Jagatramka v Coeclerici Asia (PTE) Limited (No.2)
[2015] FCCA 2743
•23 October 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JAGATRAMKA v COECLERICI ASIA (PTE) LIMITED (No.2) | [2015] FCCA 2743 |
| Catchwords: BANKRUPTCY – Bankruptcy notices – substituted service of bankruptcy notice – whether at the time application is made for substituted service of bankruptcy notice in Australia debtor must be present in Australia – debtor need not be present in Australia in such circumstances. BANKRUPTCY – Bankruptcy notices – substituted service of bankruptcy notice – whether the order for substituted service purported to authorise the service of the bankruptcy notice on the debtor outside Australia because the order authorised service of the bankruptcy notice by an email addressed to the debtor in circumstances where the evidence raised the question whether the debtor has a place of business in Australia or Australia was the debtor’s place of habitual residence – whether in those circumstances the onus lies on the creditor to prove that the debtor’s place of business is in Australia or the debtor’s habitual place of residence is Australia – whether creditor satisfied such onus. BANKRUPTCY – Bankruptcy notices – substituted service of bankruptcy notice – whether creditor complied with terms of order for substituted service of bankruptcy notice – whether at each of the times the bankruptcy notice was purportedly served in the manner permitted by the orders for substituted service there was attached to the bankruptcy notice the judgment to which the bankruptcy notice referred. BANKRUPTCY – Bankruptcy notices – judgment on the basis of which bankruptcy notice is based is expressed in foreign currency – whether the rate which the creditor applied in the bankruptcy notice to convert the amount of the judgment expressed in foreign currency into a specified amount of Australian currency was the “telegraphic rate of exchange prevailing on the second day before the day” on which the creditor applied for the issue of a bankruptcy notice within the meaning of reg.4.04(3) of the Bankruptcy Regulations 1996 (Cth) (Regulations) – whether onus is on creditor to show that the rate creditor applied was the rate required under the Regulations. BANKRUPTCY – Bankruptcy notices – debtor claims he has set-off or cross demand equal to or exceeding the amount of the judgment in relation to which the bankruptcy notice issued – whether debtor could have raised the asserted set-off or cross demand in the proceedings in which judgment was entered – whether asserted set-off or cross demand made bona fide or on substantial grounds. |
| Legislation: Bankruptcy Act 1966, ss.40(1)(g), 309(2) Bankruptcy Regulations 1996 (Cth), regs.4.02, 4.04, 4.04(2), 4.04(3) |
| Abrahams v. The Federal Commissioner of Taxation (1944) 70 CLR 23 Armada (Singapore) Pte Ltd (Under Judicial Management) v Gujarat NRE Coke Limited [2014] FCA 636 Battenberg v Restrom [2006] FCAFC; (2006) 149 FCR 128 Gujarat NRE Coke Limited & Anor v Coeclerici Asia (Pte) Ltd [2013] EWHC 1987 (Comm) Guss v Johnstone [2000] HCA 26: (2000) 74 ALJR 884 Re Bond; Ex parte Capital and Counties Bank Ltd [1911] 2 KB 988 Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 Re Wilson; Ex parte Jones (1916) 85 LJKB 1408 Sheahan v Joye [1995] FCA 351 ; (1995) 57 FCR 389 Wallace v Trade Credits Ltd (1983) 72 FLR 252 Waters Lane Pty Limited v Sweeney [2006] NSWSC 222 |
| Applicant: | ARUN KUMAR JAGATRAMKA |
| Respondent: | COECLERICI ASIA (PTE) LIMITED |
| File Number: | SYG 691 of 2015 |
| Judgment of: | Judge Manousaridis |
| Hearing dates: | 27 July 2015, 20 August 2015 |
| Delivered at: | Sydney |
| Delivered on: | 23 October 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr G D McDonald |
| Solicitors for the Applicant: | Gillard Consulting Lawyers |
| Counsel for the Respondent: | Mr C Colquhoun |
| Solicitors for the Respondent: | Holman Fenwick Willan |
ORDERS
Bankruptcy Notice BN 175871 issued on 30 October 2014, which was deemed served on the applicant on 20 February 2015, is set aside.
The parties have liberty to apply on the question of costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 691 of 2015
| ARUN KUMAR JAGATRAMKA |
Applicant
And
| COECLERICI ASIA (PTE) LIMITED |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Mr Jagatramka, applies to set aside a bankruptcy notice that was issued against him on the application of the respondent (Coeclerici). The bankruptcy notice demands payment of $9,191,591.94. That purports to represent the Australian dollar equivalent of two amounts expressed in foreign currency for which Coeclerici obtained judgment against Mr Jagatramka in the Federal Court of Australia, together with interest, less payments made.
Mr Jagatramka relies on the grounds set out in the Further Amended Notice of Grounds of Application (FANGA). Before I consider those grounds, it will be necessary to identify the background facts, and the source and nature of the Court’s jurisdiction to set aside bankruptcy notices.
Background
By a purchase agreement dated 15 September 2011 Coeclerici agreed to buy from Gujarat NRE Coke Limited (Gujarat Coke) 40,000 metric tonnes of metallurgical coke, plus or minus 10% (Purchase Agreement).[1] As it was obliged to do under the Purchase Agreement, Coeclerici paid USD 10 million into Gujarat Coke’s account in India as an advance on the purchase price for the coal. The purchase agreement provided that, if Gujarat Coke failed to perform its obligations, it would repay to Coeclerici that amount together with liquidated damages of USD750,000. The purchase agreement was governed by the laws of England with the specific exception of one statute, and contained an arbitration clause referring all disputes under the agreement to arbitration in London. Mr Jagatramka guaranteed Gujarat Coke’s payment obligations under the purchase agreement.
[1] Gujarat NRE Coke Limited & Anor v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109 at [5]
Gujarat Coke did not deliver any coal, and Coeclerici requested the return to it of the USD10 million it had paid to Gujarat Coke, together with liquidated damages. Gujarat Coke made two payments, each for USD1 million on 12 June 2012 and 29 August 2012, but no more. Coeclerici commenced arbitration proceedings in London to recover the balance of the prepayment Gujarat Coke failed to refund to it, together with liquidated damages.
On 17 January 2013, four days before the date on which the arbitration was due to commence, Coeclerici, Gujarat Coke, and Mr Jagatramka entered into another agreement (Payment Agreement). Under that agreement, Gujarat Coke and Mr Jagatramka admitted liability for the payment to Coeclerici of USD8 million, being the balance of the prepayment Coeclerici made to Gujarat Coke that Gujarat Coke had not refunded to Coeclerici. Gujarat Coke and Mr Jagatramka also agreed to pay Coeclerici USD500,000 as consideration for the suspension of the arbitration. The Payment Agreement further provided, among other things, that:
a)Gujarat Coke and Mr Jagatramka would pay the amounts they acknowledged they owed to Coeclerici by three instalments, the last one being on 28 March 2013;
b)the arbitration proceedings would be suspended; but, on Gujarat Coke’s and Mr Jagatramka’s paying the amounts under the Payment Agreement, their liabilities under the purchase agreement would be discharged;
c)if Gujarat Coke and Mr Jagatramka were not to make the payments under the Payment Agreement, the settlement would be null and void, and Gujarat Coke and Mr Jagatramka agreed that Coeclerici would be entitled to an immediate consent award on resuming the arbitration, or commencing a new arbitration, without the need for any pleadings or hearings for, among other things, the payments Gujarat Coke and Mr Jagatramka agreed to make under the Payment Agreement, less any payments made.
Gujarat Coke and Mr Jagatramka did not make any of the payments required by the Payment Agreement. Coeclerici, therefore, exercised its rights under that agreement by sending an email to the arbitrators requesting them to make an award in its favour on the terms provided for in the Payment Agreement. The arbitrators made an award on 14 February 2013 (Award). Before they made the Award, the solicitor for Gujarat Coke and Mr Jagatramka put forward a number of grounds for contending that the arbitrators should not make an award. The principal ground was that the Payment Agreement was subject to an implied term that Gujarat Coke’s and Mr Jagatramka’s obligations to pay the amounts were conditional on their obtaining approval from the Reserve Bank of India to make those payments. Gujarat Coke and Mr Jagatramka also submitted they had lacked capacity to enter into the Payment Agreement.
Gujarat Coke and Mr Jagatramka applied to the English High Court of Justice to set aside the award. They claimed that the award was infected by “serious irregularity” within the meaning of s.68(2)(a) and (c) of the Arbitration Act 1996 (UK). The application was dismissed.[2]
[2] Gujarat NRE Coke Limited & Anor v Coeclerici Asia (Pte) Ltd [2013] EWHC 1987 (Comm)
On 13 March 2013 Coeclerici commenced proceedings in the Federal Court of Australia against Gujarat Coke and Mr Jagatramka in which it sought orders under s.8(3) of the International Arbitration Act 1974 (Cth) (IA Act) to enforce the Award. Coeclerici also applied for freezing orders against Gujarat Coke and Mr Jagatramka. On 14 March 2013 Foster J made freezing orders by which, among other things, Mr Jagatramka was restrained from removing from Australia or in any way disposing of or dealing with or diminishing the value of any of his assets in Australia up to the value of $8,600,000. Subject to variations that are not relevant, the freezing orders have remained in place subject to any further order by the Federal Court.
After hearing Coeclerici’s application to enforce the Award on 5 August 2013, Foster J, on 7 August 2013, declared that, pursuant to s.8(3) of the IA Act, Coeclerici is entitled to have the Award recognised by the Federal Court and to enforce the Award in the Federal Court as if the Award were a judgment of that Court. Foster J ordered that there be judgment against Gujarat Coke and Mr Jagatramka in the amounts of USD8,804,336.42 and GBP12,232.85 (Judgment). The first-mentioned amount represented the sum of the Award (USD8,500,000) and pre-judgment interest (USD304,336.42). The amount of GBP12,232.85 represented the sum of costs Coeclerici was awarded in the arbitration (GBP11,810) and pre-judgment interest on that amount (GBP422.85). Foster J also ordered (Receiver Orders) that receivers be appointed over shares Mr Jagatramka held in Gujarat NRE Coking Coal Limited, which is now known as Wollongong Coal Limited (WCL). Foster J made those orders pursuant to s.57 of the Federal Court of Australia Act 1976 (Cth) in aid of the enforcement of the judgment his Honour ordered against Mr Jagatramka and Gujarat Coke. Gujarat Coke and Mr Jagatramka appealed against Foster J’s orders, but, on 30 September 2013, the Full Federal Court dismissed the appeal.[3]
[3] Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109
On 30 October 2014, on the application of Coeclerici, a bankruptcy notice was issued against Mr Jagatramka demanding payment of $9,191,591.94. That amount has been arrived at by adding two amounts and subtracting one amount from the sum of those two amounts.
The first of the amounts that are added is $9,818,546.78. The bankruptcy notice describes this as the “[a]mount as per the attached final judgment/s or final order/s (note A)”. Note A1 sets out the multiplication of USD8,804,336.42 by the “telegraphic transfer rate” of 1.09709 and the resulting amount of “AUD$9,659,149.44”. The USD8,804,336.42 is the amount of the judgment referred to in order 2(a) of the orders made by Foster J on 7 August 2013. Note A2 to the bankruptcy notice sets out the multiplication of GBP12,232.85 by the “telegraphic transfer rate” of 1.76274 and the resulting amount of “AUD$21,563.33”. The GBP12,232.85 is the amount of the judgment referred to in order 2(b) of the orders made by Foster J on 7 August 2013. It appears, therefore, that the amount of $9,818,546.78 is intended to be the sum of “AUD$9,659,149.44” and “AUD$21,563.33” specified in notes A1 and A2 to the bankruptcy notice. It is obvious, however, that “AUD$9,659,149.44” and “AUD$21,563.33” do not add up to $9,818,546.78. It appears, however, that the $9,659,149.44 claimed in the bankruptcy notice includes the lump sum costs order of $137,834 made by the Full Federal Court on 19 March 2014.[4] Mr Jagatramka has made no submissions about the $9,818,546.78 stated in the bankruptcy notice. I propose, therefore, to say nothing further about it in these reasons.
