-Claim or Set-off?
16. The question as to what is meant by the words in section 40(1)(g):
1. “satisfy the court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of judgment debt or sum payable under the final order as the case may be”
has been considered in a consider number of cases and expressed in various different ways. In my respectful view, the remarks of Lindgren J in the matter of Glew v Harrowell [2003] FCA 373 are sufficient. His Honour said at [9] to [12]:
1.There are authorities suggesting that Glew and Tressider must satisfy me of the following interrelated and sometimes overlapping matters:
• • that they have a “prima facie case”, even if they do not adduce evidence which would be admissible on a final hearing making out that case (authorities omitted);
• • that they have “a fair chance of success” or are “fairly entitled to litigate” the claim (authorities omitted);
• • that they are advancing a “genuine” or “bona fide” claim (authorities omitted).
It may be that the first and second formulations are intended to cover the same ground. In Brink, Lockhart J treated (at 141) the reference to a “prima facie case” in Ebert as a reference to “a fair chance of success”.
10.In Brink, Lockhart J said (at 141) that the Court is not required to “undertake a preliminary trial of the counter-claim, set-off or cross demand”. But, clearly, the application of the criteria above requires the Court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross demand finally. And in Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598, Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606):
“The state of satisfaction referred to in 40(1)(g) and 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.”
1.Plainly, in order to “satisfy” the Court for the purposes of para 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor’s claim was being finally determined, but by reference to the question whether the court should be satisfied that the debtor has a claim deserving to be finally determined.
2.Perhaps little more can usefully be said than that a debtor must satisfy the Court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
a.17. Applying those observations to the facts of this case, it should be noted that the statement of claim in the Magistrates Courts asserted that the claim arose in Melbourne in or about November 2016. That assertion was not denied, but not admitted in the attempted second in the defence dated 10 September 2018. I note that the work was described in paragraph 2 as having been undertaken between July 2015 and March 2016 and that the defendants denied this and did not agree with the dates stipulated in the paragraph. Irrespective, it is quite apparent that whatever measure of dissatisfaction the Applicants had with the Respondent’s conduct of their legal affairs, they had not pursued the Respondent by launching formal legal proceedings until this matter was instituted.
b.18. Although I do not have before the Court the proceedings before the Legal Services Commissioner, I note that in the transcript of the re-hearing before Magistrate O’Callaghan, the magistrate appears to quote from the decision of the Tribunal. At 215, a person called Mark, whom I assume must have been Mr Koroneos, asserted:
1. if I can take you to the material, sir, those matters have been addressed by the legal services commissioner, and to put it in their terms the complaints were misconceived.”
And although the transcript is not definitive, it would seem that the magistrate was satisfied that that was what the Legal Services Commissioner had concluded.
a.19. The closest any detailed articulation of the proposed counter-claim gets to a clearly formulated expression is in the VCAT application (appended to Mr Gomez’s affidavit filed 12 March 2019), certified on 4 September 2018 (it should be noted that it is not clear that that was certification by the Tribunal, but it is clear that the matter is in a proceeding before VCAT).
b.20. What is asserted is the goods were purchased on 23 September 2015, and the Applicants became aware of the problem or defect on 1 March 2016. Under the heading What is the Problem with the Goods and/or Services, the following is set out:
1. Due to negligence of the solicitor, to perform his duties as promised, the case had to be postponed incurring a $6500 cost to the applicants. After a lot of delay, the solicitor’s excuse for his actions is that he had too much work and therefore could not attend to matters in time. He wanted to get someone else to attend to it. It was too late by then to prepare all evidence necessary for court. He wanted us to pay costs for the adjournment which may or may not be granted. We refused to pay costs. The solicitor failed to remedy the situation, rather chose to quit. The applicants had incurred further substantial costs, roughly $15,000 - $20,000 taking the matter to another firm which had to attend court to adjourn the matter, go through briefs of the whole matter before advising on further steps to be taken in the matter. The respondent is seeking payment of his last bills which, we believe we do not owe given the loss we have suffered.
a.21. The claim went on to assert that the Applicants were seeking an order that the Respondent pay the amount of the claim and an order that Mrs Gomez did not owe the Respondent any money. It is also asserted:
1. “An extra promise was made to me that has not been honoured. The service was not rendered with due care and skill, The service was not supplied in a reasonable time, The respondent made a false or misleading representations in connection with or when promoting the service, The respondent breached the contract to provide goods/services for the reasons set out in the section “What is the Problem with the Goods and/or Services About.” The amount claimed was $15,000.
