Guss v Larkfield Industrial Estates Pty Ltd
[2023] FedCFamC2G 235
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Guss v Larkfield Industrial Estates Pty Ltd [2023] FedCFamC2G 235
File number: MLG 1873 of 2022 Judgment of: JUDGE FORBES Date of judgment: 5 April 2023 Catchwords: BANKRUPTCY – Application by debtor to set aside bankruptcy notice – de novo review of decision of judicial registrar not to set aside notice – whether amount of debt claimed is misstated or liable to mislead – whether bankruptcy notice must set out calculations and full accounting of credits allowed – whether notice is an abuse of process where other entities jointly liable Legislation: Bankruptcy Act 1996 (Cth) s 33, 40, 41, 306
Federal Circuit and Family Court of Australia Act 2001 (Cth) s 30, 256
Cases cited: Adams v Lambert (2006) 228 CLR 409
Australian Securities and Investments Commission v Forge[2003] FCAFC 274
Bechara v Bates[2021] FCAFC 34
Brunninghausen v Glavanics [1998] FCA 230
Cassimatis v Australian Securities and Investments Commission[2016] FCA 131
Cumins v Deputy Commissioner of Taxation [2008] FCAFC 185
Emerson v Wreckair Pty Ltd (1992) 33 FCR 581
Ferguson v Premier Plasterboard Pty Ltd [2018] FCA 1028
Killoran v Duncan [1999] FCA 1574
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Nobarani v Mariconte [2021] FCAFC 96
Pattison v Hadjimouratis[2006] FCAFC 153
Scandi International Pty Ltd v Larkfield Industrial Estate Pty Ltd [2018] VCC 584
Scandi International Pty Ltd & Anor v Larkfield Industrial Estate Pty Ltd (No.2) [2018] VCC 628
Scott v Charitopoulos [2008] FCA 1914
Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120
Skouloudis v St George Bank Ltd (2008) 173 FCR 236
Slack v Bottoms English Solicitors [2002] FCA 1445
St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094
Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337
Watkins Limited v Ranger Uranium Mines (1985) 35 NTR 27 at [32]
Zakrzewski v Rodgers [2000] FCA 1187Division: Division 2 General Federal Law Number of paragraphs: 110 Date of hearing: 20 March 2023 Place: Melbourne Applicant: In person Counsel for the Respondent: Mr McKillop Solicitor for the Respondent: HWL Ebsworth ORDERS
MLG 1873 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: JOSEPH GUSS
Applicant
AND: LARKFIELD INDUSTRIAL ESTATES PTY LTD
Respondent
order made by:
JUDGE FORBES
DATE OF ORDER:
5 ApriL 2023
THE COURT ORDERS THAT:
1.The Applicant’s Application filed on 9 March 2023 for review of Registrar Edwards decision dated 21 February 2023 be dismissed.
2.The time for compliance with bankruptcy notice BN 256 470 be extended to the time of the pronouncement of these orders and the delivery of my judgment herein.
3.The applicant pay the respondent’s costs of the application to be taxed in default of agreement pursuant to the Federal Court Rules.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE FORBES
INTRODUCTION
Pursuant to sections 40 and 41 of the Bankruptcy Act 1996 (Cth) (the Act) the applicant,
Mr Joseph Guss, seeks to set aside bankruptcy notice BN 256 470 (the bankruptcy notice) which was issued on 26 July 2022 and served on him on 28 July 2022.
The applicant advances two bases on which he submits that the bankruptcy notice should be set aside. First, for various reasons, he contends that the respondent’s claim in the notice is misstated, indeed overstated. Secondly, the applicant contends that the issuing of the bankruptcy notice was an abuse of process on the part of the respondent and that the Court should exercise its discretion to set it aside.
The application to set aside the bankruptcy notice was initially heard by a registrar of this Court. Prior to the hearing before Registrar Edwards, each of the parties filed affidavits and outlines of submissions in relation to the application.
On 21 February 2023 Registrar Edwards dismissed the application and ordered Mr Guss to pay the respondent’s costs to be fixed in a lump sum if not otherwise agreed. The Registrar also gave ex tempore reasons for her decision to refuse the application[1].
[1] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-6
Mr Guss has applied to the Court for a review of the Registrar’s decision pursuant to s 256(1) of the Federal Circuit and Family Court of Australia Act 2001 (Cth) (the FCFCOA Act). A hearing under s 256 is a hearing de novo and the relevant matter is considered afresh on the material presented at the hearing[2].
[2] Pattison v Hadjimouratis[2006] FCAFC 153; (2006) 155 FCR 226; (2006) 236 ALR 1; (2006) 4 ABC(NS) 367 at [3]-[20] per Nicholson J and [39] per Jacobson J; Cassimatis v Australian Securities and Investments Commission[2016] FCA 131; (2016) 334 ALR 350 at [12] per Edelman J (“Cassimatis”); Bechara v Bates[2021] FCAFC 34 (Allsop CJ, Markovic and Colvin JJ) at [17]
On 20 March 2023 I heard the review application. Mr Guss appeared on his own behalf and Mr McKillop of counsel represented the respondent. Each of the parties presented argument and sought to rely upon the affidavits and written submissions previously filed. Mr Guss also sought to rely upon a further affidavit filed on 16 March 2023 but following an objection from the respondent’s counsel and for reasons I will explain later, I did not permit him to do so other than on a limited basis.
During argument, both parties took the Court to Registrar Edwards’ ex tempore reasons for judgment. While there was no misunderstanding about the de novo nature of the hearing before me and no requirement to identify error in the decision under review, a rehearing does not require the exclusion of the relevant record of the proceeding including the conclusion reached by the Registrar[3].
[3] Cassimatis at [16]
I have carefully considered the parties’ written and oral submissions and the various documents and authorities to which I have been taken. For the reasons set out below, I have decided that the application to set aside the bankruptcy notice should be dismissed.
BACKGROUND
Bankruptcy notice BN 256 470 issued by the Official Receiver on 26 July 2022 demands payment in the amount of $236,934.15 pursuant to a judgment and a series of costs orders in respect of which the applicant is either personally liable or jointly and severally liable with other parties.
The debt giving rise to the notice arises from complex and long-running litigation. Unless stated otherwise, the following background facts are not materially in dispute.
