Goo v Kim
[2021] FedCFamC2G 108
•1 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Goo v Kim [2021] FedCFamC2G 108
File number(s): SYG 1128 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 1 October 2021 Catchwords: BANKRUPTCY – application to set aside bankruptcy notice – whether bankruptcy notice incorrectly names debtor – whether the amount the bankruptcy notice states is owed by the debtor exceeds the amount the debtor in fact owes the creditor – whether claim debtor filed in the District Court of New South Wales for damages based on causes of action in defamation is a counter-claim, set-off or cross demand the debtor could not have set up in the proceeding out of which the judgment referred to in the bankruptcy notice arose – whether such counter-claim, set-off or cross demand is bona fide – whether there is a tangible prospect that, if the debtor succeeds in such counter-claim, set-off or cross demand, the debtor would be awarded damages equal to or greater than the amount of the judgment – whether creditor applied for the issue of the bankruptcy notice for an improper purpose – application adjourned to a date for the purpose of making an order dismissing the application and an order for costs Legislation: Bankruptcy Act 1966 (Cth), ss 40(1)(g), 41, 306
Civil Procedure Act 2005 (Cth), ss 100, 101
Federal Circuit and Family Court of Australia Act 2021 (Cth), s 8
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), r 3.02
District Court Act 1973 (NSW), ss 83A, 85
Interpretation Act 1987 (NSW), s 36
Cases cited: Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531
Glew v Harrowell, in the matter of Glew [2003] FCA 373
Grant v Green & Associates Pty Ltd [2021] FCA 934
In the matter of Hoju Jobs Pty Ltd [2021] NSWSC 302
In the matter of Hoju Jobs Pty Ltd (No 2) [2021] NSWSC 407
Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71
Nobarani v Mariconte [2021] FCAFC 96
Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135
Re Jackson; Conway v Conway [2000] FCA 1530
Re Trevor Peter McSwiney Ex Parte: Mark Sidney Davies [1986] FCA 405
Royal v Nazloomian, in the matter of Royal [2019] FCA 555
Short v Crawley (No. 39) [2008] NSWSC 1353
Walsh v Deputy Federal Commissioner of Taxation [1984] HCA 33; (1984) 156 CLR 337
Division:
Division 2 General Federal Law
Number of paragraphs: 67 Date of hearing: 1 September 2021 Place: Sydney Counsel for the Applicant: Ms M Hall, by video Solicitor for the Applicant: Rays Lawyer Counsel for the Respondent: Mr D Eardley, by video Solicitor for the Respondent: Praxis Lawyers ORDERS
SYG 1128 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: SEOUNGJIN GOO
Applicant
AND: JAY KOO KIM
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
1 OCTOBER 2021
THE COURT ORDERS THAT:
1.The matter is listed at 9:30 am on 8 October 2021 for the purpose of the Court making the following orders:
(a)The application is dismissed.
(b)The applicant pay the respondent’s costs.
2.Pursuant to subsection 41(6A) of the Bankruptcy Act 1966 (Cth), the time for compliance by the applicant with the requirements of the Bankruptcy Notice No. BN 253037 issued on 20 May 2021 is extended up to and including 8 October 2021.
THE COURT NOTES THAT:
3.These are orders of the Federal Circuit and Family Court of Australia (Division 2).
REASONS FOR JUDGMENT
INTRODUCTION
The applicant, Mr Goo, applies to set aside a bankruptcy notice that was issued on 20 May 2021 on the application of the respondent, Mr Kim, and served on Mr Goo on 2 June 2021.
The bankruptcy notice demands payment of $359,798.64. That is the sum of three amounts. The first is $300,000, being the amount order 1(c) of the orders the Supreme Court of New South Wales (SCNSW) made on 21 April 2021 (Orders) obliges Mr Goo to pay to Mr Kim. The second amount is $58,294.53, being interest on the $300,000 from 9 June 2017 to 26 March 2021 order 5 of the Orders obliges Mr Goo to pay to Mr Kim. Mr Goo was ordered to pay that interest under s 100 of the Civil Procedure Act 2005 (Cth) (CP Act). The third amount is $1,504.11, which the bankruptcy notice claims is interest payable under s 101 of the CP Act from 21 April 2021 to 20 May 2021.
Mr Goo contends the bankruptcy notice should be set aside on any one of three grounds: the bankruptcy notice overstates the amount payable under the Orders, and contains a number of other defects; Mr Goo has a counter-claim, set-off, or cross demand equal to or exceeding the amount payable under the Orders; and Mr Kim’s applying for the issue of a bankruptcy notice is an abuse of process.
BACKGROUND
In June 2016 Mr Goo formed a company named Hoju Jobs Pty Ltd (Hoju Australia) to conduct a business that facilitates the transfer of funds from Australia to South Korea.[1] Mr Choi was the sole director, secretary, and shareholder of Hoju Australia; but he held his shares in Hoju Australia in trust for Mr Goo.
[1] I have relied on the findings made by Williams J in In the matter of Hoju Jobs Pty Ltd [2021] NSWSC 302.
On 23 January 2017 Mr Kim paid $300,000 to Hoju Australia. Mr Goo and Mr Kim entered into a dispute about the terms of the agreement pursuant to which Mr Kim paid the $300,000. In June 2017 Mr Goo offered to pay $300,000 to Mr Kim immediately, and $100,000 by instalments over 36 months. A dispute also arose about whether Mr Kim accepted the offer, with Mr Kim claiming, and Mr Goo denying, that Mr Kim accepted the offer.
In 2017 Mr Kim commenced a proceeding in the SCNSW (SC proceeding) seeking a declaration that Hoju Australia and Mr Goo (or alternatively, Mr Goo) breached the agreement they made in January 2017, and an order for specific performance of that agreement. Further, in March 2018 Mr Kim commenced a proceeding in the Seoul Northern District Court (Korean proceeding) in which Mr Kim claimed he owns the shares Mr Goo and Ms Park hold in a company named Hoju Jobs Ltd (Hoju Korea). On 4 February 2020 the Seoul Northern District Court gave judgment in favour of Mr Goo and Ms Park, and on 17 February 2020 Mr Kim lodged an appeal against that judgment. The appeal has not been determined.