[4] Exhibit SAG-1, page 402
To the amount of $9,818,546.78 stated in the bankruptcy notice there is added the amount of $755,052.15. That is stated to represent interest that had accrued after the date on which Foster J made the orders. There is then subtracted the amount of $1,383,017. That is stated to be payments made or credits allowed since the date on which Foster J made the orders.
On 18 November 2014 Coeclerici attempted to serve the bankruptcy notice on Mr Jagatramka at an address in Melbourne, but without success.[5] On 8 December 2014 Mr Gamboni, the solicitor for Coeclerici, undertook a current and historical search of the Australian Securities and Investments Commission in the name of Mr Jagatramka. That search revealed Mr Jagatramka held the position of director and secretary of five companies, all of which listed 64 Cliff Road, Wollongong as their registered address.[6] After making enquiries about whether Mr Jagatramka was present at 64 Cliff Road, Wollongong, Coeclerici applied for and on 13 January 2015 obtained an order that the bankruptcy notice be served on Mr Jagatramka in the manner specified in that order (Substituted Service Orders).
[5] Affidavit of S A Gamboni 18.12.14, [14]-[15]
[6] Affidavit of S A Gamboni 18.12.14, [16]
On 28 January 2015, in circumstances that I discuss later, a process server engaged by Coeclerici left a number of documents, including the bankruptcy notice, in a letterbox at premises specified in the Substituted Service Orders.[7] In addition, documents that included the bankruptcy notice were posted and emailed purportedly in compliance with the Substituted Service Orders.
[7] Affidavit of A Jones 04.02.15, [2]-[3]
On 13 March 2015 Mr Jagatramka filed an application in this Court to set aside the bankruptcy notice.
Jurisdiction to set aside bankruptcy notices
The bankruptcy notice is a creature of s.41 of the Bankruptcy Act 1966 (Cth) (Act). Subsection 41(1) of the Act empowers the Official Receiver to issue a bankruptcy notice on the application of a creditor who, among other things, has obtained against a debtor a final judgment or final order of the kind described in s.40(1)(g) of the Act. Under that paragraph, the judgment or order must be a final judgment or a final order the execution of which has not been stayed.
Subsection 41(2) of the Act provides that the bankruptcy notice the Official Receiver may issue must be in accordance with the form prescribed by the regulations. The form of bankruptcy notice has been prescribed by reg.4.02 of the Bankruptcy Regulations 1996 (Cth) (Regulations), being “Form 1” contained in Schedule 1 to the Regulations. The prescribed form of bankruptcy notice identifies the amount of the judgment the creditor claims the debtor owes the creditor, and requires that the debtor pay to the creditor the amount of the debt or “make arrangements to the creditor’s satisfaction for settlement of the debt”.
The purpose of a bankruptcy notice is revealed in s.40(1)(g) of the Act. That paragraph defines a particular act of bankruptcy which has as an essential element the serving on the debtor of a bankruptcy notice that has been issued under s.41 of the Act. The act of bankruptcy consists in the debtor who has been served with a bankruptcy notice not complying with the requirements of the bankruptcy notice, and not satisfying this Court or the Federal Court that the debtor has a counter-claim, set-off, or cross demand equal to or exceeding the amount of the judgment debt.
Although the Act does not confer an express power on the Court to set aside a bankruptcy notice, the Court has power to do so. The principal source of power is s.30(1)(b) of the Act which provides that the Court may make “such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter”.[8] It can easily be seen how this paragraph confers jurisdiction on the Court to make an order setting aside a bankruptcy notice. The Act and Regulations prescribe the circumstances in which a bankruptcy notice may be issued, and the form the bankruptcy notice must take. The power to set aside a bankruptcy notice is usually necessary where a bankruptcy notice has been issued or has been used in circumstances not authorised by the Act. That serves the purpose of the Act by eliminating documents that purport to be but which in truth are not bankruptcy notices within the meaning of the Act.
[8] Oliveri v Stafford (1989) 24 FCR 413 at page 430 (Gummow J)
Another source of power is s.41(6A) of the Act. That subsection empowers the Court to extend the time for compliance with the requirements of a bankruptcy notice if, before the time for complying with those requirements, the debtor has, among other things, applied to set aside the bankruptcy notice. It has been said that the power of the court to extend the time for compliance with the requirements of a bankruptcy notice carries with it the power to set aside the notice itself.[9]
[9] Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 at page 130 (Lockhart J)
In addition to having jurisdiction to set aside a bankruptcy notice where it has been issued in circumstances or in a form not permitted by the Act or Regulations, the Court has jurisdiction to set aside a bankruptcy notice where it has been issued as an abuse of process. There will be an abuse of process where a bankruptcy notice is issued for the collateral purpose of putting pressure on the debtor to pay the debt rather than to genuinely invoke the Court’s bankruptcy jurisdiction.[10]
[10] Maxwell-Smith v S & E Hall Pty Limited, in the matter of Maxwell-Smith [2006] FCA 825 at [42]-[44] (Jacobson J)
First set of grounds – Judgment stayed
The first ground or, more accurately, set of grounds, on which Mr Jagatramka relies for setting aside the bankruptcy notice that was issued against him is that, at the time the bankruptcy notice was issued, Coeclerici could not immediately issue execution on the Judgment because:
a)the Receiver Orders were made over effectively all of Mr Jagatramka’s Australian assets;[11]
b)by ordering that the receivers pay into court any proceeds from the sale of the WCL shares over which they have been appointed receivers, the proceeds of sale are not available for payment to any creditor of the applicant, including Coeclerici;[12]
c)the freezing orders had the effect of depriving Mr Jagatramka of the use of assets which he could otherwise have used to pay the Judgment or otherwise make arrangements to settle the Judgment to the satisfaction of Coeclerici;[13]
d)Coeclerici had given an undertaking to the Federal Court not to use any information it obtained as a result of the freezing orders for the purpose of any civil proceedings in Australia;[14]
e)third parties have foreshadowed they will make claims in the proceedings in which the Judgment was ordered, and that those proceedings have not been concluded;[15] and
f)the bankruptcy notice is an abuse of process.[16]
[11] FANGA, ground 1.1
[12] FANGA, ground 1.2
[13] FANGA, ground 1.3
[14] FANGA, ground 1.4
[15] FANGA, ground 1.5
[16] FANGA, ground 1.6
Ground 1.1 - Effect of Receiver Orders
The parties agree that a bankruptcy notice cannot legitimately be issued if, at the time it is issued, execution of the judgment or order to which it relates has been stayed;[17] that, in a number of circumstances, execution of a judgment may be deemed to be stayed even where there is no express order of a court staying execution;[18] and that one circumstance in which execution of a judgment will be deemed to be stayed is where receivers have been appointed over all of a debtor’s property. That last proposition was affirmed by Beaumont J in Re Eddie Solomon Ex Parte: John Ralph Reid:[19]
It is well established that, for the purposes of s.41(3)(b), execution is deemed to have been stayed where a judgment creditor is not “in a position to issue immediate execution upon it” . . . It is also trite law that a judgment creditor may not, without leave of the court which appointed the receiver, levy execution against the property comprised in the appointment of the receiver . . . Any attempt to interfere with that property is an interference with an officer of the court in the performance of his functions. If done without leave of the court, it is a contempt of court. It will not be permitted even if the property concerned is not yet in the actual possession of the receiver . . . .
It follows, in the light of the construction of the order by McLelland J., that it was not open to the petitioning creditor, at the time of issue of the bankruptcy notice, to execute against any of the property of the debtor without the leave of the Supreme Court, subject to one exception which is not here material. The exception lay in the operation of the proviso to the injunction. Its operation could not be material here because the proviso is limited to the payment of living expenses of the debtor and his family: it did not purport to authorise, expressly or by implication, the payment of the judgment debt out of the property the subject of the receivership. Nor, in my view, did any of the powers conferred upon the receiver, whether specifically or generally, authorise any such payment.
[17] Bankruptcy Act 1966 (Cth), s.41(3)(b)
[18] Penning v Steel Tube Supplies Pty Ltd (1988) 18 FCR 568 at pages 575-576: “It appears to be settled law both in the United Kingdom and, at least at first instance, in this country, that the words in s 41(3)“execution of the judgment or order to which it relates has been stayed” are not restricted to an order expressly staying a judgment. They have been construed as having a much wider meaning. In certain circumstances execution is deemed to have been stayed if the execution creditor is for some reason not in a position to issue execution upon his judgment.”
[19] [1986] FCA 179 at [13]-[14] (reference to cases omitted)
The issues between the parties arise from the circumstance that the Receiver Orders do not in terms apply to all of Mr Jagatramka’s property; they apply only to the shares Mr Jagatramka holds in WCL. Mr Jagatramka submits that the Receiver Orders operate as a stay of the Judgment, even though they do not purport to operate on all of Mr Jagatramka’s property. He relies on the Full Federal Court decision in Wiltshire-Smith v Mellor Olsson.[20]
[20] (1995) 57 FCR 572 (von Doussa, Moore and R D Nicholson JJ)
In Wiltshire-Smith the debtor operated a newsagency. At the time a bankruptcy notice was issued, a receiver had been appointed over the newsagency by the debtor’s wife pursuant to a power granted to the wife under an order made by the Family Court. One issue the Full Federal Court considered was whether the order of the Family Court had the effect of restraining or preventing the debtor from paying or otherwise discharging liabilities incurred by him in connection with the conduct and operation of the newsagency,[21] and, if so, whether the bankruptcy notice could properly have been issued while the receiver was in office pursuant to the Family Court order.[22]
[21] (1995) 57 FCR 572 at page 584E
[22] (1995) 57 FCR 572 at page 584F
The Full Federal Court referred to Re Eddie Solomon and noted that that case dealt with orders that resulted in all of a debtor’s property being under the control of a receiver; and that Re Eddie Solomon, therefore, did not cover the case where only some of a debtor’s assets are under the control of a receiver. The Full Federal Court then referred to cases that have held that the conduct of a judgment creditor that prevents a judgment debtor from paying the debt may raise “an equity”[23] that disentitles the judgment creditor from proceeding to immediate execution.[24] Next, the Full Federal Court noted and endorsed Beaumont J’s judgment in Re Eddie Solomon, and said that “the existence of any relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution falls within the implied prohibition contained in s 41(3)(b)” of the Act.[25] Finally, the Full Court said:[26]
Once it is recognised that a petitioning creditor may be disqualified from issuing a bankruptcy notice by reason of a restraint imposed by order of a court on all the property of the judgment debtor thereby removing his ability to make payment, there is no reason why a court order imposed on some only of the property of the judgment debtor which has the same practical effect should not be recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution. In our opinion such an order will have this consequence where in practical reality, although not strictly in law, the order “in any way prevent(s) the debtor from paying his debt” (Re Bond; Ex parte Capital and Counties Bank Ltd at 991) or where it “deprives or may well deprive the judgment debtor of assets which he could otherwise use to pay the judgment creditor and thus comply with the bankruptcy notice” (Wallace v Trade Credits Ltd at 254). To adapt the test proposed by Lord Esher MR in Re Sedgwick; Ex parte Sedgwick cited above, the factual inquiry to determine the practical effect of the order is whether in the eyes of ordinary fairness in business it will be said that the order has in a business sense prevented the debtor from paying.