Mr Guss was a party to an occupancy agreement with the respondent, Larkfield Industrial Estates Pty Ltd (Larkfield), whereby Larkfield, for a fee, provided storage services. Scandi International Pty Ltd (Scandi) and a Hong Kong company Casualife Furniture International Ltd (Casualife) claimed to be the owners of furniture which had been stored at the Larkfield premises.
After rental in respect of the occupancy agreement remained unpaid for some time, Larkfield refused to release the furniture until outstanding storage charges were paid.
On 11 July 2016, Scandi and Casualife initiated proceedings in the County Court of Victoria (proceeding no. CI-16-02981) seeking orders that they be permitted to retake possession of the stored goods. By counter-claim, Larkfield sought an order for the sale of the stored furniture in order to recover outstanding rental and other charges and costs. Mr Guss was not initially a party to the proceedings. Mr Guss was joined as a third defendant to the counter-claim on
28 July 2016 and another company ACN 112 314 502 Pty Ltd (ACN) was joined as the fourth defendant on or around 10 October 2017.
Over the course of the County Court proceedings there were an array of interlocutory applications and Court events in respect of which cost orders were made or costs were reserved or the orders were silent as to costs. Some of the orders made in the proceeding were against one or more of the companies, but not Mr Guss. Some of the orders were against Mr Guss and one or more of the companies, jointly and severally. There were other orders made against Mr Guss alone.
Relevantly, it is not contested that interlocutory cost orders[4] were made by:
·Her Honour Judge Cohen on 28 July 2016;
·His Honour Judge Cosgrove on 10 October 2016;
·His Honour Judge Smith on 14 March 2017; and
·Her Honour Judge Marks on 13 November 2017.
[4] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-2
Where costs were ordered in relation to any interlocutory matter, the relevant Court rules required that they were not to be taxed until after the proceeding was completed[5].
[5] County Court Civil Procedure Rules 2018 r 63A.20.1
It is common ground that security for costs in the proceeding of $84,250 was provided by Scandi and Casualife pursuant to orders made by Macnamara J on 11 July 2016 ($7,000), Cohen J on 28 July 2016 ($45,000) and Smith J on 15 March 2017 ($32,250).
The substantive trial took place before Judge Anderson from 21 to 27 November 2018 and His Honour gave judgment on 8 May 2019[6]. The plaintiff’s claim was dismissed. Larkfield succeeded on the counter-claim and obtained judgment against the corporate entities Scandi, Casualife and ACN and Mr Guss personally. Subsequently, a declaration was made as to the outstanding fees and charges in the sum of $157,582.35[7] and judgment was entered for that amount. Orders were also made permitting Larkfield to sell the stored furniture by public auction and to apply the proceeds to selling costs, the cost of disposing of unsold goods, to payment of outstanding rental charges and to any legal costs ordered to be payable to it[8].
[6] Scandi International Pty Ltd v Larkfield Industrial Estate Pty Ltd [2018] VCC 584
[7] Affidavit of Christopher John Melberzs sworn 3 October 2022 (Melberzs affidavit), annexure CJM-1
[8] Scandi International Pty Ltd & Anor v Larkfield Industrial Estate Pty Ltd (No.2) [2018] VCC 628; Orders 2(a)-(d) of the orders made on 9 May 2018 by His Honour Judge Anderson in the County Court of Victoria proceeding CI-16-02981
As discussed in more detail below, Larkfield did ultimately dispose of the relevant goods and claims to have received $33,010.83, net of expenses.
Relevantly, for the purposes of the current application, His Honour Judge Anderson also made orders relating to costs in the following terms:
“4.The plaintiffs, the first and second defendants by counterclaim, and the third and fourth defendants by counterclaim must pay the defendants/plaintiffs by counterclaim’s costs of the proceeding including the counterclaim and all reserved costs, to be assessed by the Costs Court on a standard basis in default of agreement. The costs liability of the third defendant [Guss] is limited to Larkfield’s costs incurred after 28 July 2017 and the costs liability of the fourth defendant [ACN] is limited to Larkfield’s costs incurred after 10 October 2017.
5.The monies paid into Court by the plaintiff’s totalling $84,500 (sic), including the sum of $7000 paid as security for costs incurred by Larkfield in the auction of the stored furniture restrained by interlocutory injunction and the two tranches of $45,000 and $32,500 (sic) paid as security for the defendant’s costs of the proceeding, shall be paid out to the defendants solicitors in satisfaction of the order for costs referred to in paragraph 4 hereof.
6.In calculating the amount owing to the defendant for costs, the sum of $5,480.36 shall be allowed as a deduction by the defendant, this being the sum the parties have agreed was paid to Larkfield as a security deposit under the occupancy agreement on or about 1 October 2013.” (underlining added)
There was an appeal to the Court of Appeal, in which Mr Guss participated as an applicant, but leave to appeal was refused by an order made on 14 November 2018. Security for costs were also sought in relation to the proposed appeal.
On 16 June 2021 Judicial Registrar Gourlay (JR Gourlay) in the Costs Court made two orders following taxation of bills of costs associated with the County Court proceeding, as follows:
(a)in Supreme Court matter S ECI 2020 03562, a proceeding to which only Scandi and Casualife were parties, JR Gourlay taxed Larkfield’s bills of costs pursuant to the orders made by their Honours Judge Cohen on 28 July 2016, Judge Cosgrave on 10 October 2016, Judge Smith on 14 March 2017, Judge Marks on 13 November 2017 and Judge Anderson on 9 May 2018. The Registrar ordered that Scandi and Casualife pay costs taxed in the sum of $46,117.49;
(b)in Supreme Court matter S ECI 2020 03558, a proceeding to which Scandi, Casualife and Mr Guss were parties, the Registrar taxed Larkfield’s bill of costs pursuant to the orders made by Judge Anderson on 9 May 2018. The Judicial Registrar ordered Scandi, Casualife and Mr Guss to pay Larkfield’s costs taxed in the sum of $41,583.97 and further ordered Mr Guss personally to pay costs of $1,049.00.
As will be seen in the discussion below, the proper construction of Judge Anderson’s orders and the effect and operation of the judicial registrar’s costs orders is material to the applicant’s contention that the bankruptcy notice issued against him is invalid on the grounds of misstatement.
