John Emmanuel Rose v Meriton Apartments Pty Ltd
[2011] FMCA 721
•16 September 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| JOHN EMMANUEL ROSE v MERITON APARTMENTS PTY LTD | [2011] FMCA 721 |
| BANKRUPTCY – Application to set aside bankruptcy notice – whether counter-claim, set-off or cross demand within s.40(1)(g) of the Bankruptcy Act. |
| Bankruptcy Act 1966 (Cth), ss.27, 30, 40, 41, 60, 134 Corporations Act 2001 (Cth), ss.601AB, 601AH Evidence Act 1995 (Cth), s.91 Industrial Relations Act 1996 (NSW), ss.106, 108 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.3.02 Industrial Relations Commission Rules 1996 (NSW), regs.89, 203 Uniform Civil Procedure Rules 2005 (NSW), r.42.7 |
| Ainsworth v Burden [2005] NSWCA 174 Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346; [1960] HCA 50 In re A Debtor [1958] 1 Ch. 81; [1957] 2 All ER 551 |
| Applicant: | JOHN EMMANUEL ROSE |
| Respondent: | MERITON APARTMENTS PTY LTD (ACN 000 644 888) |
| File Number: | SYG 1010 of 2011 |
| Judgment of: | Barnes FM |
| Hearing dates: | 8 June 2011 and 8 September 2011 |
| Last date of submissions: | 14 September 2011 |
| Delivered at: | Sydney |
| Delivered on: | 16 September 2011 |
REPRESENTATION
| Counsel for the Applicant: | Ms C. Gleeson |
| Solicitors for the Applicant: | Barwick Legal |
| Counsel for the Respondent: | Mr A. Spencer |
| Solicitors for the Respondent: | Sally Nash & Co |
ORDERS
The application is dismissed.
The applicant pay the respondent’s costs as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1010 of 2011
| JOHN EMMANUEL ROSE |
Applicant
And
| MERITON APARTMENTS PTY LTD (ACN 000 644 888) |
Respondent
REASONS FOR JUDGMENT
These proceedings
This is an application filed on 18 May 2011 to set aside Bankruptcy Notice No BN 899 of 2011. Orders for substituted service of the bankruptcy notice were made on 4 April 2010. No issue is taken about compliance with these orders, under which the bankruptcy notice was deemed to be served on Mr Rose on 2 May 2011. The debt of $18,064.14 that formed the basis for the bankruptcy notice was a costs order for $17,916.40 made by the High Court of Australia that was registered in the Local Court of New South Wales together with post-judgment interest thereon.
Mr Rose did not challenge the debt upon which the bankruptcy notice was based. Rather, in his affidavit of 18 May 2011 accompanying the application he asserted that he had counter-claims, set-offs or cross demands against the respondent creditor Meriton Apartments Pty Ltd (Meriton) which were said to be equal to or greater than the costs order in question. In his affidavit Mr Rose appeared to assert that his counter-claims, set-offs or cross demands included a claim under s.106 of the Industrial Relations Act 1996 (NSW) (the IR Act) against Meriton, a costs order in his favour made by the Full Bench of the Industrial Court on 14 February 2008 and also a costs order in his favour made by the Full Court of the Federal Court on 13 October 2008 and a potential costs order in his favour in then unresolved New South Wales Court of Appeal proceedings (on the basis that he intended to seek such costs whether or not he was successful).
However counsel for Mr Rose clarified in oral submissions that the claims relied on by Mr Rose consisted only of the claim he has raised against Meriton in proceedings in the Industrial Court of New South Wales and the costs order against Meriton made by the Full Bench of the Industrial Court. Mr Rose does not seek to rely on the order for costs in his favour that was made by the Federal Court which has been taxed and paid or on any claim for costs against Meriton in proceedings in the NSW Court of Appeal (which in fact has not eventuated).
The application was said to be made pursuant to s.41(7) of the Bankruptcy Act 1966 (Cth) (the Act) which is as follows:
Where before the expiration of the time for fixed for compliance with the requirements for a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
What is in issue is not only whether there is a deemed extension of time for compliance with the bankruptcy notice under s.41(7) of the Act but also whether Mr Rose has satisfied the court that he has a counter-claim, set-off or cross demand within s.40(1)(g) of the Bankruptcy Act, which is as follows:
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(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 or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt 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;
Rule 3.02 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (the Bankruptcy Rules), which applies to an application to set aside a bankruptcy notice, provides:
(1) An application to set aside a bankruptcy notice must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b) an affidavit stating:
(i) the grounds in support of the application; and
(ii) the date when the bankruptcy notice was served on the applicant; and
(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(2) If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter‑claim, set‑off or cross demand; and
(b) the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter‑claim, set‑off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(3) The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed.