The SC proceeding was heard by Williams J on 2, 3, and 4 February 2021; and, on 26 March 2021, her Honour delivered judgment in which her Honour made the following findings:[2]
[2] In the matter of Hoju Jobs Pty Ltd [2021] NSWSC 302, [80], [101]
For the reasons explained below, I find that the oral contract between Mr Goo and Mr Kim was formed over a period of time between 23 January 2017 (or shortly before that date) and 29 March 2017, in the context of the changing circumstances in which an investment of KRW 2 billion promised by Mr Kim in January 2017 did not materialise and Mr Kim began instead to put forward proposed third party investors. As at 29 March 2017, the terms of the contract were:
(1)Mr Kim would invest KRW 2 billion in return for 49 ordinary shares in each of Hoju Australia and Hoju Korea;
(2)Mr Kim’s payment of $300,000 to Hoju Australia on 23 January 2017 was a deposit for that promised investment of KRW 2 billion;
(3)Mr Goo would refund Mr Kim’s payment of $300,000 in the event that Mr Kim’s promised investment of KRW 2 billion did not proceed;
(4)Mr Kim held the 50 ordinary shares in Hoju Australia issued to him on 28 March 2017 on the condition that they would be transferred to Mr Choi (to be held on behalf of Mr Goo) if Mr Kim failed to attract the proposed third party investment of KRW 3.5 billion before the end of April 2017; and
(5)Mr Goo was entitled to give effect to the escrow documents in order to cause those 50 ordinary shares to be transferred to Mr Choi if:
(a) Mr Kim failed to attract the proposed KRW 3.5 billion investment; or
(b) Mr Kim committed a crime or fraud,
(c)provided that Mr Kim would be issued with 50 G Class shares in those circumstances as security for the return of his $300,000 payment made on 23 January 2017 (in circumstances where Mr Kim’s promised KRW 2 billion investment had not materialised).
. . . . .
For those reasons, I have concluded that the contract entitles Mr Kim to repayment of his $300,000 in circumstances where he failed to invest the KRW 2 billion promised in January 2017 and he forfeited the 50 ordinary shares issued to him on 28 March 2017 by reason of his failure to secure the KRW 3.5 billion investment from a third party. As I have already mentioned, Mr Kim acknowledges that he must relinquish the G Class shares in Hoju Australia on repayment of his $300,000.
Williams J directed the parties prepare short minutes of order giving effect to her Honour’s reasons. The parties could not agree on the form of orders. The matter came before Williams J on 21 April 2021 when her Honour made the Orders, which are as follows:[3]
[3] In the matter of Hoju Jobs Pty Ltd (No 2) [2021] NSWSC 407. One area of dispute was whether s 100 of the CP Act applied to an order for the specific performance of a money obligation. Her Honour held that s 100 did so apply.
(1)Order that the contract between the plaintiff [Mr Kim] and the third defendant referred to in [80] [Mr Goo] of the judgment of the Court in Re Hoju Jobs Pty [2021] NSWSC 302 be specifically performed in the following manner:
(a)Within 14 days from the date of these orders, the third defendant is to provide all instruments it reasonably requires the plaintiff to execute to give effect to the transfer of the plaintiff’s G class shares in the first defendant [Hoju Australia] to the third defendant [Mr Goo] or any nominee of the third defendant [Mr Goo] notified to the plaintiff [Mr Kim] in writing.
(b)If the third defendant [Mr Goo] does not comply with order 1(a), the plaintiff [Mr Kim] may execute the instruments annexed and marked “A” to these short minutes.
(c)The third defendant [Mr Goo] is to pay the plaintiff [Mr Kim] the sum of $300,000 within 28 days from the date of this order.
(d)The plaintiff [Mr Kim] is to deliver to the third defendant [Mr Goo] documents executed in accordance with order 1(a), or 1(b), within 28 days from the date of this order.
(2)The proceedings against the First and Third Defendants [Hoju Australia and Mr Goo] are otherwise dismissed.
(3)Subject to order (4) below, order that each of the plaintiff [Mr Kim], the first defendant [Hoju Australia] and third defendant [Mr Goo] pay their own costs of these proceedings.
(4)Order (3) above does not affect the costs orders made in these proceedings on 4 June 2018 and 9 December 2020.
(5)The Third Defendant [Mr Goo] is to pay interest to the Plaintiff [Mr Kim] on the sum in order 1(c) above from the 9th June 2017 to 26 March 2021 in accordance with s 100 of the Civil Procedure Act 2005 and Practice Note SC 16 – Supreme Court – pre-judgment interest rates, in the amount of $58,294.53.
(6)Liberty to apply to the parties on 5 days’ notice to address any issues of non-compliance with order 1.
On 20 May 2021 the bankruptcy notice was issued. It is addressed to “Mr Seoung Jin Goo”; and it states that the “Total Debt Amount” is $359,798.64. That is the sum of the $300,000 referred to in order 1(c) of the Orders, the $58,294.53 referred to in order 5 of the Orders, and $1,504.11, being “interest accrued since date of judgment/s”. The bankruptcy notice refers to “Note C” which, in turn, directs attention to the section of the bankruptcy notice headed “Schedule of Post-Judgment Interest Calculation”. Under that heading there is a table that shows interest has been claimed on $300,000 from 21 April 2021 to 20 May 2021 at the annual rate of 6.1% under s 101 of the CP Act, and that the amount of the interest is $1,504.11.
It would be convenient if I set out at this point s 101 of the CP Act. It provides:
(1) Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid.
(2) Interest under subsection (1) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from—
(a) the date on which the judgment takes effect, or
(b) such later date as the court may order.
(3) Despite subsection (1), interest is not payable on the amount of a judgment if the amount is paid in full within 28 days after the date on which the judgment takes effect, unless the court orders to the contrary.
(4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs.
(5) Interest on an amount payable under an order for the payment of costs is to be calculated, at the prescribed rate or at any other rate that the court orders, as from the date the order was made or any other date that the court orders.
(6) This section does not authorise the giving of interest on any interest payable under this section.
(7) In this section, a reference to the “prescribed rate” of interest is a reference to the rate of interest prescribed by the uniform rules for the purposes of this section.
In Short v Crawley (No. 39) White J held that, for the purposes of s 101 of the CP Act, a “judgment” includes interest that has been ordered to be paid under s 100 of the CP Act, so that interest under s 101 accrues on that part of a judgment the includes interest that has been ordered to be paid under s 100 of the CP Act. His Honour said:[4]
[12] Dealing with order 31, the amount of the judgment encompassed by that order is the sum of $2,487,703.09. Pursuant to s 101(1), unless the Court otherwise orders, interest is payable on that sum; not on a component of that sum being the principal amount of $1,242,762.
[13] Subsection 101(6) does not prohibit the giving of interest on a judgment sum to the extent to which the judgment sum includes pre-judgment interest. The prohibition in s 100(6) is confined to the giving of interest on interest "payable under this section". The orders of 26 November 2008 do not provide for the giving of interest on post-judgment interest payable pursuant to s 101.
[14] No order has been made otherwise than that interest be payable on so much of the judgment as is from time to time unpaid.
[15] This appears to me to be the plain meaning of ss 100 and 101. I do not accept that that construction involves any unfairness to a judgment debtor. The remedy for a judgment debtor liable for a judgment debt which includes a component of interest, who wishes to avoid paying interest on interest, is to pay the judgment debt within 28 days.
[16] This construction of s 101 accords with the observations of Branson J in Re Jackson; Conway v Conway [2000] FCA 1530 at [11] and [12].