The Bankruptcy Notice
The bankruptcy notice claims a headline debt of $355,062.85 in respect of various final judgments and final orders made against the applicant as follows[9]:
(a)in County Court of Victoria proceeding CI-16-02981, the applicant is jointly and severally liable as the third defendant by counter-claim in the proceeding for the judgment amount of $157,582.35;
(b)in Supreme Court of Victoria proceeding no. S ECI 2020 03560, the applicant is jointly and severally liable as the fourth respondent in that proceeding for a costs order in the amount of $83,414.77;
(c)in Supreme Court of Victoria proceeding no. S ECI 2020 03558 the applicant is jointly and severally liable as the third respondent in that proceeding for a costs order in the amount of $41,583.97 and personally liable for costs in the sum of $1,049;
(d)in Supreme Court of Victoria proceeding no. S ECI 2020 03561, the applicant is liable for a costs order in the amount of $6,166.29; and
(e)in Supreme Court of Victoria proceeding no. ECI 2020 00866, the applicant is jointly and severally liable as the fourth respondent for a costs order in the amount of $65,266.47.
[9] Melberzs affidavit, annexure CMJ-2
Mr Guss does not contest that a copy of each of these orders was annexed to the bankruptcy notice as required by the Regulations.
The bankruptcy notice makes allowance for $118,668.70 in respect of payments or credits allowed since the judgments or orders were made. After this allowance, the total debt claimed by Larkfield under the bankruptcy notice is $236,394.15.
At paragraphs 11 and 12 of his affidavit sworn on 3 October 2022 the respondent’s solicitor Mr Melberzs sets out a table and explains the calculation of the debt claimed by Larkfield as follows:
11.I have reproduced the table in my file note which sets out the calculation of the amount demanded in the Bankruptcy Notice together with the credits allowed:
Order Amount Credit Amount owing 1 CC CI-16-02981 $157,582.35 -$38,491.19
(this includes application of sale proceeds of $33,010.83 and additional credit of $5,480.36 as per order 6 of the judgment of Anderson J dated 9 May 2018$119,091.16 2 SC S ECI 2020 03560 $83,414.77 $83,414.77 3 SC S ECI 2020 03558 $42,632.97 -$38,132.51 $4,500.46 4 SC S ECI 2020 03561 $6,166.29 $6,166.29 5 SC S ECI 2020 00866 $65,266.47 -$40,000 $25,266.47 6 Federal Court costs MLG716/2022 -$2,045 -$2,045.00 TOTAL $355,062.85 -$118,668.70 $236,394.15 12.As can be seen from the table at paragraph 11 above, the Respondent has claimed the amounts of the judgments and costs orders listed in rows 1 to 6 above and has allowed credits (in reduction of those judgments and costs orders) as follows:
(a) ($38,491.19) which is calculated as:
(i)-$33,010.83 which was deducted as proceeds (net of selling costs) of the sale of goods by the Respondent pursuant to order 2 of the orders made on 9 May 2018 by His Honour Judge Anderson in the County Court of Victoria proceeding CI-16-02981; and
(ii)-$5480.36 which was allowed pursuant to order 6 of the orders made on 9 May 2018 by his honour Judge Anderson in County Court of Victoria proceeding CI-16-02981.
(b)($38,132.51) which was applied from security for costs in the amount of $84,250 provided by [Scandi] and [Casualife] in County Court of Victoria proceeding CI-16-02981, against costs ordered in Supreme Court of Victoria proceeding number S ECI 2020 03558;
(c)($40,000) which was applied from funds paid into Court in Supreme Court of Victoria, Court of Appeal proceeding S APCI 2018 0071 by the corporate appellants to that proceeding (and not by the Applicant) against orders made in Supreme Court of Victoria proceeding s ECI 2020 00866; and
(d)($2,045) which was allowed as a credit in respect of a costs order made in favour of the Applicant and against the Respondent in Federal Court and family Court of Australia proceeding MLG716/2022
being a total amount of $118,668.70 allowed as credits in reduction of the judgments and orders made against the applicant.
In correspondence[10]to the applicant prior to the issuing of the bankruptcy notice the respondent’s solicitors explained how the security for costs provided by Scandi and Casualife in the County Court proceeding had been applied for the purposes of calculating the applicant’s indebtedness. The respondent explained that of the $84,250 security which had been released by the Court on 2 August 2021, $46,117.49 had been applied against the costs order made in Supreme Court of Victoria proceeding no. ECI 2020 03562, a proceeding in which Scandi and Casualife were the respondents. The remaining balance of the security, being $38,132.51, had been applied against the costs order made in Supreme Court of Victoria proceeding no. ECI 2020 03558, in which an order for costs for a total of $42,632.97 ($41,583.97 + $1,049) had been made against Scandi, Casualife and the applicant on taxation of the costs ordered by Judge Anderson.
[10] Letter from HWL Ebsworth to Mr Guss dated 5 August 2021, Melberzs affidavit, annexure CMJ-5
As will be seen below, the respondent’s application of the security for costs is a central issue in these proceedings.
Challenge to the bankruptcy notice
On 15 August 2022 Mr Guss gave notice to the respondent pursuant to s 41(5) of the Act that he disputed the validity of the bankruptcy notice on the ground of misstatement[11]. In an affidavit filed at the commencement of these proceedings, Mr Guss contends that the notice should be set aside because it contains misstatements and on the additional ground that it constitutes an abuse of process.
[11] Affidavit of Joseph Guss sworn 12 August 2022, annexure 2
It is not necessary to set out all the grounds particularised by the applicant in his s 41(5) notice. Suffice to say, in summary, the applicant contends that the bankruptcy notice should be set aside for one or more of the following reasons:
(a)that the amount claimed in the bankruptcy notice has been overstated (ground 1);
(b)that some of the costs orders attached to the bankruptcy notice did not concern Mr Guss (ground 2);
(c)that the respondent, Larkfield, has not properly accounted for the security for costs of $84,250 paid by the corporate respondents Scandi and Casualife and failed to apply the full amount to the credit of the applicant (ground 3);
(d)that Larkfield has sold goods in storage but has not produced evidence to properly account for the proceeds thereof. Moreover, Larkfield has not properly applied the proceeds of sale in accordance with orders made by the County Court (grounds 4 to 6);
(e)the credits allowed against the headline debt did not properly account for the $40,000 security for costs paid in the Court of Appeal proceeding (ground 7);
(f)that Larkfield has not provided details of how the total credit amount of $118,668.70 has been made up. Mr Guss contends that a credit of $164,756.19 should have been allowed in his favour (grounds 8 and 9);
(g)that Larkfield is indebted to the defendants by counter-claim in the County Court proceeding for unspecified untaxed costs, which Mr Guss contends he would be entitled to set-off against any debt claim (ground 10); and
(h)by reason of the above matters, Mr Guss says that the credit has been understated by at least $46,117.49 and that the debt specified in the bankruptcy notice is misstated.