Background to these proceedings
Both the debt that formed the basis for the bankruptcy notice and the asserted counter-claims, set-offs or cross demands arose in the context of somewhat protracted litigation between the parties.
In 2005 Mr Rose commenced proceedings in the Industrial Court of New South Wales against both Meriton and the Owners Corporation Strata Plan No 56443 (the Owners Corporation) under s.106 of the IR Act claiming relief in respect of contracts which he alleged were unfair and seeking a refund of monies personally invested by him on behalf of Regis Towers Real Estate Pty Ltd (said to be in administration) and compensation for loss of income and benefits (the Industrial Court proceedings). In these proceedings he contended that the court should be satisfied that this claim against Meriton was a counter-claim, set-off or cross demand within s.40(1)(g) of the Bankruptcy Act.
The evidence in Mr Rose’s affidavit of 18 May 2011 in relation to the basis for this claim consisted in essence of his description of the relief sought. In addition, a copy of the Summons for Relief filed in the Industrial Court on 27 April 2005 was annexed to his affidavit.
The Industrial Court summons recited that on 20 April 1999, following representations made by or on behalf of Meriton to Mr Rose and others, Meriton executed a Deed with a company of which Mr Rose was a director which later became known as Regis Towers Real Estate Pty Limited (Regis) whereby Meriton agreed to procure a Caretaker Agreement between Regis and the Owners Corporation under which Mr Rose “and others were to perform work in an industry in and of NSW”. The summons stated that “Further Particulars of the representations will be furnished in an amended Summons for Relief, or otherwise provided to the Respondents”. There is, however, no evidence of any further particulars of this claim before the court.
According to the summons, Mr Rose personally invested funds of $525,000 and Meriton also provided finance to Regis which entered into a Caretaker Agreement with the Owners Corporation in relation to an apartment complex (the Regis Towers) developed by Meriton in which Mr Rose was said to have “personally purchased approximately ten units”.
The summons asserted that, contrary to representations made by Meriton to Regis and to Mr Rose, the “standard of the Regis Towers Strata Scheme was not satisfactory” as “it did not comply in certain material respects with the Building Code of Australia” so the “remuneration payable under the Caretaker Agreement was insufficient to permit [Regis and Mr Rose] to discharge their duties under the Caretaker Agreement” and they “bore considerable expenses at their own loss”. An administrator was appointed to the Regis Towers Strata Scheme in January 2003.
A voluntary administrator was appointed to Regis in 2004 after Meriton obtained judgment against it. It subsequently went into liquidation and was deregistered on 21 September 2009 pursuant to s.601AB of the then Corporations Act 2001 (Cth).
Mr Rose claimed that the contract was unfair in that he was induced to invest money in consideration for entering the contract based on representations of Meriton that were or became untrue and because “it failed to ensure that it complied with the provisions of the Strata Scheme Management Act 1996” which “impacted” on Regis and Mr Rose in the discharge of their duties under the Caretaker Agreement. He also claimed that “[b]y reason of the unfairness of the contract brought about by the representations of [Meriton], the conduct of the Respondents” and the absence of “fair mechanisms for review of the remuneration under the Caretaker Agreement” he “suffered considerable personal loss and damage”.
Mr Rose sought a declaration that the contract was “unfair, harsh or unconscionable or against the public interest”, an order declaring the contract wholly or partly void or varied save for remuneration paid or payable to him, and an order varying the Caretaker Agreement in relation to remuneration of the Caretaker by the Owners Corporation. He also sought a sum of money under s.106(5) of the IR Act. Regis is not a party to the Industrial Court proceedings.