[4] Short v Crawley (No. 39) [2008] NSWSC 1353, at [12]-[16]
The observations of Branson J to which White J referred arose in an application before her Honour to set aside a bankruptcy notice on grounds that included that the bankruptcy notice impermissibly claimed interest under s 85 of the District Court Act 1973 (NSW) (DC Act) (being equivalent to s 101 of the CP Act) on a judgment that included an amount for interest that had been ordered under an equivalent provision to s 100 of the CP Act (being s 83A of the DC Act). That ground failed. Branson J said:[5]
[10] The applicant contends that if interest is payable on the whole of the judgment debt of $111,449.59, he will be paying interest on interest contrary to s 85(2)(c) of the DC Act. Lockhart J gave consideration to s 85(2)(c) of the DC Act in Re Wong; ex parte Kitson [1979] FCA 67; (1979) 27 ALR 405 at 413. After noting that interest on a judgment debt would not ordinarily be understood as answering the description of a “judgment debt”, his Honour said:
“In my opinion, all that s 85(2)(c) does is to provide that for purposes of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt itself; but it does not answer the description of ‘the judgment debt’ as defined in Div 4 of the District Court Act.”
[5] Re Jackson; Conway v Conway [2000] FCA 1530, at [10]-[12]
[11] The significance of the concluding words of s 85(2)(c), in my view, is to make clear that although, for the purpose of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt, compound interest on the judgment is not permitted. That is, further interest on such interest is not payable. The paragraph, however, has nothing to say concerning the payment of interest on the judgment debt itself. That issue is governed by s 85(1) read with the definitions of “judgment” and “judgment debt” contained in s 84(1) of the DC Act. Section 84(1) provides:
“In this Division, except in so far as the context or subject matter otherwise indicates or requires –
judgment includes any order of the Court for the payment of an amount of money as costs or otherwise;
judgment debt includes –
(a) any amount ordered by the Court to be paid as costs or otherwise; and
(b)any amount payable as provided by the rules as costs without any order of the Court.”
[12] The above definitions make it plain that the amount of the judgment debt upon which interest was payable, unless the District Court ordered otherwise, was the sum of $111,449.59 plus any amount ordered by the District Court to be paid as costs or any amount payable as provided by the rules as costs without an order of the District Court. Although the respondent obtained a costs order in her favour in the District Court, it has not been suggested that the judgment debt includes any amount representing costs. Interest is thus payable under s 85(1) of the DC Act on so much of the sum of $111,449.59 as is from time to time unpaid. As no amount of the sum of $111,449.59 has been paid, the respondent was entitled by the bankruptcy notice to claim interest on the entire amount of the judgment debt of $111,449.59 at the rate prescribed for the purposes of s 95(1) of the Supreme Court Act 1970 (NSW) (see s 85(2) of the DC Act).
It is apparent from the face of the bankruptcy notice that it claims interest under s 101 on the $300,000 that is payable under order 1(c) of the Orders, but it does not claim interest on the $58,294.53. It is also apparent from the face of order 5 of the Orders that interest under s 100 of the CP Act was not claimed on the $300,000 referred to in order 1(c) of the Orders from 27 March 2021 to 20 April 2021. Mr Psaltis, Mr Kim’s solicitor, has calculated the interest that would be payable under s 101 of the CP Act on the assumption that such interest would accrue both on the $300,000 referred to in order 1(c) of the Orders, and the $58,294.53 referred to in order 5 of the Orders from 22 April to 20 May 2021. That interest is $1,736.49, which means that, had the bankruptcy notice claimed interest on both the $300,000 and $58,294.53 referred to in the Orders, the bankruptcy notice would have demanded $360,031.02 instead of the $359,798.64 it in fact demands.[6] Mr Psaltis deposes that, on these calculations, the interest claimed in the bankruptcy notice understated by $232.38 the interest that was in fact payable under s 101 of the CP Act.
[6] Affidavit of S Psaltis 24.08.2021, [16]
Mr Psaltis has also calculated the amount of interest that would be payable under s 101 of the CP Act on the assumption that there ought to have been included in the amount referred to in order 5 interest from 27 March 2021 to 20 April 2021. That calculation, however, is not relevant. Although it was open to the SCNSW to order interest on the $300,000 under s 100 of the CP Act from 27 March 2021 to 20 April 2021, it did not do so. That means an amount that would represent interest for that period could not be a “judgment” for the purposes of s 101 of the CP Act and on which interest, therefore, could accrue under that section.
As I have already noted the bankruptcy notice was served on Mr Goo on 2 June 2021; and he filed his application to set aside the bankruptcy notice on 22 June 2021. The matter came before a Registrar on 20 July 2021, when directions were made for the filing of a notice of grounds of opposition and evidence. On 22 July 2021 the parties were notified that the application to set aside the bankruptcy notice was listed for hearing before me on 1 September 2021.
In the meantime, on 19 July 2021 Mr Goo filed a statement of claim (DCSC) in the District Court of New South Wales claiming Mr Kim and five others had defamed Mr Goo, Hoju Australia, and a company named Oakwood Sydney Pty Ltd. The DCSC relies on six acts of publication.
(a)One is alleged to have occurred on about 20 July 2020. It consists of the publication on the Korean language website known as “Breaknews” of an article in the Korean language. The DCSC alleges Mr Kim supplied the information to the journalist who wrote the article; and that the publication conveys a number of defamatory imputations, including Mr Goo’s having committed remittance investment fraud.
(b)The second publication is alleged to have occurred from around 25 to 30 July 2020 by means of the distribution of flyers. The DCSC alleges the flyers conveyed a number of defamatory imputations, including imputations to the effect that Mr Goo had committed remittance investment fraud, and Mr Goo committed forgery.
(c)The third publication is alleged to be a “republication” from around 25 to 30 July 2020 of the flyers published from 25 to 30 July 2020.
(d)The fourth publication consisted of the publication in early 2021 of contents on the website accessible at “ (Cheat website). The DCSC alleges this publication conveyed a number of defamatory imputations including imputation to the effect that Mr Goo commits or has committed investment fraud, and Mr Goo is a fraudster.
(e)The fifth publication occurred in early 2021, and consisted of the publication of matter on the Cheat website which conveyed a number of defamatory imputations that included Mr Goo’s having committed investment fraud, and being a fraudster.
(f)The sixth publication occurred on about 9 December 2019 when the fifth defendant posted material on a blogging site.
Although filed on 19 July 2021 the DCSC was not served on Mr Kim until, apparently, a copy was included in the material Mr Goo’s lawyers sent to Mr Kim’s lawyers in the afternoon before the hearing of the application to set aside the bankruptcy notice.
GROUND 1 – DEFECTIVE BANKRUPTCY NOTICE
Mr Goo submits the bankruptcy notice is defective for three reasons: it incorrectly identifies the debtor; the bankruptcy notice overstates the debt Mr Goo owes; and the bankruptcy notice fails to include two costs orders in favour of Mr Goo.
Incorrect name
Mr Goo submits the bankruptcy notice is defective because it incorrectly spells his name as “Seoung Jin Goo” where Mr Goo says his name, correctly spelt, is “Seoungjin Goo”. Mr Goo annexes to his affidavit of 22 June 2021 an extract from his passport, and from his driver’s licence, where Mr Goo’s name is spelt “Seoungjin Goo”.