In his affidavit sworn 12 August 2022 in support of the application, Mr Guss also presses a further basis for setting aside the bankruptcy notice. He asserts that the notice constitutes an abuse of process because:
“The respondent has not sought to recover or execute the costs or other orders referred to or annexed to the bankruptcy notice against any other parties to the County Court proceeding which it is entitled to do, and by issuing the bankruptcy notice against me and issuing a bankruptcy notice against me the subject of proceedings in this Court number MLG716/2022 which was dismissed with costs in relation to some of the same costs orders as annexed to the bankruptcy notice herein, endeavouring to recover the costs owing by the said other parties against me solely is improper and it is submitted is an abuse of the process”[12]
[12] Guss affidavit at [7]
RELEVANT PRINCIPLES
As previously mentioned, a hearing under s 256(1) of the FCFCOA Act is a hearing de novo and the relevant matter is considered afresh. The review does not hinge, or focus, upon error in the decision of the registrar.
While there is no express power conferred by the Act on a Court to set aside a bankruptcy notice, it is clear that the Court has power to do so. The power is derived from the general powers conferred by s 30 of the Bankruptcy Act 1966 (Cth) and from the principle that a power conferred by Parliament carries with it the power necessary for its performance or execution. Thus, the express power to extend time for compliance with the requirements of a bankruptcy notice, when an application to set it aside has been filed, carries with it the power to set aside the bankruptcy notice itself[13].
[13] Australian Securities and Investments Commission v Forge; (2003) 133 FCR 487 at [26]-[27] per Emmett J (with whom Branson and Stone JJ agreed)
A bankruptcy notice speaks at the date of its issue[14]. A bankruptcy notice must spell out clearly what the named debtor must do to avoid committing an act of bankruptcy. The amount claimed must not only be stated, but verified by a copy of the judgment and (if costs are claimed) a certificate of taxation and (if interest is claimed) details of the calculations and the provision under which the claim is made. All this is directed to ensuring that the debtor is given a precise, verified, dollar figure which must be paid or compromised within the stated time if an act of bankruptcy is to be avoided[15].
[14] Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 339; Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587
[15] St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 at [34]
A bankruptcy notice which misstates the amount due to the creditor is defective or irregular. 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 is in fact mislead or otherwise suffers prejudice by it[16].
[16] Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at [15]-[17] per Mason CJ, Wilson, Brennan and Gaudron JJ
Prima facie, a bankruptcy notice will be invalid if it claims an amount greater than that for which the creditor is entitled to issue execution as at the date of issue of the notice[17].
[17] Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337; 58 ALJR 368; 53 ALR 606 at 339–340 (CLR) per Gibbs CJ (with whom other members of the Court agreed)
However, section 41(5) of the Act relevantly provides that:
(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 misstatement
While s 41(5) of the Act requires that the debtor “gives notice to the creditor”, there is no particular prescribed form of notice. However, in order to challenge the validity of a bankruptcy notice by reason of an overstatement of the amount due, a section 41(5) notice must give notice to the creditor that the debtor disputes the validity of the notice and, secondly, give notice that the debtor does so on the ground of “misstatement”[18]. This does not mean that the debtor must identify the misstatement with complete precision, or specify the exact amount of the alleged excess of the claim. Rather, on a fair reading of the notice of objection, it must be sufficient to alert the creditor to the nature of the misstatement[19].
[18] Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120 at [32]-[33] (“Seovic”)
[19] Seovic at [38]-[39]
Whether there is in fact a misstatement of the debt demanded in the bankruptcy notice is a question of fact to be determined by the Court. The onus is on the debtor to demonstrate that the amount claimed is misstated.
The date on which the inquiry as to whether or not the amount specified in the notice is excessive is to be made as at the date of the issue of the notice[20].
[20]Emerson v Wreckair Pty Ltd (1992) 33 FCR 581
A misstated bankruptcy notice is a nullity and of no effect and if proper notice of an overstatement under s 41(5) of the Act has been given the overstatement cannot be amended under s 33(1)(b) or cured by s 306(1) of the Act[21].
[21] Skouloudis v St George Bank Ltd (2008) 173 FCR 236 per Edmonds J
If there is a defect of any other type in the bankruptcy notice, or some other failure to comply with the Act or rules relating to its preparation, the error is not necessarily fatal. Whether an error invalidates the notice will depend on whether the defect could reasonably mislead the recipient of the notice as to what was necessary to comply with it[22] or whether the defect amounts to a failure to meet a requirement made essential by the Act[23].
[22] Adams v Lambert (2006) 228 CLR 409
[23] Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
I now turn to the grounds relied upon by the applicant.
Ground 1 – the bankruptcy notice misstates the debt
The general contention that the bankruptcy notice misstates the debt owing by the debtor depends on findings made in relation to the other grounds discussed below. Suffice to say Larkfield says the contention is misplaced and has no proper basis.
Ground 2 - that some of the costs orders attached to the Bankruptcy Notice do not concern Mr Guss
This bare assertion was not developed in the applicant’s written submission dated 18 October 2022, nor was it the subject of any oral submission in the hearing before me.
In my view the applicant’s contention is plainly incorrect. Each of the judgment and the costs orders annexed to the bankruptcy notice, on their face, concern Mr Guss.
As set out at paragraph 17 above, Mr Guss was jointly and severally liable for the judgment of $157,582.35 made by Judge Anderson on 9 May 2018. Mr Guss is also jointly and severally liable and/or individually liable for each of the other four costs orders. In every case, Mr Guss was named as a party in the relevant proceeding and in every case he is liable for the full amount of the costs in each order.
The total debt for which Mr Guss is liable, before allowing for credits, is correctly stated to be $355,062.85.
Ground 3 - that Larkfield has not properly accounted for the Security for Costs of $84,250 paid by the corporate respondents Scandi and Casualife and failed to apply the full amount to the credit of the applicant.
At the hearing of the matter before me, while not abandoning other grounds contained in his s 41(5) notice, the applicant indicated that the principal issue to be determined by the Court related to the calculation of credits.