According to the summons, Mr Rose claimed $525,000 as the amount he “personally invested…on behalf of Regis” (plus interest) from Meriton and compensation for loss of income and benefits from both respondents, estimated to be in the sum of $10 million. The summons stated that further particulars would be “provided in due course”. However the only evidence of particulars before this court is in Mr Rose’s affidavit of 18 May 2011 in which he stated that the relief he sought in the Industrial Court proceedings included remuneration, expenses and compensation pursuant to s.106(5) of the IR Act, including the capital sums he claimed he paid Meriton (estimated by Mr Rose to be “in excess of $1,000,000”), losses said to have been incurred by him in reliance on the conduct of Meriton and the Owners Corporation, estimated to be in “excess of several million dollars” and losses said to have been incurred by him as a result of the respondents’ alleged “failure to comply with the Building Code of Australia, resulting in fire orders being placed upon Regis Towers complex by Sydney City Council”.
Subsequent proceedings between the parties and the results thereof were described briefly in Mr Rose’s affidavit to which he annexed copies of court orders. At the hearing counsel for Mr Rose sought to tender copies of the judgments in those proceedings. The copies of these judgments were marked for identification and numbered one to four. They should be received in evidence and will become Exhibits A, B, C and D respectively. This material was not sought to be tendered to prove the existence of facts in issue (see s.91 of the Evidence Act 1995 (Cth) and Ainsworth v Brendan [2005] NSWCA 174 at [109]). It is relevant and admissible to prove the existence, parties, dates, issues raised and legal effect of the judgments in question (see National Mutual Life Association of Australasia Ltd and Others v Grosvenor Hill (Qld) (formerly Hillier, Parker (Qld) Pty Ltd) and Another (2001) 183 ALR 700; [2001] FCA 237 at [46] and Cadbury Schweppes Pty Ltd v Amcor Limited (No 3) [2008] FCA 1668 at [4]).
After commencing the Industrial Court proceedings Mr Rose became a bankrupt on his own petition. On 23 February 2006 Meriton filed a motion seeking to have the Industrial Court proceedings struck out for lack of jurisdiction on the basis that Mr Rose lacked standing under s.108 of the IR Act and/or the proceedings had been deemed to have been abandoned by Mr Rose’s trustee in bankruptcy pursuant to s.60(3) of the Bankruptcy Act. The Owners Corporation also filed a similar strike out application on 2 March 2006 following its application for a stay of proceedings until Mr Rose provided security for costs. Subsequently Mr Rose sought to file an amended summons in the Industrial Court proceedings to seek an order that he be made a party to the contracts with the respondents.
Marks J dismissed all of the interlocutory applications (John Emmanuel Rose v Meriton Apartments Pty Ltd and Anor [2006] NSWIRComm 298). Among other things, his Honour held that Mr Rose had no standing under the IR Act to commence the Industrial Court proceedings in his own name in essence because he was “not a party to the contract sought to be impugned” in the proceedings within s.106 of the IR Act and not otherwise within s.108 of the IR Act (at [60]).
On 30 November 2007 the Full Bench of the Industrial Court upheld an appeal by Mr Rose in relation to the respondents’ motions, but dismissed his amendment application (Rose v Meriton Apartments Pty Ltd (2007) 169 IR 428; [2007] NSWIRComm 264) and ordered that the proceedings be remitted to a judge of the Industrial Court to be dealt with in accordance with the judgment of the Full Bench. The Full Bench (at [46]) was of the view that, “taking the evidence at its highest, as it presently exists” Mr Rose was party to an arrangement with the respondents and that a conclusion that Mr Rose had standing within s.108 of the IR Act was open on the evidence at that stage of the proceedings so that the proceedings should not be dismissed for lack of standing. Relevantly, in Order five made on 30 November 2007, the Full Bench dismissed Meriton’s strike out motion. Orders were also made for the filing of submissions on costs.
On 14 February 2008 the Full Bench of the Industrial Court made costs orders in relation to the Industrial Court proceedings and the appeal.
It ordered that the Owners Corporation “forthwith” pay Mr Rose’s “costs of the appeal proceedings as agreed or assessed” and that the Owners Corporation pay Mr Rose’s “costs of the proceedings at first instance with respect to the hearing of” its strike out and stay motions. Meriton, which had entered a submitting appearance before the Full Bench, was ordered to “pay [Mr Rose’s] costs of the proceedings at first instance with respect to the hearing of the notice of motion filed by [Meriton] on 23 February 2006 referred to in Order 5 made by the Full Bench on 30 November 2007”. The Court also ordered that that the costs of the amendment motion filed by Mr Rose “be costs in the cause”.