[23] That is the expression of Lord Esher MR in Re Sedgwick; Ex parte Sedgwick (1888) 5 Morr 262 at page 263
[24] (1995) 57 FCR 572 at pages 586G-587B referring to Re Sedgwick; Ex parte Sedgwick (1888) 5 Morr 262; Re Bond; Ex parte Capital and Counties Bank Ltd [1911] 2 KB 988; Re Wilson; Ex parte Jones (1916) 85 LJKB 1408; and Wallace v Trade Credits Ltd (1983) 72 FLR 252
[25] (1995) 57 FCR 572 at page 586F
[26] (1995) 57 FCR 572 at pages 586G-587B
Later in its reasons for judgment, the Full Federal Court said that a creditor will be disentitled from applying for the issue of a bankruptcy notice where there is a court order whose “practical effect” is:[27]
to deprive the judgment debtor of access to assets that could otherwise be used to pay the judgment creditor. The principle assumes that there are assets in existence at the relevant time which would, but for the order, be available to the debtor for use to pay the debt.
[27] (1995) 57 FCR 572 at pages 589G-590A
It should be noted that the reason why the judgment in Re Eddie Solomon was deemed to have been stayed was different to the reasons the Full Federal Court in Wiltshire-Smith considered could lead to a judgment being impliedly stayed. In Re Eddie Solomon, the creditor was not in a position immediately to issue execution because all of the debtor’s assets were under the control of a receiver, and an attempt to levy execution of property under the control of a receiver would have been contempt unless the court first granted the creditor leave to issue execution. On the other hand, the reason why under the principle adopted by the Full Court in Wiltshire-Smith a judgment might be stayed is the equity identified by Lord Esher MR in Re Sedgwick; Ex parte Sedgwick:[28]
But taking the case of Ex parte Musgrove as followed and acted upon in Ex parte Greener there is an equity laid down – a just equity which goes to the extent only that if a creditor a notice requiring payment in seven days and actually and in fact prevents the debtor from paying, such creditor cannot rely upon the notice and it will be set aside. The question is [264] whether in the eyes of any person of ordinary fairness in business it will be said that the creditor has in a business sense prevented the debtor from paying.
[28] (1888) 5 Morr 262 at pages 263-264
That there exist two distinct reasons why a judgment might impliedly be stayed was highlighted by Lehane J in Re Ling; Ex parte Enrobook Pty Ltd:[29]
Solomon and Penning do not put the proposition that the appointment of a receiver or trustee operates as a stay of execution on the footing that it prevents the debtor from making payment; it operates as a stay because interference with the receiver's (or trustee's) possession, including by way of an attempt to levy execution, is a contempt. Secondly, the principle in Re Bond, which clearly is a separate principle, is to the effect that a creditor whose own actions have prevented the debtor from paying may not issue a bankruptcy notice; thus a judgment creditor who has levied execution on the property of the judgment debtor may be precluded from having a bankruptcy notice issued. But that principle does not prevent any other judgment creditor (who has not taken such action) from issuing a bankruptcy notice.
[29] (1996) 142 ALR 87 at page 91
Submissions of the parties
Counsel for Mr Jagatramka submits that the principle adopted by the Full Court in Wiltshire-Smith applies (Wiltshire-Smith principle) where there is some property of the debtor which is the subject of a court order which prevents the debtor from using that property to pay any part of the judgment debt.[30] Additionally, or alternatively, counsel submits there were “no other assets of any materiality”,[31] by which I understand counsel means that, at the time the bankruptcy notice was issued, Mr Jagatramka had no assets, or at least no assets of any significant value, other than the shares he holds in WCL.[32]
[30] 27.07.15 T78.30
[31] 27.07.15 T78.35
[32] 27.07.15 T79.25
Counsel for Coeclerici, on the other hand, submits the onus is on Mr Jagatramka to prove that the Receiver Orders had in a business sense prevented Mr Jagatramka from discharging the Judgment;[33] Mr Jagatramka has not discharged that onus; and, in any event, the value of the shares Mr Jagatramka holds in WCL was (and remains) inconsequential and the Receiving Orders, therefore, cannot be said to have prevented Mr Jagatramka from paying the Judgment.[34] Implicit in counsel’s submissions is the proposition that the Wiltshire-Smith principle does not apply only because an order affects only some property of a debtor.
[33] 20.08.15 T62.10-15
[34] 20.08.15 T62.15-20
The first question I must consider, therefore, is the scope of the Wiltshire-Smith principle.
Scope of the Wiltshire-Smith principle
As I have already noted, the Wiltshire-Smith principle is based on the equity identified by Lord Esher MR in Re Sedgwick: a court order obtained by the creditor will give rise to the equity if, in the eyes of ordinary fairness in business, it will be said that the order has in a business sense prevented the debtor from paying the judgment debt. Stated another way, the equity will arise if the debtor has assets which, but for the order the creditor has obtained, would be available to the debtor to pay the judgment debt.
So stated, the principle does not apply only because it can be shown that an order is in place which prevents a debtor from using an asset that would otherwise have been available to the debtor with which to pay the debt. The debtor may have other assets that are not affected by the order which are available to the debtor with which to pay the debt. For the principle to apply, the debtor must prove there are no other assets available to the debtor with which to pay the judgment debt. Further, the debtor must establish that if the order were not in operation, the asset affected by the order, would be of a sufficient value, and would be available to the debtor, to enable the debtor to pay the judgment debt. The Full Federal Court applied these propositions in Sylvia Boscolo v Botany Council.[35]
[35] [1996] FCA 897 (Jenkinson, O’Loughlin and Sackville JJ)
In Boscolo the debtor claimed the creditor was not entitled to apply for the issue of a bankruptcy notice because, at the time the bankruptcy notice was issued, there was in effect an order of the Family Court restraining the debtor from transferring or encumbering land of which the debtor was the registered proprietor. In determining that claim, Jenkinson J (with whose reasons O’Loughlin J agreed) and Sackville J considered it to be relevant whether the debtor could point to evidence that showed that, but for the order, the debtor would have been able to pay the debt. Jenkinson J held that in determining whether the Family Court order had “in a business sense prevented the debtor from paying”:
the court would have to determine whether a prospective lender to whom the debtor’s financial circumstances were truthfully disclosed would have advanced the amount required to pay the amount claimed in the notice upon the security of the land, if the land had been free of the curial restraint. [S]uch inferred findings as the evidence permits concerning those financial circumstances at the beginning of 1995 do not justify a conclusion that a hypothetical lender would have made the required advance, or a conclusion that the appellant would have sought such an advance. There was no evidence by the appellant that she would have sought such an advance during the period limited for compliance with the bankruptcy notice.
Sackville J (who doubted the correctness of the Wiltshire-Smith principle) said “the evidence was incapable of supporting a finding that, but for the stay order, the appellant would have used the property subject to the stay to obtain funds to satisfy the requirements of the bankruptcy notice, within the time specified in that notice”.
Also relevant is the conclusion the Full Federal Court reached in Wiltshire-Smith itself. The Court concluded that the appointment of the receiver did not prevent the debtor from paying the judgment because, even if the order were not in place, the assets affected by the order were insufficient to have enabled the debtor to pay the judgment debt:[36]
In these circumstances, as a matter of fact, on the date when the bankruptcy notice was issued (and at material times thereafter) no order of the Family Court prevented the appellant in any relevant way from paying the judgment debt. Rather, by that date whatever interest he may earlier have had in the proceeds of the receivership, either beneficially or as a trustee with a right of indemnity, had ceased to be of value as the proceeds had been fully expended in the course of the liquidation. At 30 June 1994, the simple fact was that the appellant was without assets or other means to pay the debt, and the operation of the order of the Family Court had no continuing restraint on any asset which the appellant could otherwise have used to pay the demand in the bankruptcy notice.
[36] (1995) 57 FCR 572 at page 590F-G
I therefore do not accept Mr Jagatramka’s counsel’s submission that the Wiltshire-Smith principle applies where there is some property of the debtor which is the subject of a court order which prevents the debtor from using that property to pay any part of the judgment debt. For that principle to apply, Mr Jagatramka must show that, but for the Receiver Orders, he would have been in a position to discharge the Judgment. That will require Mr Jagatramka to prove both that, when the bankruptcy notice was issued, he held no assets other than the shares in WCL and that, had those shares not been the subject of the Receiver Orders, he would have been in a position to use the shares to discharge the Judgment.
Availability of shares in WCL to pay Judgment
Mr Jagatramka submits the “totality of the shareholding is worth over $17 million”.[37] The “totality of the shareholding” to which this submission refers is not just the shares Mr Jagatramka holds in WCL, of which there are 2,389,957; it is a reference to shares in WCL held by Mr Jagatramka, and two companies, Gujarat NRE Limited and Gujarat Coke, who hold, respectively, 276,038,770 and 47,879,553 shares in WCL.[38]
[37] Outline of Applicant’s Submissions on Grounds 1.1-1.6 and re-instatement of Ground 3, [10]
[38] Exhibit BJG-1, page 53
The value of $17 million is submitted to have been arrived at by dividing the value of the net assets of WCL by the total number of shares WCL has issued, and multiplying that amount by the total number of WCL shares Mr Jagatramka, Gujarat NRE Limited, and Gujarat Coke held (326,308,280). The evidence of the value of the net assets of WCL on which Mr Jagatramka relies is that shown in the “Unaudited Quarterly Management Accounts 31 December 2014”, namely $342,600,000.[39] The total number of shares issued by WCL is 6,894,913,576.[40] Mr Jagatramka submits that each share issued by WCL, therefore, has a value of around $0.05.[41] If the total amount of WCL shares held by Mr Jagatramka, Gujarat NRE Limited, and Gujarat Coke is multiplied by $0.05, the result is $16,315,414.
[39] Exhibit BJG-1, page 505
[40] Exhibit BJG-1, page 500
[41] 342,600,000/6,894,913,576 = 0.0497
A number of observations may be made about Mr Jagatramka’s submission. First, it assumes the shares in WCL held by Gujarat NRE Limited and Gujarat Coke are available to Mr Jagatramka. There is no basis for that assumption. Gujarat NRE Limited and Gujarat Coke are separate legal entities. The only conceivable way in which the shares those companies hold in WCL could be available to Mr Jagatramka is if the companies had net assets whose value was not less than the value of the shares each held in WCL, Mr Jagatramka was the only shareholder of those companies, and the value of the shares in WCL each of Gujarat NRE Limited and Gujarat Coke held was available to be paid to Mr Jagatramka either as dividends, or, if the value was not available to be paid as dividends, in one of the ways a company may legitimately return capital to its shareholders, including by winding up. There is evidence of the shareholding in Gujarat NRE Limited. Mr Jagatramka is one of five shareholders, holding 6,928,570 out of 317,821,290 issued shares.[42] Thus, even if I assume the methodology on which Mr Jagatramka relies for determining the value of the shares in WCL is correct, the value of the WCL shares Mr Jagatramka holds is no more than $119,497.85.[43]
[42] Exhibit BJG-1, pages 227-228
[43] The number of Mr Jagatramka’s shares (2,389,957) multiplied by $0.05.
Second, I do not accept that the value of the WCL shares can be ascertained simply by dividing net assets by the number of issued shares. The appropriate method for valuing shares is a matter that normally requires expert valuation evidence, and the method for ascertaining the value of shares in WCL urged by Mr Jagatramka is not supported by any such evidence. Further, the approach does not accord with approaches to valuing shares referred to in the cases. In the case of shares of a publicly listed company, “the price at which the shares are changing hands in the ordinary course of business is usually their true value” provided “there are no abnormalities affecting the market”.[44] Where shares are not publicly listed or, where publicly listed, the price at which they change hands does not reflect their actual value, the “final assessment of the value of the shares must be made principally on the basis of the income yield . . . but where, owing to exceptional circumstances, the valuation on this basis presents “enormous difficulties” it is legitimate . . . to rely more than usual on the assets value”.[45] The WCL shares are publicly listed. As at 30 October 2014 the share price for WCL was quoted at $0.02.[46] Mr Jagatramka has adduced no evidence that indicates the market was affected by any abnormalities, or that the listed price does not reflect the actual value of the shares, or that there are circumstances which indicate that it is inappropriate to value the shares on the basis of expected income.