In particular, Mr Guss contended that the respondent had improperly applied a portion ($46,117.49) of the $84,250 security for costs paid in the County Court proceeding to the costs order made by JR Gourlay in proceeding S ECI 2020 03562[24], thereby denying him the full benefit of the security as a credit against his debt.
[24] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-1
In his written submission dated 18 October 2022, Mr Guss refers to Orders 4 and 5 of the orders made by Judge Anderson on 9 May 2018. As I understand his argument, Mr Guss submits that by reason of those orders the funds paid as security for costs by Scandi and Casualife can only be applied to “the costs of the [County Court] proceeding including the counter-claim and all reserved costs”. He submits that the orders of Judge Anderson do not permit the application of the security amount to any costs which fall outside that description, including interlocutory costs orders against Scandi and Casualife which formed part of the taxation by JR Gourlay on 16 June 2021 in S ECI 2020 03562.
The premise of Mr Guss’ objection is that costs the subject of the Judicial Registrar’s order in S ECI 03562 fall outside the scope of costs to which the security can be legitimately applied. He argued that the costs claimed in the “omnibus bill” taxed by the Judicial Registrar related to stand-alone interlocutory costs orders made by Judge Cohen, Judge Cogrove, Judge Smith and Judge Marks which were neither “costs of the proceeding including the counter-claim” nor “reserved costs” as described in order 4 of Judge Anderson’s orders. He submits that of the omnibus taxation order made by JR Gourlay only the costs order made by Judge Anderson on 9 May 2018 could properly be described as a “cost of the proceeding”.
Moreover, Mr Guss says that while he was a party to the County Court proceeding after being joined in July 2017, he was not a party to the interlocutory costs orders which formed part of the omnibus bill which was taxed by JR Gourlay. Mr Guss submits that he cannot have a costs liability in relation to the interlocutory orders because he was not a party to them and they are not costs in the proceeding. Mr Guss submits, therefore, that he has been denied a $46,117.49 credit and that the debt in the bankruptcy notice is overstated by that amount.
At this juncture, I digress to address Mr Guss’ application for leave to rely upon a further affidavit sworn by him on 16 March 2023.
From paragraphs 6 to 26 of the affidavit Mr Guss deposes to matters relating to this ground of alleged overstatement. The affidavit annexed a number of documents including:
(a)the so-called omnibus costs order made by Judicial Registrar Gourlay in S ECI 2020 03562[25];
(b)the interlocutory costs orders made by their Honours Judges Cohen, Cosgrave, Smith and Marks[26];
(c)the Amended Summons for Taxation in respect of the interlocutory costs and the costs order of Judge Anderson made on 9 May 2018, including the bill of costs[27];
(d)the bill of costs in respect of the interlocutory costs orders, including handwritten notations and pages of handwritten workings made by Mr Guss during the taxation[28];
(e)email correspondence between Mr Guss and the Supreme Court registry and Ms Britton who appeared for Larkfield on the taxation, seeking to obtain a copy of their workings and calculations showing how the judicial registrar arrived at the final taxed figure of $46,117.49[29]; and
(f)a copy of the transcript of proceedings before Registrar Edwards of this Court on 21 February 23 relating to costs of the set-aside proceeding before the registrar and the date for compliance with the bankruptcy notice[30].
[25] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-1
[26] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-2
[27] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-3
[28] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-4
[29] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-5
[30] Affidavit of Joseph Guss sworn 16 March 2023, annexure JG-6
The respondent took no objection to the affidavit being relied upon as a vehicle for putting before the Court the ex tempore reasons of Registrar Edwards, transcript of the hearing, the interlocutory costs orders made by their Honours Judges Cohen, Cosgrave, Smith and Marks or the taxed costs order made by Judicial Registrar Gourlay.
In opposing the application for leave to rely on the affidavit generally, counsel for the respondent submitted its content was largely submissions and that no objection would be taken to Mr Guss relying upon it for that purpose. However, objection was taken to Mr Guss purporting to put into evidence his own working notes, in circumstances where in the context of an omnibus bill there was no evidence of the way the Judicial Registrar had allocated the total costs figure (i.e. $46,117.49) between one or other of the underlying costs orders. It was submitted that Mr Guss’ own working notes, calculations and commentary were either inadmissible or should be treated as being of no weight.
Mr Guss submitted that the evidence should be accepted on the basis that it is the best evidence of what Judicial Registrar Gourlay had done during the course of the taxation. He said that his own workings and notes showed that of the total taxed bill, about $8,000 related to costs in the proceeding before Judge Anderson and that the remaining $34,000 or $35,000 related to interlocutory orders. He said that the Registrar and her associate had both retired and that efforts to obtain notes prepared by the Registrar or the respondent’s representative at the taxation had been unsuccessful. He submitted that the Court in hearing the present application needs to know how Registrar Gourlay made up the omnibus bill of $46,000. He conceded however, that he was not in a position to say how each interlocutory order contributed to the total figure arrived at because Registrar Gourlay did not say so. That is plainly correct when one looks at the face of the order made.
Counsel for the respondent made the following further points in reply:
(a)the costs order made by Judicial Registrar Gourlay in S ECI 2020 03562 is not a relevant material fact in this proceeding;
(b)the order was not made against Mr Guss and it is not included in the bankruptcy notice;
(c)the quantum of the order is only relevant insofar as it relates to the applicant’s argument that Larkfield should not have applied some of the security money to that taxed order;
(d)on the face of her order, Judicial Registrar Gourlay made a costs order on a bulk basis and did not divide the total costs ordered against Scandi and Casualife amongst the various costs orders which underpinned it. Exactly how the Registrar arrived at the figure is not known and is not relevant;
(e)there is no proper basis to look behind the costs order and the proposition that the Court should rely upon Mr Guss’ notes is absurd. It would result in the respondent having to call its costs consultant and for there to be a line by line review of the registrar’s taxation. This would result in unnecessary and inappropriate delay in circumstances where the order is clear on its face; and
(f)moreover, and significantly, an enquiry into how Registrar Gourlay arrived at the figure is irrelevant because all the costs she taxed in S ECI 2020 03562, including the interlocutory costs orders, fall within the scope of order 4 of Judge Anderson’s orders made on 9 March 2018. That is, all the costs, including the interlocutory orders, are either “costs of the proceeding including the counter-claim” or “reserved costs” to which the security could be applied.