As discussed further below, Mr Rose contended in these proceedings that in addition to the claim against Meriton that was the basis for the Industrial Court proceedings, the costs order made against Meriton in his favour by the Full Bench of the Industrial Court on 14 February 2008 was a counter-claim, set-off or cross demand that was equal to or exceeded the costs order that formed the basis for the bankruptcy notice.
Meriton and the Owners Corporation then commenced proceedings in the Federal Court of Australia (the Federal Court proceedings). They sought to quash the finding by the Full Bench of the Industrial Court in relation to whether the Industrial Court proceedings had been deemed to be abandoned by operation of s.60(3) of the Bankruptcy Act once Mr Rose became bankrupt. It was contended that in light of the exclusive jurisdiction conferred on the Federal Court (and this court) by s.27 of the Bankruptcy Act, the Industrial Court did not have jurisdiction to determine that matter. A declaration that the Industrial Court proceedings were deemed to be stayed or abandoned was sought on this basis. An issue was also raised as to whether the purported assignment of the chose in action constituted by the Industrial Court proceedings pursuant to s.134 of the Bankruptcy Act to Mr Rose (an undischarged bankrupt) by Mr Rose’s trustee in bankruptcy was effective.
The Full Court of the Federal Court heard the matter in its original jurisdiction (see Meriton Apartments Pty Ltd and Another v Industrial Court of New South Wales and Another (2008) 171 FCR 380; [2008] FCAFC 172). It determined that the New South Wales Industrial Court had jurisdiction to determine the status of the proceedings before it and that its decision that the proceedings had not been stayed or abandoned under s.60 of the Bankruptcy Act was not an impermissible exercise of the exclusive bankruptcy jurisdiction conferred on the Federal Court (and this court) by s.27 of the Bankruptcy Act. By majority, the Full Court also held that although the assignment of the chose of action to Mr Rose (who was then an undischarged bankrupt as well as having been the director of Regis, the caretaker company) was invalid (per Greenwood J (at [147]) and Perram J (at [247])), the decision of the Industrial Court on that question was a permissible exercise of jurisdiction such that the Federal Court would not interfere (per Greenwood and Branson JJ).
Meriton and the Owners Corporation then filed a summons in the Court of Appeal seeking relief in respect of the Industrial Court proceedings on the basis that the Full Bench had exceeded the jurisdictional limit imposed by s.108 of the IR Act. Orders were sought prohibiting the Industrial Court from continuing to hear the claim for relief brought by Mr Rose in his summons of 27 April 2005 on the basis that the Industrial Court did not have jurisdiction under the IR Act to make the orders Mr Rose sought in that summons as he was not a party to a relevant contract or arrangement in the extended sense provided for in the IR Act.
Mr Rose (who had by then been discharged from bankruptcy) filed a motion to strike out that summons as an abuse of process or on Anshun estoppel principles (see Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589; [1981] HCA 45). That motion was unsuccessful (Meriton Apartments Pty Ltd and Another v Industrial Court (NSW) and Another (2009) 263 ALR 556; [2009] NSWCA 434). Mr Rose sought leave to appeal to the High Court from the decision of the Court of Appeal in that respect. Leave was refused. The costs order in favour of Meriton in relation to that application for special leave to appeal was registered in the Local Court and formed the basis for the bankruptcy notice.
The substantive Court of Appeal proceedings were heard on 19 April 2011. Judgment was reserved at the time of the hearing in this court. Subsequently the New South Wales Court of Appeal delivered judgment in Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2011] NSWCA 243.
The respondent to this application sought to be heard further in relation to the relevance of this decision. The applicant sought and was granted leave to re-open his case to put on evidence about the judgment and his intention to seek special leave to appeal to the High Court. The parties were given the opportunity to make further oral and written submissions.
In Meriton v Industrial Court Sackville AJA (with whom Campbell JA and Handley AJA) agreed, found that the Industrial Court did “not have jurisdiction to hear and determine Mr Rose’s claim for relief in its present form” because the application for relief in respect of the agreements between Regis and Meriton and Regis and the Owners Corporation (which the Court of Appeal described as the “Caretaker Deeds”) had not been made by a party to the relevant contract or arrangement or “by a person within any of the categories identified in s.108 of the IR Act” (at [106]).