[44] Perpetual Trustee Company Limited v The Federal Commissioner of Taxation (1942) 65 CLR 572 at page 579 (Williams J)
[45] Abrahams v. The Federal Commissioner of Taxation (1944) 70 CLR 23 at page 42 (Williams J)
[46] Exhibit G
Third, there is evidence that may suggest that at the time the bankruptcy notice was issued the shares Mr Jagatramka holds in WCL, if treated as a parcel, had a value of less than $0.02 per share. The evidence is the letter dated 19 May 2015 from the receivers to the solicitor for Coeclerici. The receivers stated that 38,213,413 shares in WCL had been sold, but that the “market is unable to absorb further sales without a substantial price decrease”.[47]
[47] Exhibit SAG-1, page 402
For these reasons, I do not accept Mr Jagatramka’s submission that the shares in WCL he holds or which he and Gujarat NRE Limited and Gujarat Coke hold, have a value anywhere near the amount of the Judgment. Thus, if the Receiving Orders had not been made, I am not satisfied that Mr Jagatramka would have been able to use the shares he held in WCL or which he and Gujarat NRE Limited and Gujarat Coke held in WCL to pay the Judgment.
Whether the WCL shares are the only assets Mr Jagatramka owns.
Mr Jagatramka submits that all or at least substantially all of Mr Jagatramka’s assets are the subject of the Receiver Orders. Mr Jagatramka relies on the grounds on which Foster J ordered that receivers be appointed in aid of the execution of the Judgment. In particular, Mr Jagatramka relies on his Honour’s opinion that “the Court may appoint receivers in aid of enforcement of a judgment at law if it can be shown that other methods of execution would be inadequate or extremely inconvenient”.[48] Mr Jagatramka submits this indicates Foster J turned his mind to whether Mr Jagatramka had assets other than the WCL shares and accepted Mr Jagatramka did not have any other assets. I do not accept that submission.
[48] Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [108]
The question Foster J held was relevant to determining whether a receiver should be appointed in aid of execution of the Judgment was not whether other methods would be inadequate or extremely inconvenient. His Honour said that the guiding principles should be: What is just and convenient in all the circumstances of the case?[49] His Honour considered that the available methods for executing the Judgment in relation to the WCL shares were making a charging order or appointing a receiver. His Honour concluded that appointing a receiver was a convenient, and probably the most convenient way of expeditiously selling the WCL shares and that, “[i]n the end, it is likely to be less costly than proceeding down the charging order path”.[50] It is, therefore, impossible to infer from anything Justice Foster said a finding to the effect that the shares in WCL were the only assets Gujarat Coke and Mr Jagatramka owned or in which they had an interest.
[49] Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [108]
[50] Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd [2013] FCA 882 at [109]
Counsel for Coeclerici submitted there is evidence that Mr Jagatramka may hold other assets. As I have already found, to take advantage of the Wiltshire-Smith principle, there must be evidence that the debtor does not have assets apart from those that are the subject of the court order with which to pay the judgment debt. There is evidence which shows that Mr Jagatramka owned shares in Shree Minerals Limited[51] and in Kimberley Diamonds Limited.[52] Using the same methodology as was urged in relation to ascertaining the value of shares in WCL, Mr Jagatramka submits that the value of those shares is no more than $1,275 and $1,350.[53] I do not accept that these amounts reflect the true value of those shares. In any event, even if I were to accept those values, Mr Jagatramka has adduced no evidence which could show that he did not own or had no interest in any other assets either in or outside Australia.
[51] Affidavit of S A Gamboni, 18.12.2014, Exhibit SAG-2, page 25
[52] Affidavit of S A Gamboni, 18.12.2014, Exhibit SAG-2, page 25
[53] Exhibit BJG-1, pages 356 and 333 respectively
Conclusion on ground 1.1
For these reasons, ground 1.1 of FANGA is not made out.
Ground 1.2 – Unavailability to creditors of proceeds of sale of WCL shares
Mr Jagatramka submits that it is not only the fact that receivers have been appointed over the shares in WCL that prevented Coeclerici from applying for the issue of the bankruptcy notice. What also prevented Coeclerici from applying for a bankruptcy notice is the requirement of the Receiver Orders that the receivers pay into court the proceeds of sale of any of the shares or the receipt of dividends on those shares within five business days of the sale or receipt of dividends.
I accept counsel for Coeclerici’s submission that this ground can have no application in the circumstances of the case. There is no evidence that money had been paid into court at the time the bankruptcy notice was issued. Further, there is no evidence on the basis of which I could be satisfied that the value of the shares Mr Jagatramka held in WCL at the time Coeclerici applied for the issue of the bankruptcy notice was anywhere near sufficient to enable Mr Jagatramka to discharge the Judgment; nor is there any evidence that Mr Jagatramka did not at that time have other assets which he could have used to discharge the Judgment. It therefore follows that the requirement of the Receiver Orders that the receivers pay into court the proceeds of sale of the WCL shares, or dividends that may be paid on those shares is not a matter which prevented or could have prevented Mr Jagatramka from discharging the Judgment. Ground 1.2 of FANGA, therefore, is not made out.
Ground 1.3 – Effect of freezing orders
Mr Jagatramka submits that the freezing orders prevented him from discharging the Judgment. Under those orders, Mr Jagatramka is restrained and, at the time the bankruptcy notice was issued, was restrained from removing from Australia or in any way dealing with or disposing of or diminishing the value of any assets in Australia up to the combined unencumbered value of $8.6 million. Mr Jagatramka was also restrained from dealing with his shares in Gujarat NRE Coking Coal Limited (that is, WCL) without first giving seven days’ written notice to Coeclerici of his intention to do so.
The freezing orders are subject to a number of exceptions. Mr Jagatramka was and continues to be entitled to discharge any legal obligations bona fide and properly incurred under a contract entered into before 14 March 2013 not in the ordinary course of any business provided Mr Jagatramka first gives Coeclerici two days’ notice of the particulars of the obligation. The freezing orders further provided that Mr Jagatramka and Coeclerici could agree to vary the exceptions provided for in the orders. Counsel for Mr Jagatramka submitted that the mere fact any variation to the orders required either the consent of Coeclerici or a further order of the Federal Court has the consequence that the order prevented or hindered Mr Jagatramka from discharging the Judgment debt to such an extent as to bring into play the principle stated in Wiltshire-Smith.
The relevance of the freezing order must be assessed by reference to two principles. The first is the principle that a bankruptcy notice cannot issue to a creditor if the creditor does not have the right to immediately issue execution because the debtor’s property is in the hands of a receiver. The freezing order against Mr Jagatramka does not in any way deprive Coeclerici of the immediate right to issue execution on the Judgment. A freezing order (previously known as “Mareva injunctions”) “does not deprive the party subject to its restraint either of title to or possession of the assets to which the order extends”.[54] Further:[55]
It does not create a security interest, confer priority or in any sense rewrite insolvency law . . . it is an order in personam restraining the party to whom it is directed from disposing of assets or removing them from the reach of creditors. The administration of the property is not placed in the hands of a receiver, trustee or other officer of the court, nor is it assumed by the court itself. For those reasons, to speak of a Mareva injunction as “freezing” assets may, with respect, be somewhat misleading: it operates as a personal restraint against the party to whom it is directed.
[54] Cardile v LED Builders Pty Ltd (1998) 198 CLR 380 at [50] (Gaudron, McHugh, Gummow and Callinan JJ) citing the judgment of Lehane J in Re Ling; Ex parte Enrobook Pty Ltd (1996) 142 ALR 87 at page 92
[55] Re Ling; Ex parte Enrobook Pty Ltd (1996) 142 ALR 87 at page 92
The second principle by reference to which the freezing order against Mr Jagatramka must be assessed is the principle giving rise to the “equity” identified by Lord Esher MR in Re Sedgwick; Ex parte Sedgwick.[56] In that case, the creditor, after he served the debtor with a bankruptcy notice, obtained a charging order against shares held by the debtor. The debtor applied to set aside the bankruptcy notice on the ground that the charging order obstructed the debtor from paying his own debt. The debtor submitted that the attachment effected by the charging order interfered with the free action of the debtor. The Court dismissed the debtor’s application. Lord Esher MR held that the question was whether the creditor “has in fact prevented the debtor from complying” with the bankruptcy notice.[57]
The fact that the creditor has made it more difficult for the debtor to pay than if the creditor had done nothing at all does not go to that extent. If all that the creditor has done is to make it more difficult but not to prevent the payment it does not come within the equity. In this case, therefore, the question is whether by attaching these shares the creditor has put such a difficulty in the debtor’s way as to prevent him from paying. It is not enough that he may have made it more difficult for him to pay. He must have made it so difficult that as a matter of business he could not pay.
[56] (1888) 5 Morr 262
[57] (1888) 5 Morr 262 at page 264
The freezing orders did not prevent Mr Jagatramka from paying the Judgment debt. At most, they may have made it more difficult for him to do so to the extent he may have needed to seek the consent of Coeclerici to dispose of assets Mr Jagatramka may have in Australia and use the proceeds of sale to pay the Judgment debt or, if such consent is not forthcoming, to apply to the Court to discharge the freezing orders. That such difficulties are insufficient to bring into play the equity identified in Re Sedgwick is supported by the following passage of the judgment of Gyles J in Taubert v Eddaglide Pty Ltd:[58]
However, the Mareva orders in question firstly only restrain dealings “until further order” and, secondly, contain an express provision “The defendant may dispose of or deal with his assets upon the terms consented to by the plaintiff or the plaintiff's solicitor”. It would, in my opinion, be odd to suggest that orders in that form have the practical effect of preventing the applicant from dealing with his assets in order to pay the very parties who obtained the Mareva orders.
[58] [2001] FCA 567 at [16]
My consideration of ground 1.3 so far implicitly assumes that Mr Jagatramka holds no more than $8.6 million worth of assets and that all of those assets are located in Australia. If, contrary to what I have found, the freezing orders prevent Mr Jagatramka from utilising $8.6 million worth of assets situated in Australia to pay the Judgment, I would remain unable to conclude that the freezing orders prevent Mr Jagatramka from paying the Judgment. There is no evidence on the basis of which I could find Mr Jagatramka has no assets in Australia beyond the value of $8.6 million, or that he does not have any assets outside Australia which he could utilise to pay the Judgment.
For these reasons, ground 1.3 is not made out.
Ground 1.4 – Breach of undertaking
Mr Jagatramka submits that Coeclerici breached an undertaking it gave to the Federal Court as a condition of that Court making the freezing orders. The undertaking was not to use, without the leave of the Federal Court, any information obtained as a result of the freezing orders for the purpose of any civil or criminal proceedings. Mr Jagatramka claims Coeclerici used such information in connection with the application it made to obtain an order for substituted service of the bankruptcy notice.
Even if, as Mr Jagatramka claims, Coeclerici breached the undertaking, Mr Jagatramka does not say how such breach of the undertaking prevented Coeclerici from being in a position to immediately issue execution of the Judgment against Mr Jagatramka. In any event, on 23 July 2015 Justice Foster amended the undertaking to allow Coeclerici to rely on any information given by Mr Jagatramka in relation to proceedings for the recovery of debts owed to Coeclerici arising from the Federal Court proceedings.
Ground 1.4, therefore, also fails.