Mr Goo’s contention that “Seoungjin Goo”, and not “Seoung Jin Goo”, is the correct spelling of his name, is based on the spelling contained in Mr Goo’s passport and driver’s licence. Mr Goo, however, has used the name “Seoung Jin Goo” and “Seong Jin Goo” in the SC proceeding. In particular, Mr Goo used “Seoung Jin Goo” to identify himself in two affidavits he made in the SC proceeding, and has used “Seong Jin Goo” to identify himself in another affidavit he made in that proceeding.[7] Mr Goo has not given any evidence to explain his use of “Seoung Jin Goo” and “Seong Jin Goo” to identify himself in the SC proceeding. That leaves open a number of possibilities. One is that “Seoung Jin Goo”, rather than “Seoungjin Goo” or “Seong Jin Goo”, is the correct spelling of Mr Goo’s name. Another possibility is that the set of letters comprised in each of “Seoungjin Goo”, “Seoung Jin Goo” and “Seong Jin Goo” are not misspellings of the other. I am therefore not satisfied that “Seoungjin Goo”, rather than “Seoung Jin Goo”, is the correct spelling of Mr Goo’s name, or that “Seoung Jin Goo” is a misspelling of “Seoungjin Goo”; and that the bankruptcy notice, therefore, has described Mr Goo by an incorrect name.
[7] Affidavit of S Psaltis 24.08.2021, annexures”B”, “C”, and “D”
Even if, however, “Seoung Jin Goo” is a misspelling of “Seoungjin Goo”, and Mr Goo describes himself as “Seoungjin Goo”, such error would be a formal defect within the meaning of s 306 of the Bankruptcy Act 1966 (Cth) (Act). Given the bankruptcy notice identified Mr Goo by the very spelling Mr Goo identified himself in two affidavits he made in the SC proceeding, and the bankruptcy notice was issued in relation to a judgment that had been entered in that proceeding, it is impossible that a person in the position of Mr Goo could have been misled about the identity of the person to whom the bankruptcy notice was directed.[8]
[8] See Re Trevor Peter McSwiney Ex Parte: Mark Sidney Davies [1986] FCA 405. In this case the debtor was incorrectly identified in the bankruptcy notice as “Trevor John McSwiney” instead of “Trevor Peter McSwiney”. Beaumont J held that this error was a formal defect for the purposes of s 306(1) of the Act because the error could not reasonably have misled the debtor.
Miscalculation of interest
Mr Goo submits the calculation of the $1,504.11 for interest claimed by the bankruptcy notice is incorrect, for two reasons. First, interest ought to have been calculated from the period commencing 28 days after 21 April 2021, being the day on which the Orders were made. That submission is based on what Mr Goo submits is the proper construction of order 1(c) of the Orders, read against s 101 of the CP Act. Mr Goo alternatively submits the bankruptcy notice incorrectly includes 21 April 2021 in the period for which interest is calculated under s 101 of the CP Act. That is because s 101 of the CP Act provides for interest to run from the day a judgment or order takes effect; and under s 36 of the Interpretation Act 1987 (NSW) (Interpretation Act), the calculation of time must exclude the date on which a judgment takes effect. Mr Goo submits, therefore, that s 41(5) of the Act applies, and the defect constituted by the overstatement is not a defect that falls within the scope of s 306 of the Act.
Mr Kim, on the other hand, does not accept that, on the proper construction of order 1(c) of the Orders, interest under s 101 of the CP Act only begins to run on a date 28 days after the date on which the Orders took effect. Further, even if, as Mr Goo submits, the period for calculating interest under s 101 of the CP Act could not include 21 April 2021 and, to that extent, the calculation of the interest claimed by the bankruptcy notice was incorrect, the bankruptcy notice understated the amount Mr Goo owed to Mr Kim. In those circumstances, Mr Kim submits, s 41(5) of the Act does not apply; and although a bankruptcy notice may be substantially defective if it understates the amount due, that will only be so where the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the bankruptcy notice.
The following questions arise:
(a)Does interest under s 101 of the CP Act run only from a date commencing 28 days after the date on which the Orders came into effect?
(b)If (a) is answered in the negative, from which date is interest payable?
(c)Assuming (a) is answered in the negative, and assuming the interest claimed in the bankruptcy notice understates the interest that in fact accrued under s 101 of the CP Act so that, if correctly calculated, the bankruptcy notice claims less than the amount Mr Goo is liable to pay, does s 41(5) of the Act apply?
(d)Assuming s 41(5) of the Act does not apply, is the bankruptcy notice substantively defective?
Date from which s 101 interest calculated
Mr Goo bases his submission that interest under s 101 of the CP Act can accrue only on a date that is 28 days after the date on which the Orders were made on the language of order 1(c) of the Orders, and in particular the words “within 28 days from the date of this order”. In his counsel’s written submissions, Mr Goo submits that the natural consequence of these words is that Mr Goo was not under a liability to pay anything until 28 days from the date of the Orders. Mr Goo further submits that the form of words in order 1(c) of the Orders “is not uncommon in circumstances where the size of the debt in question is such that the Court considers it prudent to give the debtor an opportunity to arrange their finances so as to meet the debt”.[9] In oral address counsel for Mr Goo submitted that not to construe the Orders in the manner for which Mr Goo contends would be to deny meaning to the words “within 28 days from the date of this order”.
[9] Applicant’s Written Submissions, [38]
The starting point in determining this part of Mr Goo’s claim is not the text of order 1(c) of the Orders, but the text of s 101 of the CP Act. It provides that interest is to be payable; it specifies the debt on which interest is to be calculated, namely, the “amount of a judgment (exclusive of any order for costs)”; and it specifies the date from which interest is to be calculated, namely, either the date on which the judgment takes effect or such later date as the court may order. This is subject to s 101(3) of the CP Act, which provides that interest is not payable on the amount of a judgment if the amount is paid in full within 28 days after the date on which the judgment takes effect, unless the court orders to the contrary.
The effect of s 101 of the CP Act is that, unless the court orders that interest is payable from a date that is later than the date on which the judgment takes effect, interest is payable on the amount of a judgment from the date on which judgment takes effect. That, however, is subject to one of two things. The first is the court’s not having made an order that interest be payable on the judgment amount from a later date than the date on which the judgment takes effect, and the amount of the judgment is paid in full within 28 days after the date on which the judgment takes effect. The second is if the court orders that interest is to be calculated on the amount of the judgment from a later date than the date on which the judgment takes effect.
Mr Goo has not paid the $300,000 from the date on which the Orders took effect. The question, then, is whether on their proper construction, the Orders provide that interest is to be calculated from a date later than the date on which the Orders took effect. That question must be answered in the negative. The Orders do not refer to s 101 of the CP Act, and they do not refer to the calculation of interest in relation to the amounts referred to in order 1(c) and order 5 of the Orders for any period on or after the date the Orders were pronounced. If anything, the words “within 28 days from the date of this order”, repeating as they do the effect of the words of s 101(3) of the CP Act, reinforce that which s 101 provides, namely, that if the $300,000 is paid within 28 days after the date of the Orders, interest under s 101 will not be payable.