In reaching this conclusion Sackville AJA had regard to the fact that Mr Rose was not a party to either Deed referred to in his summons. Hence he was not a party to the contract of which he sought review in the Industrial Court pursuant to the summons. Further, while Mr Rose’s summons in the Industrial Court sought relief in respect not only of the contract between Meriton and Regis but also “additionally consisting of a contract or collateral arrangement between [Owners Corporation] and [Regis] whereby [Mr Rose] performed work in an industry…” there was nothing in the summons to indicate that any such arrangement existed. Sackville AJA acknowledged that whether the Industrial Court had jurisdiction did “not necessarily depend solely on the terms” of Mr Rose’s summons (at [86]) and also that an applicant may seek leave under s.106 of the IR Act in respect not only of a contract but also an “arrangement, or any related condition or collateral arrangement” (at [84]). However Mr Rose’s summons in the Industrial Court did not refer to any contracts or arrangements other than the Deed and Caretaker Agreement referred to above and those deeds contained nothing to suggest or give rise to an inference that they were components of a broader agreement or arrangement to which Mr Rose was or may have been a party or that there was otherwise some collateral agreement (see [86] – [90]). His Honour observed that the Caretaker Agreement did not require Mr Rose to perform duties personally and found at [91] that:
The only provision in the Caretaker's Agreement which appears to have contemplated that Mr Rose might carry out some of the duties imposed on Regis Towers was cl 27.2. This provided that the persons used by Regis Towers to carry out its duties, if they were not the principal directors or shareholders of the company, required approval from Owners Corporation. Whatever significance [this clause] might have for the purpose of satisfying s 106 of the IR Act, it does not suggest any antecedent or broader agreement or arrangement to which Mr Rose was a party.
In response to references by counsel for Mr Rose to pieces of evidence that might be said to support a claim by Mr Rose to be a party to an agreement or arrangement, Sackville AJA made the point (at [96]) that:
… not only is any such arrangement not identified in the summons, any claim by Mr Rose based on such an arrangement has never been formulated with any precision. Despite Mr Street's attempt to do so in oral argument (at [69] above), the terms of the arrangement, the parties to it and the circumstances in which it came into existence remain unclear. In my opinion, it is not enough to establish a sound jurisdictional basis for relief under Pt 9 of Ch 2 of the IR Act to point to evidence that might be relied on to support an as yet unformulated claim different to the claim currently being pursued.
In any event, his Honour was of the view that much of the evidence that had been referred to by counsel for Mr Rose in this respect was “at best, equivocal” (at [97]).
His Honour concluded that unless prerogative relief was given there was “a real likelihood that the Industrial Court [would] respond to Mr Rose’s summons by making an order in excess of its jurisdiction” (at [99]).
The Court of Appeal concluded that the Industrial Court did not have jurisdiction to hear and determined Mr Rose’s claim for relief in its present form and that there were no discretionary reasons for withholding relief (at [107]).
Sackville AJA stated at [108]:
The conclusions I have reached do not necessarily mean that Mr Rose's Industrial Court proceedings are doomed to fail. It may be that Mr Rose can reformulate his claims so as to allege a contract or arrangement to which he is a party (thereby satisfying s 108(a)) and which is a contract or arrangement "whereby a person performs work in an industry" (thereby satisfying s 106).
However his Honour referred to the “necessary” qualification arising out of the fact that Regis was not a party to the Industrial Court proceedings, notwithstanding that Mr Rose sought orders varying contracts to which Regis was a party. His Honour observed that:
The absence of Regis Towers deprives the Industrial Court of jurisdiction to entertain a claim by Mr Rose for relief under s 106(1) of the IR Act to declare wholly or partly void or vary the Caretaker Deeds (at [109]).
Finally, his Honour found (at [110]) that it was “neither necessary nor appropriate to express a view as to whether Mr Rose can amend his application to formulate a claim for relief that is within the jurisdiction of the Industrial Court.”
The Court of Appeal made orders granting prohibition to prevent the Industrial Court making the substantive orders sought in Mr Rose’s summons of 27 April 2005. It quashed the Full Bench of the Industrial Court’s orders that the strike out motions of Meriton and the Owners Corporation be dismissed. It left in place the Full Bench order that the matter be remitted to a judge of the Industrial Court, but quashed that part of the remittal order that directed that the remitted proceedings be dealt with in accordance with the judgment of the Full Bench of the Industrial Court. According to his counsel, Mr Rose intends to seek special leave to appeal to the High Court and Senior Counsel has been briefed. There is no evidence as to grounds of appeal or the basis for such an application.