Ground 1.5 – “enforcement regime”
Mr Jagatramka submits that Coeclerici is prevented from immediately issuing execution of the Judgment because “third parties have foreshadowed or are anticipated to make claims” in the proceedings in which Justice Foster ordered the Judgment, and that those proceedings, therefore, have not been concluded. Mr Jagatramka submits that because third parties have indicated they may have claims against the assets of Mr Jagatramka, there came into being an “enforcement regime” which, in turn, prevented Coeclerici from being in a position to immediately issue execution on the Judgment.
The evidence shows that on 28 August 2013 there came before Justice Foster two matters, one of which was the matter in which the Judgment was entered, and the other is a proceeding in which Armada (Singapore) Pte Limited (Armada) is the applicant. Counsel for Armada indicated Armada intended to seek a charging order over some or all of the WCL shares in relation to which Justice Foster had appointed receivers. His Honour indicated he had no intention of allowing proceeds from the sale of the WCL shares to be disbursed without Armada’s interest being taken into account.[59] There is also in evidence a letter dated 23 April 2014 to the Federal Court in which the receivers report on having sold some shares and on two companies, Argonaut Securities Pty Limited and ICICI Bank UK PC having expressed the view that the shares might fall within security granted by Gujarat NRE Limited.
[59] Exhibit SAG-1, pages 91-92
On 13 February 2015 Foster J directed that the receivers write to all persons and entities who have informed the receivers that they have claims to the proceeds of sale of the WCL shares or that they have claims against Mr Jagatramka or Gujarat Coke, among others.[60] The letter Foster J directed the receivers send required that if such persons or entities intended to maintain or press any claims against the respondents in those proceedings (one of which, of course, was Mr Jagatramka) it would be necessary for them to appear before the Federal Court on 8 July 2015. At a directions hearing before Justice Foster on 8 July 2015, counsel for the receivers informed the Court that the letters his Honour had directed be sent had been sent, but that no person or entity to whom the receivers had sent the letter appeared at the directions hearing.[61]
[60] Affidavit of O.E.H.Webb, [3]
[61] Affidavit of O.E.H.Webb, [5]
Given that no persons to whom the receivers wrote the letter they were directed to write appeared, it cannot be said that the “enforcement regime” claimed by Mr Jagatramka has come into being. Even if, however, such “enforcement regime” had come into effect, it would not have had the consequence of preventing Coeclerici to immediately issue execution on the Judgment. At most, had claims been made, there would have been a dispute about whether the WCL shares held by Mr Jagatramka were the subject of a claim for security; and if the WCL shares were subject to a claim for security, that would not have prevented Coeclerici from having the right to apply without leave issue execution on the Judgment.
Ground 1.5, therefore, also fails.
Ground 1.6 - Abuse of process
This ground overlaps with ground 1.5. Mr Jagatramka submits that, because of the “enforcement regime”, it is an abuse of process for Coeclerici to have applied for the issue of a bankruptcy notice. In his written submissions, Mr Jagatramka refers to the established principle that it is an abuse of process for a creditor to issue a bankruptcy notice to put pressure on a debtor to pay a debt.[62] Mr Jagatramka does not explain why Coeclerici’s application for a bankruptcy notice when there was an alleged “enforcement regime” constitutes the application of illegitimate pressure on Mr Jagatramka to pay the Judgment debt. Counsel for Mr Jagatramka did not expand on this ground. In any event, having found no “enforcement regime” came into being, there can have been no abuse in Coeclerici’s having applied for the issue of a bankruptcy notice. Even if such “enforcement regime” came into effect, that by itself is incapable of grounding a finding that Coeclerici applied for the issue of a bankruptcy notice to place illegitimate pressure on Mr Jagatramka to pay the Judgment.
[62] Outline of Applicant’s Submissions on Grounds 1.1-1.6 and re-instatement of Ground 3, [28]-[32]
Ground 2 – Non-disclosure
Mr Jagatramka claims Coeclerici failed to disclose material information when it applied ex parte to a Registrar of this Court on 13 January 2015 for an order for substituted service of the bankruptcy notice.[63] The information Mr Jagatramka claims Coeclerici failed to disclose is the “extension of the Freezing Orders as an enforcement measure in the Armada Proceedings” and the “fact that Armada by reason of its own Judgment Debt and the orders of Justice Foster in the Armada Proceedings claims a priority entitlement to the monies paid into the Federal Court”. The reference to the “Armada Proceedings” appears to be a reference to freezing orders that were made in proceedings brought in the Federal Court by Armada against Gujarat Coke to enforce an award for USD7,799,126.30 together with interest.[64] On 3 October 2014 the Federal Court entered judgment in favour of Armada for GBP1,412,972.65 and USD16,196,739.57.[65] The reference to the claim by Armada is a reference to the claims Armada made for an order that it be paid a share of the proceeds of sale of WCL shares sold by the receivers pursuant to the Receiver Orders and which were determined by Justice Foster in Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Limited (No 2).[66]
[63] Outline of Applicant’s Submissions, [5]-[7]
[64] Armada (Singapore) Pte Ltd (Under Judicial Management) v Gujarat NRE Coke Limited [2014] FCA 636
[65] Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Limited (No 2) [2015] FCA 809 at [9]
[66] [2015] FCA 809
In his written submissions, Mr Jagatramka does not identify with any greater particularity the nature of this information, and why that information was materially relevant to Coeclerici’s obtaining an order for substituted service of the bankruptcy notice. Counsel for Mr Jagatramka made no submissions about these matters. There is nothing in this information that suggests it was materially relevant to the application Coeclerici made on 13 January 2015 for an order for substituted service of the bankruptcy notice. Ground 2, therefore, fails.
Grounds 2 and 3 - Service of bankruptcy notice
Mr Jagatramka relies on the following three grounds for claiming that the bankruptcy notice was not effectively served on him:
a)At the time Coeclerici obtained the Substituted Service Orders, Mr Jagatramka was outside Australia. It was therefore not competent for Coeclerici to obtain those orders.[67]
b)In any event, the Substituted Service Orders were improperly made in that one of the methods of service that it permitted constituted service outside Australia; no order granting leave for the service of the bankruptcy notice outside Australia, however, was made.[68]
c)Coeclerici did not comply with that part of the Substituted Service Orders that required delivery of the bankruptcy notice to premises specified by the Substituted Service Orders.[69]
[67] Outline of Applicant’s Submissions, [8]-[12]
[68] This submission was first raised in oral submission – 27.07.15 T15.35, T97.5
[69] Outline of Applicant’s Submissions on Grounds 1.1-1.6 and re-instatement of Ground 3
There are a number of matters I must attend to before I consider these grounds. First, I must identify the provisions of the Act and Regulations that are relevant to the grounds on which Mr Jagatramka relies. Second, I must consider whether Mr Jagatramka’s grounds, if established, are grounds on which the bankruptcy notice can be set aside. Third, I must consider on whom the onus lies. Does Mr Jagatramka bear the onus of proving that the bankruptcy notice was not served on him in the manner required by the Act or Regulations or Substituted Service Orders or otherwise? Or is the onus on Coeclerici to prove that the bankruptcy notice was properly served? Finally, I must set out the undisputed facts relating to the purported service of the bankruptcy notice.
Service of bankruptcy notices
The necessity for proving service of a bankruptcy notice arises from the elements of the act of bankruptcy specified in s.40(1)(g) of the Act (emphasis added):
A debtor commits an act of bankruptcy . . .
(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia – within the time specified in the notice; or
(ii)where the notice was served elsewhere – within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice . . . .
The act of bankruptcy provided for by s.40(1)(g) of the Act arises when the debtor fails to comply with the requirements of a bankruptcy notice within a time that commences from the day on which the bankruptcy notice was served on the debtor. The time for complying with a bankruptcy notice may differ depending on whether the bankruptcy notice is served in Australia or elsewhere. If the bankruptcy notice is served in Australia, the time for complying with the requirements of the bankruptcy notice must be within the time specified in the bankruptcy notice. If, on the other hand, the bankruptcy notice is served “elsewhere”, that is, at a place other than Australia, the time for complying with the requirements of the bankruptcy notice must be within the time fixed for the purpose by the order granting leave to effect service elsewhere. This may or may not be the time specified in the bankruptcy notice.
Although the Act does not define “service”, s.315(2)(g) provides that regulations which the Governor-General may make pursuant to s.315(1) of the Act “may” “provide for the means of service of documents”. Regulations have been made on that subject, and these are to be found in reg.16.01 of the Regulations.
Relevance of alleged improper service to setting aside bankruptcy notice
Mr Jagatramka assumes that his grounds for claiming the bankruptcy notice has not been properly served, if established, would result in the setting aside of the bankruptcy notice. He does not explain why that would be so.
Whether or not a bankruptcy notice has been validly issued is a different question from whether or not a validly issued bankruptcy notice has been properly served. That a validly issued bankruptcy notice has not been properly served is not a ground for setting aside the bankruptcy notice. The failure to properly serve a bankruptcy notice will constitute a ground for defending a creditor’s petition that relies on a debtor’s non-compliance with a bankruptcy notice. The defence would be that the debtor did not commit an act of bankruptcy because he or she was not served with the bankruptcy notice.
Mr Jagatramka, however, does not apply for any relief in relation to the purported service of the bankruptcy notice; Mr Jagatramka only applies for an order setting aside the bankruptcy notice. For that reason alone, even if Mr Jagatramka is correct in his challenges to the purported service of the bankruptcy notice, that will not entitle him to an order setting aside the bankruptcy notice. Given, however, the parties have led evidence, and have made detailed submissions about whether the bankruptcy notice was effectively served, I will consider those submissions and make appropriate findings. There are a number of matters to consider.
Relief where debtor claims bankruptcy notice has not been properly served
The first question to consider is whether a debtor who has been purportedly served with a bankruptcy notice but who claims he or she has not been properly served with the bankruptcy notice has available any remedy by which that claim can be determined by the Court, other than raising that issue at the hearing of a creditor’s petition as an answer to the making of a sequestration order.
Neither the Act nor the Bankruptcy Rules expressly provides or refers to the availability of any procedure for a debtor to bring such claim before the Court. In my opinion, however, s.30(1)(b) of the Act confers power to entertain an application brought by a debtor who claims he or she has been improperly served with a bankruptcy notice. The order the Court has power to make would be an order setting aside service of the bankruptcy notice. Such power is necessary to carry out at least two provisions of the Act. The first is s.40(1)(g) of the Act where the debtor claims he was outside Australia when he was purportedly served, yet the Court did not grant the creditor leave to serve the bankruptcy notice outside Australia. The second provision is s.309(2) of the Act. The power to set aside service would be a necessary power where it can be shown that service has not been effected according to the terms of an order made under s.309(2) of the Act.
There would be good sense in permitting a debtor to apply for an order to set aside service of a bankruptcy notice, even though the issue of service of a bankruptcy notice can be raised and determined on the hearing of a creditor’s petition. The Act already provides for a procedure to challenge the bankruptcy notice which the debtor claims ought not to have been issued; there is no reason why such procedure should not be available where the debtor claims the bankruptcy notice has not been properly served. Further, the availability of the procedure potentially avoids the additional costs and uncertainties that may be involved in the commencement and hearing of a creditor’s petition.
Onus of proof
By his application, Mr Jagatramka claims the bankruptcy notice was not effectively served. The application of the maxim “he who avers must prove” would place the onus on Mr Jagatramka to prove that the bankruptcy notice was not effectively served.[70] In my opinion, however, that maxim would not apply to an application to set aside service of a bankruptcy notice. Proof of service of a bankruptcy notice is one of the matters that must be established on the hearing of a creditor’s petition, and service of the bankruptcy notice must be strictly proved. This point was made by Buchanan J in De Robillard v Carver:[71]
First, it is appropriate in principle to require strict proof. Before the introduction of reg 16.01 bankruptcy notices were required to be served personally unless an order for substituted service was made. The requirements for service were strictly enforced (Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) [1988] FCA 490; (1988) 19 FCR 347 per Gummow J at 358). For example, in Clyne v Deputy Commissioner of Taxation (No. 4) (1982) 42 ALR 703, Lockhart J set aside a bankruptcy notice served by post because, although by order of the Court service was deemed effective 14 days after posting and compliance was required 28 days after due service, the alleged debtor could not know when posting had in fact occurred and therefore could not reliably calculate the time for compliance. Although the introduction of reg 16.01 has removed the need for personal or substituted service, a strict approach to satisfaction of the elements of service remains appropriate.