Thus, interest on the $300,000 referred to in order 1(c) of the Orders, as well as interest on the $58,294.53 referred to in order 5, was payable under s 101 of the CP Act as from the date on which the Orders took effect.
Day from which interest is calculated
Section 101 of the CP Act provides that interest is payable on so much of the amount of a judgment as is unpaid from time to time; and, unless the court specifies a later date, interest is to be calculated “as from . . . the date on which the judgment takes effect”. Section 101 of the CP Act must be construed having regard to s 36(1) of the Interpretation Act, which provides:
If in any Act or instrument a period of time, dating from a given day, act or event, is prescribed or allowed for any purpose, the time shall be reckoned exclusive of that day or of the day of that act or event.
Subsection 101(2) of the CP Act prescribes a period of time dating from a particular event, namely, the date on which a judgment takes effect. That means that the period s 101(2) prescribes must be reckoned exclusively of the day on which the judgment takes effect.
The Orders made on 21 April 2021 took effect from that date.[10] The date from which interest could be calculated and, therefore, be payable under s 101 of the CPA, however, is 22 April 2021. Thus, by calculating interest from 21 April 2021 the bankruptcy notice claimed one day’s interest which Mr Kim was not entitled to claim.
[10] See r 36.4 of the Uniform Civil Procedure Rules 2005 (NSW): “A judgment or order takes effect (a) as of the date on which it is given or made, or (b) if the court orders that it not take effect until it is entered, as of the date on which it is entered”.
Does s 41(5) of the Act apply?
Before I consider Mr Goo’s submissions, it will be necessary to set out s 41(5) and s 41(6) of the Act:
(5)A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time fixed for compliance with the notice, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.
(6)Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with subsection (5), he or she shall be deemed to have complied with the notice if, within the time fixed for compliance with the notice, he or she takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.
If “the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution”, the bankruptcy notice will be invalid “provided the debtor gives timely notice under s 41(5)” of the Act that the debtor “disputes the validity of the notice on that ground”.[11] If the debtor gives a notice under s 41(5) of the Act, and the creditor maintains the sum claimed in the bankruptcy notice is not overstated, whether the debt has been overstated is a question that must be determined at the hearing of the application to set aside the bankruptcy notice.
[11] Walsh v Deputy Federal Commissioner of Taxation [1984] HCA 33; (1984) 156 CLR 337, at [3]; see also Grant v Green & Associates Pty Ltd [2021] FCA 934, at [19]
Mr Goo submits that the consequence of calculating interest for a period that included 21 April 2021 is that the sum the bankruptcy notice stated as the amount due to Mr Kim “exceeds the amount in fact due” within the meaning of s 41(5) of the Act. The implicit premise of this submission appears to be that the amount that was “in fact due” to Mr Kim is interest calculated on $300,000 from 22 April 2021. Mr Goo, however, does not dispute that the bankruptcy notice calculates interest under s 101 of the CP Act only by reference to the $300,000 referred to in order 1(c) of the Orders, and not by reference to both the $300,000 and the $58,294.53 referred to in order 5; and he does not dispute Mr Psaltis’ calculations that if s 101 of the CP Act is applied to both the $300,000 and the $58,294.53 for the period 22 April 2021 to 20 May 2021, the interest payable is $1,736.49, which exceeds by $232.38 the interest the bankruptcy notice claims under s 101 of the CP Act.
Counsel for Mr Goo submitted that the expression “in fact due” in s 41(5) of the Act is to be construed as “the amount purported to be due in the bankruptcy act”. Counsel supported that construction by submitting that to construe the expression differently would permit the debtor to rely on all possible transactions between the debtor and creditor that may be relevant to whether the debt demanded is overstated or understated. I do not accept counsel’s submission. First, the construction for which counsel for Mr Goo contends not only adds words to the text of s 41(5) of the Act, but it adds words that are inconsistent with the text of s 41(5). Subsection 41(5) refers to a debt that is “in fact due”. That is inconsistent with a debt that purports to be due but which, in fact, is not due. Second, the “debt” to which s 41(5) of the Act refers is the debt demanded in the bankruptcy notice. More particularly, it is directed to the amount for which, as at the time the bankruptcy notice was issued, the creditor is entitled to issue execution.[12] Third, in the circumstances provided for by s 40(1)(g) of the Act, the debtor may be able to rely on a counter-claim, set-off, or cross demand equal to or exceeding the amount a bankruptcy notice demands as a ground for not complying with the bankruptcy notice and thus commit an act of bankruptcy.
[12] Walsh v Deputy Federal Commissioner of Taxation [1984] HCA 33; (1984) 156 CLR 337
Mr Goo has not established that the amount claimed in the bankruptcy notice exceeds the amount for which, as at the date the bankruptcy notice was issued, Mr Kim would have been entitled to issue execution in relation to the amounts orders 1(c) and 5 of the Orders obliged Mr Kim pay Mr Goo; and, for that reason, the amount the bankruptcy notice states is due by Mr Goo does not “exceed the amount in fact due”. Subsection 41(5) of the Act, therefore, does not apply to the bankruptcy notice.
Effect of understatement
Although s 41(5) of the Act does not apply to the bankruptcy notice, a bankruptcy notice that understates the amount of the debt may be liable to be set aside. The circumstances in which this might occur were considered by the High Court in Kleinwort Benson Australia Ltd v Crowl.[13] In that case a bankruptcy notice demanding the payment of a judgment and interest had been set aside because it understated interest by some $23,000. The plurality held that the understatement constituted a formal defect or irregularity for the purpose of s 306 of the Act. The plurality said (emphasis added):[14]
The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice . . . In such cases the notice is a nullity whether or not the debtor in fact is misled . . . .
If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) - the only requirements presently relevant - are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.
It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.
[13] Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71
[14] Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71, at pages 79-80]
Counsel for Mr Goo submitted that the understatement of interest in the circumstances of this case is objectively capable of misleading a debtor. Counsel submitted that any reasonable debtor looking at this bankruptcy notice could not work out the reasons why he has to pay, and the debtor will not know whether compliance with the requirements of the bankruptcy will discharge the debtor’s liability.
I do not accept counsel’s submissions. The question is whether the understatement in the bankruptcy notice served on Mr Goo was objectively capable of misleading Mr Goo about what was necessary for him to comply with it. That question must be answered in the negative. The bankruptcy notice unambiguously stated that Mr Goo had to pay an amount of money; it specified the amount he was required to pay, and the person to whom and place at which the money was to be paid; and it specified the time by which the amount had to be paid. The bankruptcy notice could not be construed as identifying the amount by which the bankruptcy notice understated the amount for which Mr Kim was entitled to issue execution. There is, therefore, nothing that could have led a reasonable person in the position of Mr Goo to have wondered whether, in addition to the amount the bankruptcy notice demanded, he was or might have been required to pay some amount, other than, or in addition to, the amount the bankruptcy notice stated Mr Goo was required to pay, in order to comply with the requirements of the bankruptcy notice.