Legal Principles
It is not in dispute that Mr Rose bears the onus of establishing that he has a valid counter-claim, set-off or cross demand (Bhagat v Global Custodians Ltd [2002] FCAFC 51; [2002] FCA 223 at [52] and Guss v Johnstone (2000) 74 ALJR 884; [2000] HCA 26 at [40]).
As counsel for Meriton contended, it can be said that there are two stages to an application to set aside a bankruptcy notice. First, the applicant is required to file an application to set aside the bankruptcy notice within the time for compliance with the bankruptcy notice and an accompanying affidavit in accordance with r.3.02 of the Bankruptcy Rules. Where, as here, the basis for the claim is a counter-claim, set-off or cross demand, the application has to be sufficient to attract the automatic extension of the time for compliance with the bankruptcy notice provided for in s.41(7) of the Act. This involves consideration of whether the application complies with r.3.02 of the Bankruptcy Rules. Secondly, the court has to determine, on the basis of all the material before it, whether it is satisfied that the debtor has a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g) on the principles considered in Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers; Re Tresidder; Tresidder v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331; [2003] FCA 373.
Meriton contended that Mr Rose’s application had failed to comply with r.3.02 of the Bankruptcy Rules so that it was invalid and ineffective to extend the time for compliance with the bankruptcy notice under s.41(7) of the Act. In the alternative, it was contended that Mr Rose failed at the second stage, as the court should not be satisfied that he had a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g) of the Act.
The contention that there are two stages to an application to set aside a bankruptcy notice reflects remarks of Branson J in Crimmins v Glenview Home Units [1999] FCA 515. Her Honour rejected the proposition that s.41(7) of the Act was enlivened by the mere filing of an application (at [5] - [7]) and was of the view that it was necessary to consider first whether the procedural requirements in the then applicable Federal Court Rules were met, at least where issue was taken in that respect. Subsequently, in James v Hill (No 2); (2005) 3 ABC (NS) 631; [2005] FCA 981, her Honour raised, but did not determine, the issue of whether if the Rules were not complied with (and no dispensation with compliance had been ordered) the deemed extension of time for compliance with the bankruptcy notice in s.41(7) of the Act would come into effect (at [7]).
The application to set aside the bankruptcy notice was accompanied by an affidavit stating the grounds in support of the application. Under r.3.02(2) the initiating affidavit should contain sufficient details to show the nature and substance of the cross claim and to demonstrate that the applicant is bona fide in his contention that the asserted cross claim exists (see Crimmins at [4] and [19]; Re Brink; and Re Donkin; Ex parte AGC Advances Limited (1994) 52 FCR 271; [1994] FCA 1285 in relation to the pre-1996 version of s.41(7) of the Act).
Meriton submitted that Mr Rose had not met the requirements of r.3.02 of the Federal Magistrates Court (Bankruptcy) Rules in relation to the asserted claim based on the Industrial Court proceedings because “full details” of the claim were not provided.
However Mr Rose raised two alternative cross-claims on the basis that each of them exceeded the amount of the debt on which the bankruptcy notice was based. There was no suggestion that his application failed to comply with r.3.02 insofar as it related to the claim based on the Full Bench of the Industrial Court costs order. In my view in such circumstances, even on the approach taken by Branson J in Crimmins at [20] - [24] (which involved consideration of whether the affidavit accompanying the application contained “full details” demonstrating “the nature and substance of the cross action” and “that the debtor is bona fide in his or her contention that the cross action exists”), the application should be regarded as effective to bring into operation the deemed extension of time under s.41(7) of the Act (at [19]). Insufficient details of one aspect of a number of claims relied on should not render the whole application not competent (cf O’Meara v Deputy Commissioner of Taxation [2009] FCA 1575 at [10] in which no affidavit had been filed by the applicant before the expiration of the time fixed for compliance and see Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 439 – 440; [1980] FCA 78).
Crimmins may however be taken to suggest that the requirements of the Bankruptcy Rules must be met in relation to each asserted counter-claim, set-off or cross demand as a pre-requisite to consideration of whether that particular claim is such as to satisfy the court (on the basis of all the material before it) that the debtor has a claim of the kind referred to in s.40(1)(g). I have considered the requirements of r.3.02 in relation to the Industrial Court proceedings claim on this basis.