To those submissions I would add that the circumstances in which the Court will look behind a taxation and unpack an order of the costs court will be rare. In Cassimatis, Justice Edelman observed that in a de novo review the court should take into account and place weight upon the discretion of a taxing officer. At [16] his Honour said:
“… There is a very good reason why this should be so. As Kenneth Martin J explained in W J Green & Co (1984) Pty Ltd v Tace Pty Ltd (No. 4) [2010] WASC 363 at [23], taxing officers “hold expertise in taxations about costs determinations. They deal in the day-to-day nitty-gritty of assessing the costs in litigation, by reference to scales and allowances at a level of detail that judges do not”. That point is well established. Almost a century ago Rich J remarked that although the court may control any decision of a taxing officer, he was “at all times loath to interfere with the decisions of experienced taxing officers”: Clark, Tait & Company v Federal Commissioner of Taxation [1931] HCA 26; (1931) 47 CLR 142, 145-146. And Kitto J remarked that “it must be in a very exceptional case in which the Court will even listen to an application to review such a decision [on a question only of quantum]”: Australian Coal & Shale Employees Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621, 628.”
After hearing further submissions from the parties regarding the effect of costs order 03562, Mr Guss conceded that the order does not apply to him and that he has no liability under it. Mr Guss also conceded that the order made by JR Gourlay related to costs in the period prior to his joinder as a party. Furthermore, he conceded that any costs in the proceeding covered by the order of Judge Anderson made on 9 May 2018 which were taxed as part of the bill before the Judicial Registrar, were also costs relating to the period prior to his joinder. Mr Guss conceded also that the central point of his argument comes down to whether the interlocutory costs orders made during the course of the County Court proceeding should be regarded as “costs of the proceeding including the counter-claim” or “reserved costs” because, if not, it was not open to Larkfield to apply any of the security costs to satisfaction of Judicial Registrar Gourlay’s order.
Following those concessions, I ruled against the application for leave to rely on the further affidavit on the basis that much of it was no longer relevant to an issue in dispute. However, in doing so, I indicated that there had been no objection to Mr Guss advancing matters in his affidavit by way of submission and that it would be received as such. I also indicated that the annexed transcript and the reasons of Registrar Edwards would be admitted and noted that was also no objection to the admission into evidence of the order of Judicial Registrar Gourlay made on 16 June 2021 and each of the five underpinning orders made by various County Court judges.
CONSIDERATION
I now return to the central thesis of Mr Guss’ argument, namely that the interlocutory costs orders were neither costs of the proceeding nor reserved costs, and that by treating them as such the respondent wrongly applied $46,117.49 of the security to satisfaction of Judicial Registrar Gourlay’s order rather than applying those funds as a credit to the debt in the bankruptcy notice. To that extent, Mr Guss submits that the bankruptcy notice overstates the debt by that amount.
Mr Guss submitted that the failure to allow the credit led to an incorrect calculation and necessarily resulted in a misstatement of the amount owing by him. Relying on Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 he submitted that the notice was a nullity because it was liable to mislead and failed to meet an essential requirement of the Act.
In my view, for the reasons advanced in the respondent’s written reply submissions dated
19 October 2022 and as further developed by counsel at the hearing, no error arose in the calculation of the outstanding debt by reason of a portion of the security for costs being applied to the taxed costs order made by Judicial Registrar Gourlay.
I accept the respondent’s submission that the orders made by Judge Anderson on 9 May 2018 should be read in a practical and common sense manner. By those orders, Judge Anderson ordered that the defendants by counter-claim pay the plaintiffs by counter-claim’s “costs of the proceeding including the counter-claim and all reserved costs”. In my view his Honour’s formulation of what costs were to be paid by the unsuccessful parties to the successful party was entirely unremarkable. Judge Anderson made his orders at the conclusion of the County Court proceeding and at the time there had been no taxation of any costs orders, including the interlocutory costs orders made by Judges Cohen, Cosgrave, Smith and Marks. All of those costs orders were made during the course of the County Court proceeding and in the ordinary course would be understood to be costs in the proceeding.
I do not accept the submission that the interlocutory costs orders fell outside the sweep of his Honour’s orders. In using the expression “reserved costs” I believe his Honour would have had in mind any interlocutory orders in which costs had been expressly reserved and any other extant costs orders made but not yet taxed. In my view, properly construed, there is little doubt that Judge Anderson intended that the untaxed interlocutory costs orders would be swept up as one or other of “costs of the proceeding” or “reserved costs”. Had his Honour intended that untaxed interlocutory orders be treated differently he could easily have said so.
It is apparent on the face of the costs order made by JR Gourlay that the order related to the interlocutory orders and the orders made by Judge Anderson on 9 May 2018. So much is plain from the “Other Matters” referred to in the introduction to the orders.
Being satisfied that JR Gourlay’s orders on taxation relate to and incorporate the interlocutory costs orders made during the County Court proceeding, I am satisfied that Order 5 of Judge Anderson’s orders provides the legal basis for the application of the security to satisfy that order. Larkfield was, in my view, entitled to apply the amount of $46,117.49 from the security against the liability of Scandi and Casualife under the taxed order made in Supreme Court of Victoria proceeding S ECI 2021 03562. It follows that Mr Guss has not been denied that portion of the security for costs.
Grounds 4 to 6 - that Larkfield has sold goods in storage but has not produced evidence to properly account for the proceeds thereof. Larkfield has not properly applied the proceeds of sale in accordance with orders made by the County Court
In his written submissions, Mr Guss submits that the bankruptcy notice is defective because the respondent has not provided evidence to demonstrate that the proceeds of $33,010.83 from the sale of stored goods is a correct and verifiable figure. Mr Guss acknowledges that the orders made by Judge Anderson authorised the sale and the application of proceeds against the costs of the proceeding, but submits that in calculating the credit allowed against the bankruptcy notice debt there should have been a proper accounting for the sale proceeds.
Mr Guss contends that as a matter of natural justice a party against whom a debt is claimed is entitled to a proper accounting because any understatement or misstatement of a credit will necessarily lead to an overstatement of the debt owed. Citing Ferguson v Premier Plasterboard Pty Ltd[31] Mr Guss submitted that because of the failure to properly account for the items sold, the Court is entitled to go behind the judgment of Judge Anderson.
[31] Ferguson v Premier Plasterboard Pty Ltd [2018] FCA 1028
In my view, this ground is misconceived, as is the submission that the respondent’s failure to account gives rise to a reason to look behind Judge Anderson’s judgment.