[70] See Waters Lane Pty Limited v Sweeney [2006] NSWSC 222 at [30] where Rein AJ said: “It has been said that as a general rule the burden of proof lies on the person who affirms a particular thing (expressed in the maxim ei incumb it pro batio qui dicit, non que negat Digest, xxii 3, 2) per Lopes LJ in The Glendarroch [1894] P 226 at 234, and see at 231 per Lord Esher MR. The application of that principle in the context of a claim for declaratory relief was considered in detail by McLelland CJ in Eq in Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 at 660 (the relevant part of which is reproduced in Blanch v British American Tobacco Australia Services Ltd (2005) 62 NSWLR 653 at 657; [2005] NSWSC 241) where his Honour set out the principles . . . .”
[71] De Robillard v Carver [2007] FCAFC 73 at [67] (Moore and Conti JJ agreeing at [1])
Assuming it is an available procedure for a debtor to test the validity of the service of a bankruptcy notice by applying for an order to set aside service, the debtor on such applications should be in no different position to the position the debtor would be in on the hearing of a creditor’s petition. It would be anomalous if it were otherwise. The burden of proving an essential element of the making of a sequestration order based on a debtor’s failure to comply with the requirements of a bankruptcy notice would differ depending on whether the debtor chooses to challenge service of a bankruptcy notice by making an application to set aside service of the bankruptcy notice rather than by raising service as an issue on the hearing of a creditor’s petition.
Undisputed facts relating to purported service of bankruptcy notice
As I have already noted, the Substituted Service Orders were made on 13 January 2015. Those orders required the bankruptcy notice to be served in three ways. The first was by posting documents that included the bankruptcy notice by ordinary mail addressed to 64 Cliff Road, Wollongong; the second was by placing the bankruptcy notice and other documents in an envelope addressed to the respondent and handing the envelope to a person apparently over the age of 16 years apparently residing or working at 64 Cliff Road, Wollongong or, in the event no such person is in attendance or personal delivery is not possible, by placing the envelope in the letter box at the address; and the third was is by sending the documents to three email addresses, these being [email protected], [email protected], and [email protected]. The Substituted Service Orders further provided that “[s]ervice of the bankruptcy notice be deemed to be effected on 20 February 2015 upon condition that” the means by which the orders required the bankruptcy notice to be served occur by 30 January 2015.
On 28 January 2015 Mr Gamboni, the solicitor for Coeclerici, sent an email to the three email addresses referred to in the Substituted Service Orders.[72] Next to the word “Attachments” that appears on the email that he sent, the following numbers and words appear:
a)“150123 Letter to Arun Kumar Jagatramka enclosing Bankruptcy Notice.pdf”;
b)“Endorsed BN Amendment BN 175871.pdf;
c)“Orders dated 130807 and statement and calculation schedule and … pdf”;
d)“140319 – Sealed Orders of CJ Allsop in NSD1673_2013.pdf”;
e)“Court Order BN 175871.pdf”.
[72] Exhibit “SAG-1”, page 315
The email itself states it encloses the following:
a)“Covering letter to Mr. Arun Kumar Jagatramka dated 23 January 2015”;
b)“Bankruptcy Notice (BN 175871) issued 30 October 2014 as amended by the Official Receiver on 14 January 2015, with attachments”; and
c)“Orders of Registrar Allaway dated 13 January 2015 in MLG 2583 of 2014.”
The first of the three documents described in the email is a letter from Coeclerici’s solicitors to Mr Jagatramka dated 23 January 2015 which states, among other things:[73]
[73] Exhibit “SAG-1”, page 316
We enclose by way of service the following documents:
1.Bankruptcy Notice (BN 175871) issued 30 October 2014 as amended by the Official Receiver on 14 January 2014, with the following additional document:[74]
a)Orders of Foster J dated 7 August 2013 in NSD 437 of 2013;[75]
b)Orders of Allsop CJ dated 19 March 2014 in NSD 1673 of 2013;[76]
c)Statement that the foreign currency conversions in the Bankruptcy Notice have been made in accordance with regulation 4.04 of the Bankruptcy Regulations (Cth) 1996;[77]
d)FX historical rates search from Westpac Banking Corporation;[78]
e)Schedule of Foreign Exchange and Interest Calculations;[79] and
f)Orders of Registrar Allaway dated 13 January 2015 in MLG 2583 of 2014.[80]
[74] Exhibit “SAG-1”, pages 318-320
[75] Exhibit “SAG-1”, pages 321-325
[76] Exhibit “SAG-1”, pages 329-330
[77] Exhibit “SAG-1”, page 325
[78] Exhibit “SAG-1”, pages 326-327
[79] Exhibit “SAG-1”, page 328
[80] Exhibit “SAG-1”, page 331-332
The evidence relating to the posting of the bankruptcy notice reveals the following. On 27 January 2015 Mr Gamboni collated a bundle of documents in the following order: [81]
a)Covering letter dated 23 January 2015 to Mr Jagatramka to which I refer above.
b)A sealed bankruptcy notice.
c)A sealed copy of the orders of Justice Foster dated 7 August 2013.
d)A statement in accordance with reg.4.04 of the Regulations.
e)FX historical rates search.
f)Schedule of Foreign Exchange and Interest Calculations.
g)Sealed copy of the orders of Allsop CJ dated 19 March 2013.
h)Sealed copy of the orders of Registrar Allaway dated 13 January 2015.
[81] Affidavit of S A Gamboni, 07.08.15, [2]
Mr Gamboni’s usual practice when collating a bundle of documents was to attach a bulldog clip to all of the documents included in the bundle, and he has no reason for not believing he followed the same practice with the documents he says he collated in this case.[82] Mr Gamboni placed the documents in a registered post envelope and completed the address for delivery on the front of the envelope and the lodgement receipt on the back of the envelope which he retained for his records.[83] Mr Gamboni then passed the envelope to his secretary and instructed her to post the envelope.[84] Mr Gamboni’s secretary posted the envelope at 5.06 pm on 27 January 2015.[85]
[82] Affidavit of S A Gamboni, 07.08.15, [3]
[83] Affidavit of S A Gamboni, 07.08.15, [4]
[84] Affidavit of S A Gamboni, 07.08.15, [5]
[85] Affidavit of G La Rosa, 07.08.15, [4]
The principal evidence relating to the purported service of the bankruptcy notice by the third of the three methods of service specified by the Substituted Service Orders is that of Mr Jones. Mr Jones is employed by Noble Commercial Specialists (NCS) as a process server. On 28 January 2015 he received a “Worksheet from The Probe Group” with instructions for the service of the “Documents”.[86] The “Documents” is a reference to the documents he describes in the passage from his affidavit I describe below. The worksheet required that the bankruptcy notice be served at 64 Cliff Road, Wollongong in accordance with order 2(2) of the orders of Registrar Allaway dated 13 January 2015. The worksheet reproduced order 2(2).
[86] Affidavit of A Jones, 10.08.15, [5]
Mr Jones says that the usual practice followed by NCS in relation to documents that are to be served by Mr Jones is for the operations administrator of NCS to collate the documents and to provide the collated bundle to Mr Jones, together with a blank envelope. The bundle is always secured with a bulldog clip or by the use of two elastic bands where the documents are too voluminous for a bulldog clip to fit around the entire bundle. The usual practice of Mr Jones is to review the bundle to ensure that each document referred to in the covering letter or any instructions have all been included in the bundle. After he reviews the bundle, and satisfies himself all the relevant documents have been provided to him, Mr Jones places the bundle inside the blank envelope, completes the name of the addressee on the front of the envelope and then proceeds to effect service.[87]
[87] Affidavit of A Jones , 10.08.15, [3]
According to Mr Jones, at 5.00 pm on 28 January 2015 he arrived at 64 Cliff Road Wollongong. Mr Jones says:[88]
That upon arriving at the “given address”, I noticed all the windows were closed and the shutters drawn. The lawn was overgrown and the property’s electric gates were locked. I then left “the documents” which I placed in a sealed envelope address to the Respondent Arun Kumar Jagatramka 64 Cliff Road Wollongong New South Wales 2500 in the letterbox thereat.
[88] Affidavit of A Jones, 04.02.15, [3]
Mr Jones says he left the following documents at the letter box:[89]
[89] Affidavit of A Jones, 04.02.15, [2]
a)Covering Letter addressed to Mr. Arun Kumar Jagatramka dated 23 January 2015;
b)Official copy of the Bankruptcy Notice issued 30 October 2014 as amended on 14 January 2015;
c)Sealed copy of the Orders of Forster [sic] J dated 7 August 2013 in NSD 437 of 2013 with the following attached supporting documentation;
i)Statement that the foreign currency conversions in the Bankruptcy Notice have been made in accordance with regulation 4.04 of the Bankruptcy Regulations (Cth) 1996;
ii)FX historical rates search from Westpac Banking Corporation; and
iii)Schedule of Foreign Exchange and Interest Calculations (in colour);
e)[sic] Sealed copy of the Orders of Allsop CJ dated 19 March 2014 in NSD 1673 of 2013; and
f)Copy Orders of Registrar Allway [sic] dated 13 January 2015 in MLG 2583 of 2014
(“the documents”)
Was Mr Jagatramka outside Australia at time of purported service of bankruptcy notice?
Mr Jagatramka submits that the evidence on which Coeclerici relied for applying for an order for substituted service showed that Mr Jagatramka was outside Australia at the time Coeclerici applied for that order. Mr Jagatramka submits, therefore, it was not competent for Coeclerici to obtain an order for substituted service until such time as Mr Jagatramka had re-entered Australia.[90]
[90] Outline of Applicant’s Submissions [9]
The first issue that arises from this submission relates to the onus of proof. Is it for Mr Jagatramka to prove he was outside Australia at the time Coeclerici applied for and obtained the Substituted Service Orders? Or is it for Coeclerici to prove Mr Jagatramka was in Australia? In my opinion, assuming that the legal onus remains on Coeclerici, and assuming that the presence of Mr Jagatramka in Australia at the time Coeclerici obtained the Substituted Service Orders is relevant to the effectiveness of the purported service of the bankruptcy notice, the evidentiary onus lies on Mr Jagatramka to raise the issue of his presence or absence in Australia. That is to say, if there is no evidence which raises the issue of whether Mr Jagatramka was not in Australia at the time the Substituted Service Orders were made, the Court would be entitled to find that Mr Jagatramka was in Australia at that time. If, however, there is such evidence, the onus will be on Coeclerici to prove that Mr Jagatramka was in Australia at the relevant time.
Reg.4.04(3) of the Regulations does not only require that the Foreign Currency Judgment Amount be converted by use of the telegraphic transfer rate; the Foreign Currency Judgment Amount must be converted by use of a rate that is the “prevailing” telegraphic transfer rate as at the relevant date. The word “prevailing” in the context in which it appears, therefore, presupposes there is more than one institution that makes available to the public documents or other records or sources of information that set out the rates at which on a given day or at a given time on a given day the institution or institutions is or are willing and able to exchange Australian dollars for foreign currencies; and in those documents or information there will be a prevailing rate for the currency in which the Foreign Currency Judgment Amount is denominated. In that context, prevailing means the best rate for converting the currency in which the Foreign Currency Judgment Amount is denominated into Australian currency. That would be the rate that would result in the conversion of the lowest amount of Australian dollars for the Foreign Currency Judgment Amount in question.