If an application is based on the ground of a counter-claim, set-off or cross demand in s.40(1)(g) of the Act, the accompanying affidavit must state “full details” of the claim, “the amount…and the amount by which it exceeds the amount claimed in the bankruptcy notice” and “why the [claim] was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued”. (See r.3.02(2) and Re James and Another; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 at 189).
The applicant submitted that the initial affidavit of Mr Rose and the annexed summons contained the details necessary to comply with r.30.2 as to the nature of the allegations, the factual matters that underpinned the legal relief sought and the quantification of the claim but that if the court was not so satisfied it should dispense with compliance with r.302 (see Crimmins and James v Hill). It was pointed out that this was a claim that was in existence, not a mere prospective claim that had not previously been ventilated.
The respondent submitted that Mr Rose’s affidavit accompanying the application to set aside the bankruptcy notice did not meet the requirements of r.3.02 because it did not to state “the full details” of the claim based on the Industrial Court proceedings. In particular it was said not to contain any details of the way in which the Industrial Court claim was said to arise. It was conceded that at the hearing of the application to set aside the bankruptcy notice a debtor may rely on further affidavits which expand on the matters contained in the affidavit filed in support of the original application, but submitted that this could not be done so as to cure deficiencies in an insufficient first affidavit.
In this case the only affidavit relied on by Mr Rose was his affidavit of 18 May 2011 (apart from the affidavit of Ms Magill about the Court of Appeal decision, filed with leave after the hearing). It was acknowledged that Mr Rose made clear in his affidavit the grounds on which he wished to rely and that one of the alleged counter-claims consisted of his claim in the proceedings before the Industrial Court. However the respondent submitted that there was nothing in that affidavit that specifically addressed the facts that may underpin that claim, the way in which the capital sums that Mr Rose sought to recover in those proceedings were to be the subject of that claim, how the losses said to have been incurred by him were incurred, what conduct of the respondents was relied upon as leading to the claimed losses and how the alleged failure of the respondents to comply with a Building Code occasioned Mr Rose any loss. It was also observed that the only evidence in relation to quantification of the claim was Mr Rose’s estimate and that there was no information as to how that estimate was arrived at in the affidavit. Further, it was pointed out that the amounts claimed in the summons in the Industrial Court proceedings did not correspond with the amounts referred to in Mr Rose’s affidavit filed in those proceedings. The summons itself was said to be “almost devoid of any detail”. These inadequacies were said not to be overcome in the affidavit which, it was submitted, did not meet the requirements of an affidavit at the “first stage” considered in Crimmins. In effect, the respondent contended that strict compliance with rule 3.02 was “essential”. In the alternative it was submitted by Meriton that the evidence before the court was not sufficient to satisfy it that the debtor had a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g) of the Act (see Crimmins).
The procedural requirement of r.3.02 is, however, distinct from the issue of whether the court is satisfied that the applicant has such a claim as is referred to in s.40(1)(g) of the Act. I have considered Mr Rose’s affidavit evidence (which must be seen as including the annexed summons for relief filed in the Industrial Court). I am of the view that it sufficiently stated details of the claim, which was described as a claim under s.106 of the IR Act seeking relief in respect of an alleged contract, to meet the procedural requirement in the Bankruptcy Rules. The amount of the claim was described (at least to the extent necessary to reveal that it was claimed that it exceeded the amount claimed in the bankruptcy notice), albeit the affidavit did not calculate the amount by which the asserted claim exceeded the amount claimed in the bankruptcy notice. While the affidavit did not address the question of why the Industrial Court claim was not able to be raised in the High Court proceedings, this can be inferred from the nature of the High Court proceedings which involved an application for special leave to appeal. The substance of Mr Rose’s claim under the IR Act had yet to be determined at the time of his application to this court.
I have borne in mind that as Lockhart J stated in Re Brink; at 439 – 440:
Upon the hearing of a matter under sub-s. 41 (7) the Court has before it the initial affidavit which brings the sub-section into play. There may, of course, be no other evidence. On the other hand there may be a great deal of evidence. This will depend upon the circumstances of each case. Plainly this Court has power to permit the debtor to supplement his case by additional evidence. The initial affidavit filed under sub-s. 41(7) operates to extend time for compliance with the requirements of the bankruptcy notice until the Court determines whether it is satisfied that the debtor has the requisite counter-claim, set-off or cross demand. Although the mere filing of the requisite affidavit brings the statutory extension automatically into play, the Court thereafter controls the matter. The sub-section recognises that the Court may not be able to hear the matter immediately. It may not be convenient to do so or the case may be complex and require that directions be given to both parties to define the issues and as to the giving of evidence. The filing of the affidavit operates as a statutory injunction to preserve the status quo until the Court determines the matter, ensuring that, in the meantime, there is no act of bankruptcy.