a.22. Despite having sworn a number of affidavits in the proceedings, the Applicants have not condescended to put their narrative of the complaints in any kind of comprehensible or detailed form. The complaints made, as is apparent from the above passages, are made at a considerable level of generality. I note that it would appear that a complaint to the Legal Services Commissioner has been dismissed.
b.23. Looking at the matter in the manner contemplated by Lindgren J in Glew, I would not regard the Applicants’ prospects of success as to be sufficient, on the materials presented, to meet the test contemplated by 40(1)(g) of the Bankruptcy Act (“the Act”).
Could the Counter-Claim or Set-Off, in Any Event, have been Set Up in the Original Action or Proceeding?
a.24. It is quite apparent that in the defences sought to be filed in the Magistrates Court in the hearing before the learned magistrate that the Applicants were seeking to have the entirety of the proceeding transferred to VCAT. At no point did it occur to them, nor, indeed, it would seem, to the magistrate, that the counter-claim could be pursued in the Magistrates Court proceeding. Indeed, the gravamen of Mrs Gomez’s submissions was that VCAT had exclusive jurisdiction under the Consumer Law and/or the Fair Trading Act.
b.25. It should be noted that at paragraph 40.1.350, the learned authors of Australian Bankruptcy Law and Practice, Thompson Law Book Company, opine:
1. The question whether the cross demand “could not have been set up” in the proceeding in which judgment was obtained for the purposes of 40(1)(g) of the Act is a question “to be answered by reference to legal considerations”, not practicalities. Re Ling; ex parte Commonwealth (1995) 58 FCR 129; 130 ALR 56 at 132, 137, (Hill J.); approved in Nath v Clipway Pty Ltd (1999) FCA 625 (Spender, Kiefel and Hely JJ).
a.26. In Jensen v Queensland Law Society [2004] FCA 1630 at [10], Kiefel J (as her Honour then was) said:
1. The applicant’s case in reality is that he was unaware of the alleged invalidity of the resolutions. The question posed by 40(1)(g) of the Bankruptcy Act is however answered by reference to legal considerations, not practicalities. The question is whether the counter-claim, set-off or cross demand could have been set up as a matter of law; Re Brink; ex parte The Commercial Banking Company of Sydney Ltd (1980) FCA 78; (1980) 44 FLR 135. The section is not concerned with personal and practical reasons why proceedings were not brought. The extent of the appellant’s knowledge falls within these categories.
a.27. It is quite apparent that Mrs Gomez was not aware that she could have brought her proceeding in respect of the alleged negligence and/or breach of the Consumer Law and/or the Fair Trading Act in the Magistrates Court proceeding. Her misunderstanding of the true state of affairs replicates exactly those described by Kiefel J in Jensen.
b.28. In these circumstances, this stands as yet another bar to the Applicants’ position.
Is the Application Premature in Any Event?
a.29. At this stage, these proceedings have gone as far as the issuing of the bankruptcy notice and the application to set it aside. The dismissal of this application will not make the Applicants bankrupt. That will require the preparation of a creditor’s petition and a hearing of the petition. It is still open to the Applicants, should they be so advised, to seek to persuade the Court, pursuant to section 52(2) of the Act, either that they are able to pay their debts or that for other sufficient cause a sequestration order ought not be made. In my view, the arguments that the appeal in the Supreme Court will be rendered nugatory are premature. These matters, likewise, tell against the force of the application.
Conclusion
a.30. As I found above, the Applicants have not satisfied the Court (to the level described by Lindgren J in Glew) that they have a counter-claim or set-off or cross demand that was within the meaning of s 40(1)(a)of the Act. Furthermore, it was a claim, in any event, which could have been set up in the proceeding in the Magistrates Court. These matters are fatal to the application. Furthermore, to the extent that the matter involves discretionary considerations, and for the reasons given, I would regard the application as premature in any event.
b.31. The application will be dismissed with costs.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Date: 2 August 2019
Key Legal Topics
Areas of Law
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Insolvency
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Civil Procedure
Legal Concepts
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Judicial Review
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Appeal
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Costs
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Statutory Construction
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