Thus, the expression “the telegraphic rate of exchange prevailing on the second day before the day when” the creditor applies for the issue of a bankruptcy notice means the best rate that an institution is willing and able to offer on that day or at a particular time of that day to exchange Australian dollars for the currency in which the Foreign Currency Judgment Amount is denominated.
Rate used by Coeclerici
Notes A1 and A2 to the bankruptcy notice are as follows:
Notes
A1. If an attached final judgment or final order is expressed in an amount of foreign currency, you may pay the amount in that foreign currency or pay an equivalent amount in Australian dollars that has been calculated using the opening telegraphic transfer rate of [name of institution]
as at [date]
Foreign currency amount X [telegraphic transfer rate] = AUD $
A2.If an attached final judgment or final order is expressed in an amount of foreign currency, you may pay the amount in that foreign currency or pay an equivalent amount in Australian dollars that has been calculated using the opening telegraphic transfer rate of [name of institution]
as at [date]
Foreign currency amount X [telegraphic transfer rate] = AUD $
It will be seen that Coeclerici used the rate of 1.09709 to convert the US dollar amount of the Judgment into Australian dollars. The rate of 1.09709 is based on the following rates set out in a document titled “FX historical rates search”.[124]
[124] Affidavit of S A Gamboni 18.12.14, annexure “SAG-8”
Country name Date Unit Code TT Buy Cheque Buy Notes Buy TT Sell Notes Sell United Kingdom 28/10/2014 Pounds GBP 0.5673 0.5713 0.5734 0.5186 0.5189 USA 28/10/2014 Dollars USD 0.9115 0.9169 0.9104 0.8398 0.8459
This document appears to be one that was prepared by Westpac Banking Corporation and appears to have been accessed on the internet by Coeclerici on 30 October 2014 at 14:43, presumably for the purpose of obtaining the conversion rate that it used in the bankruptcy notice. The “FX historical rates search” document contains the following information:
This information has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (“Westpac”). The exchange rates provided are indicative only as at the time and date shown, are the subject to market movements and therefore change continuously; they should not be relied upon as an accurate representation of any final pricing. You should contact Westpac for up-to-date pricing prior to dealing. Exchange rates shown are applicable to the following transactions:
(a)for Outward Overseas Telegraphic Transfers, Foreign Currency Account Transfers, Foreign Cheque Repurchases, and Bank Draft, in each case up to AUD25,000;
(b)for Inward Overseas Telegraphic Transfers up to AUD100,000; and
(c)for Cash/Bank Notes and Travellers Cheques sales, in each case up to AUD10,000.
The document also contains the following:
Transfers over $100,000?
Call us for a rate
The “TT Buy” rate of 0.9115 appears to represent the rate that was applied by Westpac on or at some point of time during 28 October 2014 to one Australian dollar to determine the amount of US dollars that would be required in exchange for one Australian dollar. In other words, it appears to represent the rate at which Westpac was prepared to buy Australian dollars with US dollars. The rate of 1.09709 Coeclerici used in the bankruptcy notice does not appear in “FX historical rates search”. That rate, however, is the inverse of 0.9115.[125] The rate of 1.09709 used by Coeclerici in the bankruptcy notice, therefore, appears to represent the rate that was applied to one US dollar to determine the amount of Australian dollars that would be required in exchange for one US dollar. That is, it appears to represent the rate at which Westpac was prepared to buy US dollars with Australian dollars.
[125] That is, 1/0.9115
Did Coeclerici comply with reg.4.04 of the Regulations?
I must first consider whether the Westpac “FX historical rates search” document contains information that answers the description “the telegraphic transfer rate” or, which I have found means the same thing, “the telegraphic rate of exchange”. That is, does the Westpac document record the exchange rates at which Westpac was willing and able to acquire US dollars in exchange for Australian dollars as at 28 October 2014?
I am not satisfied it does. The document simply records rates. I am not satisfied the document indicates that the rates it identifies were the rates at which Westpac was willing and able to exchange Australian and US Dollars as at 28 October 2014 for the amounts set out in that document, or for any other amount. The document itself states that the rates are “indicative” only. Further, the document states that the rates are indicative only for the type of transactions noted in the document. None of those transactions involves more than $100,000. That implies that the rates Westpac appears to have been able and willing to offer as at 28 October 2014 differed according to the amount of the currency that was involved. That, in turn, implies that even for a single institution there is no single telegraphic transfer rate for the conversion of the currency in which the Foreign Currency Judgment Amount is denominated for Australian dollars but that the telegraphic transfer rate depends on the amount of the foreign currency that is to be converted.
Even if the rates recorded in the Westpac “FX historical rates search” document are “the telegraphic transfer rates” or, “the telegraphic rates of exchange”, there is no evidence that Westpac’s rates are the rates that prevailed as at 28 October 2014. There is no evidence that no other institution was willing and able to exchange Australian dollars for US dollars or Australian dollars in exchange for the US dollar amount of the Judgment; and there is no evidence of the rates at which other financial institutions were willing and able to exchange Australian dollars for the US dollar amount of the Judgment.
Counsel for Coeclerici submits it was appropriate for Coeclerici to use a telegraphic rate of exchange generated by the use of an online historical rate calculator. Counsel submits that reg.4.04(3) of the Regulations could not require the creditor to approach a bank to obtain a quote for the exchange of money two days before issuing a bankruptcy notice when it has no genuine intention of exchanging money at that time because the bank, if informed of these circumstances, would in all likelihood refuse to provide the quote.[126] That may or may not be so; but that is no answer to what I have held the expression “telegraphic rate of exchange prevailing” on the relevant day means, namely, the best rate at which a banking or other financial institution is willing and able to apply to a single unit of the currency in which the Foreign Currency Judgment Amount is expressed to determine the Australian dollars such institution is willing to exchange for such currency.
[126] Submissions of Coeclerici 1 September 2015 at [12]
Counsel for Coeclerici also submits that not to permit Coeclerici to rely on a telegraphic rate of exchange generated by the use of an online historical rate calculator would require the creditor to put on an affidavit from a bank officer deposing to a hypothetical foreign exchange transaction, and this is not what reasonably could be said to have been contemplated by reg.4.04(3).[127] This submission assumes that the Westpac “FX historical rates search” document records a telegraphic rate of exchange. I do not accept that assumption. Even if I were to accept the assumption, the document does not constitute evidence that the rates it contains represent the prevailing telegraphic transfer rates.
[127] Submissions of Coeclerici 1 September 2015 at [13]
Counsel for Coeclerici also submits there is nothing in reg.4.04(3) of the Regulations which requires the ascertainment of the “telegraphic rate of exchange” in relation to the particular amount of the judgment in relation to which the bankruptcy notice has been issued.[128] That is true; reg.4.04(3) refers to “the” telegraphic rate of transfer prevailing on a particular day. However, what the telegraphic rate of transfer is on a particular day is a matter for evidence; and, as I have already noted, there may not be a single transfer rate an institution is willing and able to apply to convert a particular unit of foreign currency. The rate the institution may be willing and able to offer may vary according to the amount of the foreign currency that is to be converted into Australian dollars.
[128] Submissions of Coeclerici 1 September 2015 at [14]
Counsel for Coeclerici also submits that Mr Jagatramka did not make any submission about what was or what Coeclerici ought to have treated as being the telegraphic rate of exchange prevailing on 28 October 2014. That is true. But that would be relevant only if Mr Jagatramka bore the onus of proving that the rate Coeclerici used to convert the Judgment into Australian currency represented the “telegraphic rate of exchange”. Mr Jagatramka, however, bears no such onus. The onus is on Coeclerici to prove that it has issued a bankruptcy notice that complies with the Act and Regulations. For the reasons I have given, I am not satisfied Coeclerici has established that the rates which it applied to the amounts in the Judgment were the telegraphic rates of exchange prevailing on 28 October 2014.
Finally, counsel for Coeclerici submits that if the rate Coeclerici applied in converting the USD8,804,336.42 into Australian dollars is not the “telegraphic rate of exchange prevailing on” 28 October 2014, and thus Coeclerici did not comply with reg.4.04(3) of the Regulations, the non-compliance can be cured by s.306(1) of the Act.[129] I do not accept that submission. Compliance with reg.4.04 of the Regulations, where it applies, is essential to the validity of a bankruptcy notice.[130]
[129] Submissions of Coeclerici 1 September 2015 at [15]
[130] Parianos v Lymlind Pty Ltd [1999] FCA 684 (Sackville J); Thompson v STX Pan Ocean & Co Ltd [2011] FMCA 575
For these reasons, Coeclerici has not complied with reg.4.04 of the Regulations because it did not apply to the Judgment a rate that can properly be characterised as the “telegraphic rate of exchange prevailing on” 28 October 2014 within the meaning of reg.4.04(3) of the Regulations. For that reason, ground five of the FANGA is made out and the bankruptcy notice must be set aside.
Other matters
Before I leave this part of my reasons, I wish to address one submission Mr Jagatramka made. He submitted that reg.4.04 of the Regulations required Coeclerici to convert into Australian dollars the payments Mr Jagatramka made after judgment was entered by applying the “telegraphic exchange rate prevailing on” the date on which the payments were made. I do not accept that submission. The Judgment is denominated in foreign currency. Coeclerici was entitled to insist that Mr Jagatramka discharge that debt by paying money in the currency of the Judgment. Having made partial payments in foreign currency, Mr Jagatramka’s liability has been extinguished to the extent of the payments. Having been extinguished, the only debt that Coeclerici was entitled to demand by way of the issue of a bankruptcy notice was the amount of the Judgment less the payments made before Coeclerici applied for the issue of the bankruptcy notice. It was only that amount of indebtedness that reg.4.04 of the Regulations required Coeclerici to convert into Australian dollars.
There is another matter I wish to address. If I am correct about the meaning of “the telegraphic rate of exchange prevailing on” the relevant day, there is no simple or certain way of ascertaining that rate. It may be that the difficulty arises from the fact that the rate reg.4.04 of the Regulation requires be used – the “telegraphic rate of exchange” – is a rate that was used and which was well understood in foreign exchange markets which operated under technological and regulatory conditions that were very different from those which apply to contemporary foreign exchange markets. In my opinion, the “telegraphic rate of exchange” should be replaced with a simpler method for identifying the exchange rate with which to convert Foreign Currency Judgment Amounts. One method may be to require the creditor to apply the exchange rates published daily by the Reserve Bank of Australia.[131] The method by which those rates are prepared are explained by the Reserve Bank as follows:[132]
Since 1 July 2008, the rate shown for the US dollar is the WM/Reuters Australian Dollar Fix at 4.00 pm (Sydney) on the day concerned, sourced from page AUDFIX on Thomson Reuters and rounded to four decimals. . . . Rates shown for most other currencies are calculated by crossing the rate for the US dollar with the Reserve Bank’s observations of mid-points of buying and selling rates quoted around the same time. These rates are indications of market value only and may differ from those quoted by foreign exchange dealers and other market sources.
[131] See, for example, accessed on 12 October 2015. This is the substance of the approach taken by r.4.91 of the Insolvency Rules (UK), which provides that for the purpose of proving a debt incurred or payable in a currency other than sterling, the amount of the debt shall be converted into sterling at the official exchange rate prevailing on the date when the company went into liquidation; and that the “official rate” is “the middle market rate at the Bank of England, as published for the date in question. In the absence of any such published rate, it is such rate as the court determines.”