Pursuant to order 2(a) of Judge Anderson’s orders made on 9 May 2018, Larkfield was authorised to sell the goods referred to in that order and was entitled to apply the proceeds of sale in accordance with order 2(d). The orders provided that the various goods left in the possession of Larkfield could be auctioned and that the net proceeds ought be applied to reduce the costs ordered in the County Court proceeding at judgment. The orders could not have been expressed more clearly.
Larkfield says that the net proceeds after the payment of selling costs was $33,010.83. In his affidavit sworn on 3 October 2022, Larkfield’s solicitor Mr Melberzs deposes that this amount was applied in the manner prescribed by order 2 of Judge Anderson’s orders.
The orders made by Judge Anderson prescribed the mechanism for the calculation of net proceeds, but did not require Larkfield to account to the counter-claim defendants. Mr Guss conceded this point and also acknowledged that there is nothing in the bankruptcy rules or regulations which requires credits to be individually itemised and calculated. Nonetheless, Mr Guss submitted that natural justice requires a bankruptcy notice to contain that detail.
I accept the submission of the respondent that it was under no obligation to provide an accounting to Mr Guss in relation to the sale proceeds of $33,010.83. There is no order by the Court nor any legislative requirement that it do so. Larkfield was bound by the orders of Judge Anderson to auction the goods and to deal with the proceeds in a particular manner. Evidence has been given that it did so in the manner prescribed and there is no evidence before the Court to permit a different finding.
The respondent’s application of the net sale proceeds against the amount of the judgment debt was permissible and did not give rise to a misstatement of the debt actually owing.
Ground 7 – that the credits allowed against the headline debt did not properly account for $40,000 security for costs paid in the Court of Appeal proceeding
At paragraph 7 of his s 41(5) notice, Mr Guss contends that security for costs of $40,000 was provided by the first to third applicants in Court of Appeal proceeding number S APCI 2018 0071. It is submitted that the security of costs in that proceeding should have been allowed as a credit against the debt payable by Mr Guss under the bankruptcy notice.
This particular argument was not developed by Mr Guss at the hearing before me, I suspect for the reason that it was rejected by Registrar Edwards in paragraph 21 of her decision. The submission has no sound basis.
It is common ground that $40,000 was paid as security in the Court of Appeal proceeding by the corporate appellants in that proceeding, Scandi, Casualife and ACN. It was not paid by Mr Guss personally.
By a costs order made by Registrar Conidi on 14 May 2021[32] Larkfield’s costs of the appeal were taxed and allowed in the sum of $65,266.47. The applicants in the appeal, including Mr Guss, are jointly and severally liable for the costs order. A credit of $40,000 has been allowed against that costs order and the remaining $25,266.47 forms part of the amount owing under the bankruptcy notice. There is no misstatement in the bankruptcy notice by reason of this allowance.
Grounds 8 and 9 - that Larkfield has not provided details of how the total credit amount of $118,668.70 has been made up.
[32] Affidavit of Melberzs, annexure CJM-4
For the reasons articulated in the paragraphs above, it is unnecessary to consider this ground at any length.
Larkfield contends that it is not required to provide a detailed accounting of the amounts claimed in the bankruptcy notice. The prescribed form of bankruptcy notice requires the total amount of “payments made and/or credit allowed”[33] to be specified as part of the overall calculation of the amount due. The respondent submits that no further breakdown is required in the form prescribed by the regulations[34] and that the onus rests with the applicant to demonstrate that the amount allowed gives rise to a misstatement.
[33] See item 5 of the bankruptcy notice form prescribed by the regulations
[34] Cumins v Deputy Commissioner of Taxation [2008] FCAFC 185, 172 FCR 425 at [15-[17]
In any event, the calculation of the sum owing by Mr Guss has been set out in the paragraphs of the Melberzs affidavit which are reproduced earlier in these reasons. In my view that calculation adequately explains the method adopted by the respondent to arrive at the amount owing and that that calculation was known to Mr Guss when the notice was issued.
I also agree with Larkfield’s written submission that Mr Guss has objectively demonstrated his understanding of the amounts included in the bankruptcy notice. It was evident in the hearing before me that his substantive dispute relates to the amount of $46,117.49 arising from the alleged failure to give him the full benefit of the security for costs paid in the County Court proceeding. If that issue is put to one side, I do not accept that Mr Guss was under any misapprehension about the manner of the debtor’s calculation.
In my view, the absence of the underlying calculation does not mislead Mr Guss as to what is necessary to comply with the bankruptcy notice.
Ground 10 - that Larkfield is indebted to the defendants by counter-claim in the County Court proceeding for unspecified untaxed costs, which Mr Guss contends he would be entitled to set-off against any claim
By this ground, Mr Guss contends that Larkfield is indebted to the defendants by counter-claim in the County Court proceeding for costs arising from an order of Judge Macnamara made on 28 April 2017. Those costs have not been taxed.
It was common ground that the order made by Judge Macnamara arose from an application in which Larkfield sought an order to prevent Mr Guss appearing for the corporate parties on the grounds of asserted conflict. Counsel for Larkfield explained that an application had been made to the County Court without appreciating that jurisdiction to control officers of the Court is inherently a matter for the Supreme Court. As it was necessary to bring the application in the Supreme Court, the County Court summons was dismissed and an order for costs was made in favour of Mr Guss.
Mr Guss submitted that the untaxed costs order in his favour should have been allowed as a set-off against any claim by Larkfield arising out of any of the costs orders attached to the bankruptcy notice. Mr Guss submits that a set-off, counter-claim or cross demand could not have been claimed by him in the taxation proceedings in respect of which the other costs orders were made against him.
In his written submissions dated 18 October 2022 Mr Guss submits that the order of Judge Macnamara is clearly a “counter-claim, set-off or cross demand” pursuant to s 41(7) notwithstanding the costs have not yet been taxed. He argues that even though there is no evidence at present as to the quantum of any such counter-claim, set-off or cross demand, he should be given the opportunity by the Court to establish it by adducing evidence which would then reduce the amount claimable by the respondent against him.
In my view this ground is not made out and does not result in a misstatement in the bankruptcy notice.
Pursuant to s 40(1)(g) a debtor commits an act of bankruptcy if a creditor has served a bankruptcy notice and the debtor does not comply with the requirements of the notice or “satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt […] being a counter-claim, set off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.”