For these reasons I am satisfied that the understatement of the interest in the amount the bankruptcy notice stated was due by Mr Goo was a formal defect or irregularity for the purposes of s 306 of the Act. As the plurality in Kleinwort Benson observed[15], s 306(1) of the Act “operates automatically unless “the court . . . is of the opinion that substantial injustice has been caused by the defect or irregularity and the injustice cannot be remedied by an order of that court””. As was the case with the debtor in Kleinwort Benson, Mr Goo has adduced no evidence that he suffered any injustice because of the understatement. For that reason, there is “no basis upon which an opinion could be formed to deny the operation of s.306(1)”.[16]
[15] Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71, at [19]
[16] Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71, at [19]
Costs orders
In his application Mr Goo claims the bankruptcy notice is defective because it does not take into account two costs orders that were made in his favour in the SC proceeding. Mr Goo, however, does not articulate how the order for costs ought to have been taken into account. Further, there is no evidence that the costs the subject of the orders have been assessed; and there is no evidence of any estimate of what those costs, if assessed, might be.
The bankruptcy notice is not defective because of any costs orders that may have been made in Mr Goo’s favour.
GROUND 2 – CROSS DEMAND
Before I consider whether the DCSC constitutes a counter-claim, set-off, or cross demand equal to or exceeding the amount payable under the Orders which Mr Goo could not have set up in the SC proceeding in which the Orders were obtained, it will be convenient to set out the principles by reference to which I must consider that question.
Principles
A judgment debtor on whom a bankruptcy notice is served does not commit an act of bankruptcy if he or she satisfies the Court that he or she has:[17]
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.
[17] Act, s 40(1)(g)(ii)
The matters of which a Court must be satisfied before it can be satisfied that a debtor has a counter-claim, set-off, or cross demand against the creditor have been stated in different ways, and in ways that sometimes overlap. The various statements were summarised by Lindgren J in Glew v Harrowell, in the matter of Glew.[18] In broad terms, a debtor must satisfy the Court that the counter-claim, set-off, or cross demand is made in good faith, and 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.
[18] Glew v Harrowell, in the matter of Glew [2003] FCA 373, at [9]
That the judgment debtor may have a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” is relevant to whether a bankruptcy notice can be set aside only if the counter-claim, set-off, or cross demand “could not have been set up” by the judgment debtor “in the action or proceeding” in which the judgment was obtained. The expression “could not have been set up in the action or proceeding” has been construed narrowly:[19]
The words “that he could not have set up in the action or proceeding in which the judgment or order was obtained” mean “which he could not by law set up in the action.”: see Re Jocumsen (1929) 1 A.B.C., at p. 85; Re A Debtor per Avory J. [1914] 3 K.B., at p. 730 and Re Stockvis (1934) 7 A.B.C. 53 especially per Lukin J. where his Honour said: “I take a counter claim, set off, or cross demand which could not be set up as one which, from the point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained . . . Mere failure to take advantage of the opportunity can hardly be said to be inability” (1934) 7 A.B.C., at p. 57.
[19] Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135, at page 139 (Lockhart J)
Mr Goo, in his counsel’s written submissions, submits that a “cross-demand” “need not have been or be capable of being raised in the same proceeding that gave rise to the debt the subject of the notice”.[20] Mr Goo also submits that the cross-demand “need be mutual and due in the same right”.[21] These submissions are made in a paragraph which refers to a paragraph from the judgment of Bromwich J in Coshott v Prentice, in the matter of Coshott (No 2), where his Honour said:[22]
The meaning of the three terms in s 40(1)(g) and s 41(7) of the Bankruptcy Act “counter-claim, set-off or cross demand” was considered in the much cited case of Re Judd; Ex parte Pike [1924] NSWStRp 59; (1924) 24 SR (NSW) 537 at 539-540 (emphasis added to the portion directly relevant to the deeds of assignment in this case):
There is no authority of which I am aware deciding what limits (if any) ought to be placed on the words “counter-claim, set-off or cross-demand”. I think that the Legislature by the word “counter-claim” probably referred to those claims which might be the subject of a counter-claim in equity and by the word “set-off” to those claims which might be the subject of a set-off at common law. The other term “cross-demand”, however, is not a technical term and must in my opinion refer to claims other than those which would be comprised in the two expressions “counter-claim” and “set-off”.
Taking the ordinary meaning of the word itself, I can see no reason why “cross-demand” should not be held to include a claim for unliquidated damages for a tort. The case of Re Griffin; Ex parte Soutar (1 B.C. 29) shows that “cross-demand” includes a claim for unliquidated damages for breach of contract. In the case of Re Smyth; Ex parte North (3 B.C. 17) a common law action of Smyth v. North is referred to as constituting a cross-demand. I have sent for and perused the papers in this case and here again it appears that the cause of action was a claim for unliquidated damages for breach of contract. Two recent cases in England—In re G.E.B. ([1903] 2 K.B. 340) and In re A Debtor ([1914] 3 K.B. 726)—show that the cross-demand need not have any connection with the cause of action out of which the judgment debt arose—so much so, that a judgment debtor may even buy up a claim against the judgment creditor in order to have a “cross-demand”. These cases are all in favour of an unrestricted meaning being given to the word.
[20] Applicant’s Written Submissions, [23]
[21] Applicant’s Written Submissions, [23]
[22] Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531, at [22] (emphasis added by Bromwich J)
This passage shows that, for the purposes of s 40(1)(g) of the Act, a debtor can raise as a counter-claim, set-off, or cross demand a cause of action that had been assigned to the debtor, even though the assigned cause of action has no connection with the cause of action out of which the judgment debt (the subject of the bankruptcy notice) arose. That does not, however, mean that the requirement in s 40(1)(g) of the Act that the counter-claim, set-off, or cross demand on which the debtor relies must be one the debtor could not have set up in the action or proceeding in which the judgment or order was obtained does not apply to causes of action that had been assigned to the debtor by the time of the proceeding out of which the judgment debt arose. The text of s 40(1)(g) of the Act is clear: a debtor can rely on a counter-claim, set-off, or cross demand, even if claimed by the debtor as assignee, only if it is one the debtor “could not have set up in the action or proceeding in which the judgment or order was obtained”.
Also relevant are s 41(7) of the Act and r 3.02 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules). Subsection 41(7) of the Act provides:
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.
Rule 3.02 of the Bankruptcy Rules relevantly provides:
(1) An application to set aside a bankruptcy notice under the Bankruptcy Act must be accompanied by an affidavit stating:
(a) the grounds in support of the application; and
(b) the date when the bankruptcy notice was served on the applicant.
(2) A copy of the bankruptcy notice must be attached to the affidavit.