[132] accessed on 12 October 2015
In the meantime, a creditor who wishes to ascertain “the telegraphic rate of exchange prevailing on” the relevant day for the purposes of converting a Foreign Currency Judgment Amount into Australian dollars may consider adopting a procedure along the following lines:
a)On a day that is two days before the day on which the creditor intends to apply for a bankruptcy notice, the creditor should enquire of the major banking institutions whether they have publicly available rates which they are willing and able to apply for the purpose of exchanging Australian dollars for the currency in which the Foreign Currency Judgment Amount is denominated.
b)If (a) is answered in the affirmative, the creditor should ensure the rates apply to the amount of the Foreign Currency Judgment Amount that is to be converted into Australian dollars.
c)The creditor should then identify from these rates the most favourable rate; that is, the rate that, when applied to convert the Foreign Currency Judgment Amount, will produce the smallest amount of Australian dollars. That is the rate the creditor should apply when converting the Foreign Currency Judgment Amount into Australian dollars.
d)If (a) is answered in the negative, the creditor will need to approach the major institutions to obtain quotes for the rate at which each institution is willing and able to exchange Australian dollars for the Foreign Currency Judgment Amount. The creditor should then apply the most favourable rate to convert the Foreign Currency Judgment Amount; that is, the creditor should choose the rate that results in the least amount of Australian dollars.
Ground 6 – abuse of process
Mr Jagatramka claims that the issuing of the bankruptcy notice is an abuse of process because Coeclerici will not, at the time it applies for a sequestration order, be in a position to satisfy the Court that it has jurisdiction under s.43 of the Act to make a sequestration order. This submission is premised on the assertion that Mr Jagatramka presently has no connections with Australia of the type referred to in s.43 of the Act (relevant presence).
I am not satisfied on the evidence before me that Mr Jagatramka has no relevant presence in Australia. In any event, whether or not Mr Jagatramka has any relevant presence in Australia is not an issue that is relevant to an application to set aside a bankruptcy notice; it is an issue which is to be determined at the hearing of the creditor’s petition. That is what Siopis J held in Commonwealth Bank of Australia, in the matter of Oswal v Oswal.[133] His Honour was of the opinion that, to require the Court to consider at the time an application for substituted service is made, “jurisdictional constraints attendant upon the making of a sequestration order related to the bankruptcy notice, would require the Court to embark upon an unacceptable degree of speculation”.[134] His Honour said:[135]
Accordingly, it is not possible for a court to determine at the time that a bankruptcy notice is served, whether the jurisdictional constraints on the making of a related sequestration order will be met. All that a court could do at the stage of giving leave to serve the bankruptcy notice, would be to consider the debtor’s circumstances at that time and make assumptions as to whether:
(a) the debtor’s circumstances will change before the expiry of the date for payment of the sum demanded in the bankruptcy notice;
(b) the debtor will pay the sum demanded on that date - such that the failure to pay amounts to an act of bankruptcy; and
(c) the petition ultimately presented and relied upon at the hearing will rely upon that act of bankruptcy.
In my view, this level of speculation renders such an inquiry by the court inutile, because it does not operate as a reliable predictor of whether the jurisdictional requirement for the making of a sequestration order will be met at the relevant date.
[133] [2013] FCA 391
[134] [2013] FCA 391 at [36]
[135] [2013] FCA 391 at [37]-[38]
Mr Jagatramka relied on an additional ground for claiming that the issue of the bankruptcy notice is an abuse of process. He submits that under the Foreign Exchange Management Act 1999 of India, Mr Jagatramka requires the permission of the Reserve Bank of India to use funds in India with which to pay the Judgment. Whether or not that is so does not render the issue of a bankruptcy notice an abuse of process. Ground 6 of FANGA, therefore, fails.
Ground 7 – set off or cross demand
Mr Jagatramka claims he has a set-off or cross demand equal to or exceeding the amount of the Judgment, being a set-off or cross demand he could not have set up in the action in which the Judgment was obtained (purported cross demand). The set-off or demand Mr Jagatramka claims he has is that which he purports to have articulated in a plaint he filed against Coeclerici in the High Court of Calcutta on 13 February 2015.
In that plaint, Mr Jagatramka alleges:
a)he executed the guarantee of Gujarat Coke’s obligations under the Purchase Agreement at the request of Mr Manoj Modi, Coeclerici’s Trading Country Manager (India), on the “understanding”, among other things, that the personal guarantee “would not be enforced by the defendant under any circumstances”, that the personal guarantee “was provided to provide additional comfort to the executives of the defendant in moral terms without having any financial implications”, and that “[e]nforcement in any circumstances of such personal guarantee was not envisaged as per personal commitments made by Mr Manoj Modi”;[136]
b)following a dispute, Coeclerici initiated arbitration proceedings in London but, because Mr Jagatramka and Gujarat Coke were not in a financial position to participate in those proceedings, Mr Jagatramka and Gujarat Coke entered into a payment agreement with Coeclerici;[137]
c)it was an implied term of the payment agreement that the payments under that agreement would be made subject to Mr Jagatramka and Gujarat Coke obtaining the approval of the Reserve Bank of India as required under the Foreign Exchange Management Act 1999 of India;[138]
d)Coeclerici, however, initiated arbitration proceedings while Mr Jagatramka and Gujarat Coke were “awaiting such approval” from the Reserve Bank of India;[139]
e)Coeclerici issued the bankruptcy notice “with the sole objects to bring to the notice of the public at large that the plaintiff has become bankrupt, dishonest and thereby has denigrated and damaged the goodwill and reputation of the plaintiff in the eye of public at large”;[140] and
f)by the actions it has taken to initiate arbitration proceedings, and enforce the arbitral award against Mr Jagatramka, Coeclerici has acted in breach of the agreement Coeclerici entered into with Mr Jagatramka not to enforce the personal guarantee, and has caused Mr Jagatramka “irreparable loss” in his goodwill and reputation.[141]
[136] Plaint, [12] – the plaint is a page 15 of the affidavit of B J Gillard 13.03.15
[137] Plaint, [13]-[14]
[138] Plaint, [15]
[139] Plaint, [16]
[140] Plaint, [21]
[141] Plaint, [22]
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:[142]
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.
[142] s.40(1)(g) of the Act
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.[143] In broad terms, a debtor must satisfy the Court that the counter-claim, set-off or cross demand is made in good faith, and that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
[143] [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 proceeding in which the judgment was obtained. The expression “could not have been set up” has been construed narrowly:[144]
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 (1914) 3 K.B. 726 per Avory J. at p. 730 and Re Stockvis (1934) 7 A.B.C. 53 especially per Lukin J. at p. 57 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.”
[144] Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 at page 139 (Lockhart J)
Is the purported cross demand made in good faith?
I am not satisfied the purported cross demand has been made in good faith or, if it has been made in good faith, it has sufficient substance to make it one which Mr Jagatramka should, in justice, be permitted to have heard and determined in the High Court of Calcutta, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
As to the claim made in the purported cross demand based on the alleged agreement by Coeclerici not to enforce the guarantee:
a)the allegations are not particularised in the plaint;
b)Mr Jagatramka did not allege any such agreement in the arbitration proceedings;
c)not only did Mr Jagatramka not allege any such agreement; he confirmed his and Gujarat Coke’s liability under the Purchase Agreement by agreeing to enter into the Payment Agreement;
d)apart from verifying the plaint, Mr Jagatramka has provided no evidence in support of the alleged agreement; in particular, he has given no evidence of the matters (presumably conversations) on which he relies for alleging Coeclerici agreed not to enforce the guarantee;
e)even if his claim has substance, it would be inconsistent with the Award; Mr Jagatramka has not indicated how, in the face of an unsuccessful challenge to the Award that was decided at a place outside of India, he will be entitled under the law of India to maintain a claim that is inconsistent with the award;[145] and
f)there are no particulars or evidence which could reasonably support the damages of “over Rs.100 crores”.[146]
[145] Particularly given the ruling of the Supreme Court of India in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 which has the effect of limiting the ability of Courts in India to set aside awards or issue interim measures in relation to arbitrations that have taken place outside India.
[146] A crore is a unit in the Indian numbering system which is equal to 10,000,000 units.
As to the claim made in the purported cross demand based on damage to Mr Jagatramka’s reputation and goodwill, the plaint does not particularise facts or matters from which it could reasonably be inferred that Coeclerici applied for the issue of the bankruptcy notice for the purpose of damaging Mr Jagatramka’s reputation and goodwill; nor is there any evidence on the basis of which any such allegation can reasonably be made. Further, there are no particulars to support the damage of “over Rs.100 crores” Mr Jagatramka says he suffered.[147]
[147] Plaint, [22]
Counsel for Mr Jagatramka referred to a passage from the reasons for judgment of the High Court in Guss v Johnstone which endorsed the view that a prima facie case could be made out even where the debtor fails to adduce admissible evidence.[148] That does not mean, however, that an unexplained failure by a debtor to adduce evidence that can reasonably be supposed is available to be called by the debtor, cannot be taken into account when determining whether an asserted cross demand is made in good faith or has substance.
[148] [2000] HCA 26: (2000) 74 ALJR 884 at [14]
Ability to set up purported cross demand
Counsel for Mr Jagatramka submitted that the purported cross demand, to the extent it relies on Coeclerici issuing a bankruptcy notice, could not have been set up in the Federal Court proceedings in which Coeclerici applied to enforce the Award. That may be accepted. That cannot be said, however, for the other parts of the purported cross demand. The alleged events on which the plaint depends, other than the issuing of the bankruptcy notice, occurred or are alleged to have occurred before Coeclerici commenced proceedings in the Federal Court to enforce the award.
For these reasons, ground 7 of the FANGA fails.
Conclusions and disposition
My conclusions are as follows.
a)There was no implied stay in place at the time Coeclerici applied for the issue of the bankruptcy notice because of the Receiver Orders or because of any other orders. That is so because Mr Jagatramka has not shown that, but for the Receiver Orders, or any other orders, the shares he held in WCL would have enabled him to discharge the Judgment. Nor has Mr Jagatramka shown that he did not, as at the date on which the bankruptcy notice was issued, have other assets which he could have used to discharge the Judgment.
b)Coeclerici did not fail to disclose any material information to the Court at the time it applied for and obtained the Substituted Service Orders.
c)The bankruptcy notice was served in accordance with the terms of the Substituted Service Orders.
d)Coeclerici was unable to discharge the burden placed on it to show that one of the methods by which the Substituted Service Orders permitted the bankruptcy notice to be served, namely, by email to [email protected], did not purport to authorise service of the bankruptcy notice outside Australia.
e)The orders Foster J made on 7 August 2013, on the basis of which Coeclerici applied for the bankruptcy notice, was attached to the bankruptcy notice at the time the bankruptcy notice was served in the manner required by the Substituted Service Orders.
f)I am not satisfied Coeclerici applied to the Judgment rates that can properly be characterised as the “telegraphic rate of exchange prevailing on” 28 October 2014 within the meaning of reg.4.04(3) of the Regulations. For that reason, the bankruptcy notice must be set aside.
g)Coeclerici’s applying for the issue of the bankruptcy notice was not an abuse of process because of Mr Jagatramka’s asserted lack of connection with Australia.
h)I am not satisfied that the claims Mr Jagatramka has made in proceedings commenced in the High Court of Calcutta have been made in good faith or have substance sufficient to make it just that they be determined by the High Court of Calcutta rather than requiring Mr Jagatramka to comply with the requirements of the bankruptcy notice. Further, the claims Mr Jagatramka makes in those proceedings relating to the enforceability of the guarantee Mr Jagatramka gave are claims Mr Jagatramka could have, but did not set up in the Federal Court proceedings in which the Judgment was ordered to be entered.
Had I not concluded Coeclerici did not comply with reg.4.04(3) of the Regulations, I would have invited further submissions on what should follow from my conclusion that Coeclerici failed to prove that the Substituted Service Orders did not purport to authorise service of the bankruptcy notice outside Australia. I propose, therefore to order that the bankruptcy notice be set aside. I will grant the parties liberty to apply on the question of costs.
I certify that the preceding one hundred and seventy-six (176) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 23 October 2015
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