Section 41(7) of the Act provides that where a debtor has applied to the Court for an order setting aside a 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)” the Court may extend the time for compliance with the notice until the Court determines whether the debtor has such a claim, set-off or cross demand.
Although s 41(7) does not by its terms provide a power to set aside a bankruptcy notice, where the Court is satisfied that a counter-claim, set-off or cross demand exists, of the type referred to in paragraph 40(1)(g), it is well-settled that such a power is to be implied from s 41(7) and other provisions of the Act[35].
[35] Zakrzewski v Rodgers [2000] FCA 1187 at [17]
Larkfield denies that it is indebted to Mr Guss or the other defendants by counter-claim in the County Court proceeding as the costs orders relied upon by him have not been taxed. The respondent submits that until taxation occurs, the quantum of costs are necessarily indeterminate[36]. The short point made by counsel is that until there is a taxation and a determination of the costs liability, there is no quantifiable debt enforceable against it.
[36] Scott v Charitopoulos [2008] FCA 1914 at [4],[8]; Watkins Limited v Ranger Uranium Mines (1985) 35 NTR 27 at [32]
Moreover, the respondent submits, and I accept, that there is no evidence before the Court as to the amount at which these orders might be taxed and certainly no evidence upon which the Court could be satisfied that the amount of any counter-claim, set-off or cross demand is likely to be equal to or in excess of the amount of the judgment debt. In the absence of that evidence, the Court cannot be satisfied that the bankruptcy notice misstates the amount of the debt owing.
Abuse of process - that the debtor should have sought to recover the judgment and other costs orders against the other counter-claim defendants
At the hearing before me, Mr Guss submitted that although the defendants to the counter-claim are jointly and severally liable for the judgment debt and costs of the proceeding, as a “matter of fairness and natural justice” the respondent is obligated to attempt to recover costs from what he describes as “the principal players in the proceeding, and the Court of Appeal hearing”. Mr Guss contends that where one party is pursued and the principal players are not “it creates an abusive process”.
In his written submission dated 18 October 2022 Mr Guss submitted that there is no evidence before the Court to establish that Casualife is impecunious. He submits that the Scandi and Casualife paid substantial amounts in security in the County Court and the Court of Appeal proceeding and that this belies the respondent’s contention that recovery proceedings would be futile. He submitted that it should be inferred that those entities had a substantial amount of money because they had engaged solicitors and briefed counsel through those proceedings.
It was submitted by Larkfield and it is not contested, that the first and fourth defendants by counter-claim, Scandi and ACN, are companies with $2 issued capital and both are now deregistered. The second defendant by counter-claim, Casualife, is a Hong Kong company and resides out of the jurisdiction.
The uncontested evidence of the respondent’s solicitor is that he has been informed and believes that Larkfield has considered its options in terms of trying to recover from these companies and has determined that it is not economic to do so. The respondent’s submission is that recovery action against the Hong Kong company would be pointless due to the costs involved, as would recovery proceedings against deregistered companies. It was submitted by the respondents that the very reason security for costs had been sought from these companies in both the County Court and the Court of Appeal proceedings was the concern that they may be impecunious and not in a position to meet costs orders against them.
Mr Guss is jointly and severally liable with those companies in respect of some of the costs orders and Larkfield submits that there is no obligation on it as a creditor to pursue one debtor rather than the other. Larkfield submits that it has been calling for payment of the costs orders since at least 5 August 2021 and that there has been no payment or offer to pay received from any of the parties liable for the costs orders, including Mr Guss. Larkfield rejects Mr Guss’ submission that the bankruptcy notice is an abuse of process and says that its only real prospect of recovering the amounts owed to it is by issuing a notice to Mr Guss.
The bar to proving an abuse of process in bankruptcy cases is set high.[37] In considering whether the issuance of a bankruptcy notice is an abuse of process, it must be borne in mind that an express object of a bankruptcy notice is to persuade the debtor to pay the debt the subject of the notice. Issuing a bankruptcy notice as a means to secure payment, or with an intention or hope that the debt will be paid, is not an abuse of process where sequestration proceedings are intended to be invoked in the event of noncompliance[38].
[37] Nobarani v Mariconte [2021] FCAFC 96 at [32] per Allsop CJ, Farrell and Derrington JJ
[38] Slack v Bottoms English Solicitors [2002] FCA 1445 ta [20]-[21] per Spender J
If the purpose of a bankruptcy notice is simply to put pressure on a debtor to pay a debt rather than to invoke a Court’s jurisdiction in relation to insolvency, then the filing of a bankruptcy notice may be an abuse of process[39]. However, it is not an abuse of process if a creditor genuinely intends to pursue the matter if there is default in complying with the notice and there is no evidence of collateral purpose or undue pressure[40].
[39] Brunninghausen v Glavanics [1998] FCA 230
[40] Killoran v Duncan [1999] FCA 1574 at [12]-[13] per Gyles J
I accept the evidence of the respondent that the decision to seek recovery from Mr Guss was informed by the costs, difficulty and likely futility of seeking recovery from the corporate entities. I accept this was a considered and rational decision. Mr Guss is jointly and severally liable for the debts the subject of the notice. I have not been taken to any authority which supports the proposition that the respondents are obligated to pursue the so-called “principal players” before seeking recovery from another jointly liable debtor.
On the evidence before me I am not satisfied that the issuing of the bankruptcy notice was an abuse of process. I am satisfied on the evidence that Larkfield issued the notice because it intends to secure payment from Mr Guss and that it will invoke the processes of the Act in the event of non-compliance.
DISPOSITION
For the foregoing reasons, I am not satisfied that the bankruptcy notice should be set aside on the grounds of misstatement or because it is an abuse of process.
The applicant’s application filed 9 March 2023 for review of the Registrar’s decision dated 21 February 2023 dismissing the originating application filed 12 August 2022 seeking to set aside the Bankruptcy Notice BN 256 470 issued on 26 July 2022 will be dismissed, and save as to the date of compliance, the Registrar’s orders of 21 February 2023 are affirmed.
The time for the applicant to comply with the Bankruptcy Notice BN 256 470 issued on 26 July 2022 shall be extended to the time I pronounce orders dismissing the application.
I will also order that the applicant pay the respondents costs of the application, to be taxed in default of agreement pursuant to the Federal Court Rules.
I certify that the preceding one hundred and ten (110) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 5 April 2023
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