(3) If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand referred to in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter‑claim, set‑off or cross demand; and
(b) the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter‑claim, set‑off or cross demand was not raised in the proceedings that resulted in the judgments or orders to which the bankruptcy notice relates.
Parties’ submissions
In his counsel’s written submissions, Mr Goo submits the DCSC constitutes a cross-demand, and that “the Court may proceed on the basis that the claim, although unliquidated, could reasonably be said to be for an amount equal to or exceeding the debt the subject of the Bankruptcy Notice”.[23] Mr Goo also submits that although it may be that he could have raised the defamation claim in the SC proceeding, that is irrelevant because it “cannot be said there was an expectation for that to occur, given the very different nature of the causes of action raised, the many different defendants in the defamation proceedings, and the different jurisdiction relied upon”.[24]
[23] Applicant’s Written Submissions, [51]
[24] Applicant’s Written Submissions, [55]
Mr Kim, on the other hand, submits Mr Goo has not adduced any evidence concerning the quantum of his claims for defamation; there is insufficient evidence that is capable reasonably supporting a finding that Mr Goo commenced his defamation proceeding in good faith; there is no reason why the defamation claims could not have been set up in the SC proceeding, and, in any event, Mr Goo was not prevented, as a matter of law, from bringing the defamation claims by way of cross-claim in the SC proceeding; and Mr Goo has given no explanation why he did not file his claims for defamation earlier.
Determination
I am not satisfied Mr Goo “could not have set up” his defamation claim in the SC proceeding, being the “action or proceeding in which” the Orders were obtained. Mr Goo does not submit that as a matter of law he could not have filed a cross-claim in the SC proceeding to pursue his defamation claim. The matters on which Mr Goo relies relate to reasons why it might not have been appropriate for Mr Goo to have sought to raise his defamation claim by seeking leave to file a cross-claim or, perhaps, relate to reasons why the SCNSW may not have permitted Mr Goo leave to file a cross-claim for defamation. There are, however, two difficulties with Mr Goo relying on these matters. First, there is no evidence that at any time before he made his affidavit of 22 June 2021, Mr Goo formed an intention to commence a proceeding in relation to his defamation claims and considered whether he should do so by seeking leave to file a cross-claim in the SC proceeding. Second, to the extent he did, his failure to apply for leave to file a cross-claim could amount to no more than a failure to take advantage of an opportunity to set up his defamation claims in answer to the claims Mr Kim made in the SC proceeding. As Lockhart J said in Re Brink, “[m]ere failure to take advantage of the opportunity can hardly be said to be inability”.[25]
[25] Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135, at page 139
I am also not satisfied Mr Goo commenced the defamation proceeding in good faith. On the evidence before me, the first occasion on which Mr Goo indicated to Mr Kim that he intended to commence proceedings for damages for defamation is when he served his affidavit made on 22 June 2021, in which he deposes (errors in original):[26]
On or about 20 July 2020, Mr Kim published, or caused to be published, an article through Breaknews Australia where it refer to me as a “wanted criminal”, committing “financial frauds” and “swindl[ing] by remittance service providers” and to Mr Kim as having “been swindled out of AUD0.37 million to date” in Korean (Breaknews article). . . .
I intend to commence proceedings against Mr Kim for damages caused to me as a result of his defamatory comments against me made to Breaknews Australia and/or publishing the Breaknews article or causing it to be published .
[26] Affidavit of S Goo 22.06.2021, [17], [18]
There is no evidence that, before he served his affidavit of 22 June 2021, Mr Goo claimed the publication was defamatory, or demanded that Mr Kim cease publishing defamatory imputations concerning Mr Goo, and withdraw the imputations conveyed by the publication. There is also no evidence of any attempts by Mr Goo to serve the DCSC on Mr Kim. At the hearing counsel for Mr Kim said “[w]e received notice of that yesterday in terms of the actual document, the sealed document”. Counsel for Mr Goo said the DCSC “was meant to be served on the creditors’ solicitor ahead of the hearing”, and she claimed responsibility for that failure. Counsel also stated that she “can get formal evidence from my solicitors that there had been attempts to personally serve it on the creditor”. No such evidence, however, was adduced; but even if such evidence were adduced, there is no evidence that by 1 September 2021, being the day on which I heard the application to set aside the bankruptcy notice, and some 44 days after the DCSC was filed, Mr Goo had given any thought to applying in the District Court for an order for substituted service. Further, Mr Goo has adduced no evidence to explain why, given the serious nature of the defamatory imputations pleaded in the DCSC, he did not communicate to Mr Kim his belief that the publication in July 2020 conveyed defamatory imputations and that he intended to commence proceeding in relation to them, until, apparently, his lawyer served Mr Goo’s affidavit of 22 June 2021 on Mr Kim’s lawyer.
I am also not satisfied there is sufficient substance to the causes of action pleaded in the DCSC to make them ones that Mr Goo 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. It is true the DCSC appears to plead reasonable causes of action in defamation, and the DCSC annexes the publications complained of. But Mr Goo has adduced no evidence in relation to those parts of the DCSC that links Mr Kim to the publication of the matters complained of. Further, although a cause of action in defamation is constituted by the publication of defamatory matter, that by itself is not a basis for concluding Mr Goo’s claims for defamation are sufficiently substantial. The causes of action might fail because of defences that may be available to Mr Kim. I am not bound to infer from Mr Goo’s having pleaded reasonable causes of action in defamation that Mr Kim would have no defence; and I do not propose to so infer. The position may have been otherwise if Mr Goo had given evidence relevant to the falsity of at least some of the imputations alleged in the DCSC; but Mr Goo has adduced no such evidence.
Even if I were to assume Mr Goo would succeed on his defamation claims, there is no evidence on the basis of which I could conclude there is a tangible prospect that Mr Goo, if he succeeds, would be awarded damages equal to or exceeding the amount demanded in the bankruptcy notice. Mr Goo has given no evidence, for example, about the impact the publication of the matters complained have had on him. All that is before me is evidence that shows that it was only on around 22 June 2021, some 11 months after the matters complained of were first published, that Mr Goo first gave notice to Mr Kim that he believed that by that publication Mr Kim defamed him.
Conclusion
This ground for setting aside the bankruptcy notice fails.
GROUND 3 – ABUSE OF PROCESS
In his counsel’s written submissions Mr Goo refers to his having raised in his affidavit of 22 June 2021 “an allegation of improper purpose”, and his affidavit “did this in some detail”.[27] That is a reference to paragraphs 11-16 of Mr Goo’s affidavit of 22 June 2021. Mr Goo there refers to Mr Kim having commenced the Korean proceeding, and on 4 February 2020 Mr Kim having lodged an appeal against the decision given in that proceeding. Mr Goo then deposes to a belief that Mr Kim issued the bankruptcy notice “with an improper purpose and in order to negatively affect and compromise my position of [sic] defence against the appeal by Mr Kim in South Korea”.[28] Mr Goo also deposes that “to date, I have not received any demand from Mr Kim or his lawyers seeking payment of the amount of the judgment”.[29] Mr Goo, in his counsel’s written submissions, then submits that Mr Kim “has chosen not to go into evidence to counter that allegation”, and, relying on Royal v Nazloomian, in the matter of Royal,[30] submits that an inference of improper purpose should be drawn from the following matters:[31]
(a)Mr Kim did not demand Mr Goo pay the amount demanded in the bankruptcy notice before Mr Kim applied for the issue of the bankruptcy notice, noting Mr Kim so applied “a mere day after Mr Kim alleges the debt and interest became owing”.
(b)Mr Kim did not raise or pursue any alternatives to issuing a bankruptcy notice.
(c)Mr Kim and Mr Goo have a history of litigation against each other.
(d)There is a “bona fide cross demand”.
(e)The making of a sequestration order would vest the “defence” Mr Goo has raised in the Korean proceeding as “property” under the Act.
[27] Applicant’s Written Submissions, [56]
[28] Affidavit of S Goo 22.06.2021, [15]
[29] Affidavit of S Goo 22.06.2021, [16]
[30] Royal v Nazloomian, in the matter of Royal [2019] FCA 555
[31] Applicant’s Written Submissions, [58]
On the basis of these matters, Mr Goo submits the Court “can and should infer that at the time the Bankruptcy Notice was issued, Mr Kim did so to put pressure on Mr Goo to pay a debt, rather than to invoke the Court’s jurisdiction in relation to insolvency, and to threaten Mr Goo’s ability to continue to defend Mr Kim’s appeal in the South Korean proceedings”.[32]
[32] Applicant’s Written Submissions, [58]
Before I address these submissions, it would be useful to refer to some principles. First, there are the principles Stewart J identifies in Royal:[33]
The issuing of a bankruptcy notice is a legitimate mechanism to secure payment of a debt – it is legitimate to issue a notice with the intention that the debt be paid, and in the event of default, to proceed by way of petition for sequestration: Slack v Bottoms English Solicitors [2002] FCA 1445 at [15]-[21] per Spender J; Young v Cooke [2017] FCA 26 at [105] per Gleeson J.
The time to judge abuse of process is the time the bankruptcy notice is issued; subsequent events have only slight relevance to the circumstances foreseen at the time of the issue of the notice: Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 at [13] per Gyles J.
There is no dispute that the onus of proving the existence of the relevant purpose lies on the debtor: Cavoli v Etl [2007] FCA 1191 at [17] per Heerey J. There are, however, competing authorities as to the level of proof required to establish an abuse of process on the basis of illegitimate purpose.
. . . .
The point, as I see it, is that an allegation of abuse of process is a “serious” allegation; it is not one that can be made without a sufficient factual foundation. In that sense, I accept that the party alleging that the issuing of a bankruptcy notice constitutes an abuse of process bears a “heavy onus”. It is nevertheless not necessary that there be direct evidence of the ulterior purpose; a conclusion as to that purpose can properly be made by way of inference. Moreover, the absence of evidence to provide a rebuttal of inferences that might otherwise be drawn can also be taken into account.
[33] Royal v Nazloomian, in the matter of Royal [2019] FCA 555, at [29]-[31], [37]
Next, there is the following passage from the judgment of the Full federal Court in Nobarani v Mariconte:[34]
It is not a precondition to the issuing of a bankruptcy notice that a demand for payment be made or that other avenues of recovering the debt are exhausted. Whilst it is common practice and, indeed, it may be prudent practice, to make some form of prior demand, it is not a precondition and nor is the absence of a demand, on its own, a basis for inferring the existence of some improper motive. A precondition for the issuing of a bankruptcy notice is the existence of judgment debt and the obtaining of such a judgment is nearly always sufficient to put the debtor on notice.
[34] Nobarani v Mariconte [2021] FCAFC 96, at [43]
The matters on which Mr Goo relies for submitting Mr Kim issued the bankruptcy notice for an improper purpose are incapable of supporting such a finding. Mr Kim was not required to issue any demand for the payment of the amounts claimed in the bankruptcy notice before applying for the issue of the bankruptcy notice; Mr Goo was on notice that he was liable to pay the amounts referred to in order 1(c) and order 5 of the Orders from the day they were entered, and it was, and remains, Mr Goo’s responsibility to seek Mr Kim, his creditor, to pay the amounts Mr Goo was ordered to pay. There is no evidence Mr Goo is solvent; there is no evidence Mr Goo attempted or intended to negotiate with Mr Kim about the payment of the amounts he was ordered to pay; there is no evidence Mr Goo has assets in Australia against which Mr Kim can take enforcement proceedings; and there is no evidence Mr Kim was made aware before around 22 June 2021 that Mr Goo believed he had causes of action in defamation against Mr Kim. Further, there is no evidence on the basis on which I could find that the making of a sequestration order in Australia would vest in the trustee in bankruptcy, at least in a practical sense, the subject matter of the Korean proceeding, being shares of a company apparently incorporated in South Korea. In the absence of such evidence it is not possible to infer that Mr Kim’s purpose, or that one of his purposes, in applying for the issue of a bankruptcy notice was to enable him, in due course, to secure a sequestration order in Australia so that the shares in the South Korean company would vest in an Australian trustee in bankruptcy. Even if, however, I were to make such a finding, that would confirm that Mr Kim applied for the issue of the bankruptcy notice to demand payment of the amounts Mr Goo was required to pay by the orders, and to proceed to obtaining a sequestration order if Mr Goo would not pay the amount demanded by the bankruptcy notice.
This ground for setting aside the bankruptcy notice, therefore, also fails.
DISPOSITION
The application should be dismissed, and counsel agree that costs should follow the event. I do not propose, however, to dismiss the application when I publish these reasons. It may be that Mr Goo is in a position to comply with the requirements of the bankruptcy notice if I extend the time for compliance by one week. I therefore will order that the matter be listed at 9:30 am on 8 October 2021 for the purpose of making at that time and date an order dismissing the application, and an order that Mr Goo pay Mr Kim’s costs of the proceeding. I will also make an order extending the time for compliance with the requirements of the bankruptcy notice up to 8 October 2021.
I will note in the orders I propose to make that the orders are those of the Federal Circuit and Family Court of Australia (Division 2). That is necessary because the seal of this Court that will be affixed to the orders I propose to make only includes the words “Federal Circuit and Family Court of Australia”. The Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFCOA Act), however, does not constitute any court by the name of the “Federal Circuit and Family Court of Australia”. Section 8 of the FCFCOA Act continues the existence of two federal courts and renames them. The first federal court the FCFCOA Act continues is the Court that, before 1 September 2021, was named the “Family Court of Australia”, and s 8(1) renames that Court the “Federal Circuit and Family Court of Australia (Division 1)”. The second federal court the FCFCOA Act continues is this Court which, before 1 September 2021, was named the “Federal Circuit Court of Australia”, but which s 8(2) of the FCFCOA Act renames the “Federal Circuit and Family Court of Australia (Division 2)”.
I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Dated: 1 October 2021
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