…
In my opinion the affidavit cannot merely contain an assertion that the debtor has a counter-claim, set-off, or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained: see Vogwell v. Vogwell (supra) at p. 85; Ebert's Case (supra) at p. 350; In Re A Debtor 1935 1 Ch. 347 per Slesser L. J. at p. 352.
It is as well to remember that the initial affidavit has to be filed within a limited time namely, the number of days after service of the bankruptcy notice upon the debtor fixed by the Registrar. These times are fixed by him without any knowledge on his part of the possibility of a counter-claim, set-off or cross demand being propounded by the debtor. In many cases it is difficult, if not impossible, for the debtor to present more than a mere outline of his case in the time available.
I do not think any good purpose would be served by my attempting to express a definitive formula as to what the original affidavit must contain. That must depend in every case on the particular facts and circumstances: see In Re a Debtor 1963 1 W.L.R. 61 per Upjohn L.J. at p. 56.
The fact that it is within the power of the Court to determine when the hearing of a matter under sub-s. 41 (7) will take place, and thus the length of the extension of time to comply with the requirements of the bankruptcy notice; and the difficulty, if not impossibility in some case, of the initial affidavit being anything other than a mere outline of the debtor's case due to the temporal constraints imposed by the notice, all point to the conclusion that the Courts should adopt a benevolent construction to the initial affidavit.
The details provided in the affidavit were of existing proceedings in relation to which the applicant disclosed motions to have the application struck out for want of jurisdiction and proceedings in the New South Wales Court of Appeal. Adopting the “benevolent construction” referred to in Re Brink at 440, I am satisfied that the affidavit was sufficient to show the nature and substance of the claim and to demonstrate that Mr Rose was bona fide in his contention that such a claim existed, in the sense that the proceeding was on foot and he believed it constitutes a counter-claim, set-off or cross demand such as to meet the requirements of r.3.02.
The issue of whether in light of the Court of Appeal decision the absence of any clear reformulation of the claim presents a difficulty was not specifically addressed in post-hearing submissions. I am of the view that even if a stricter view is to be taken of the extent to which r.3.02 requires disclosure of details of any asserted counter-claim, set-off or cross demand, such that Mr Rose’s affidavit of 18 May 2011 does not, strictly speaking, comply with r.3.02 in relation to the claim constituted by the Industrial Court proceedings, it is appropriate in the circumstances of this case to dispense with such compliance (see Crimmins at [21]). The affidavit contained more than a mere assertion of a s.41(7) claim and showed, at least in general terms, a claim that was based on existing proceedings that was said to equal or exceed the amount of the judgment debt in circumstances where one can infer that such claim could not have been set up in the High Court proceedings in which the costs order was made that formed the basis for the bankruptcy notice. It was not suggested that the court lacked the power to grant such a dispensation.
What is critical and what ought to be the focus of consideration in a case such as this is what Branson J would regard as the second stage: that is whether I am satisfied that the applicant has such a claim as is referred to in s.40(1)(g) of the Act.
It is appropriate in that context to have regard to all the evidence before the court, including the fact of the judgments involving Meriton and Rose in the Industrial Court, the Federal Court and the Court of Appeal referred to above (see Re Brink at 439 and Crimmins at [25]).
As counsel for the applicant contended:
The fundamental issue…is whether it is just that the applicant’s offsetting claim should be determined before the bankruptcy proceedings are allowed to continue, that is, whether it is a claim which it is proper and reasonable to litigate: Vogwell v Vogwell (1939) 11 ABC 83 per Latham J; Guss v Johnstone (2000) 171 ALR 598 at [39].
…what needs to be shown is a prima facie case on the claim with reasonable prospects of success.
The applicant must satisfy the court on the whole of the material before it (Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346; [1960] HCA 50) of three “interrelated and sometimes overlapping matters” referred to by Lindgren J in Glew v Harrowell at [9]. The first of these is:
that they have a “prima facie case”, even if they do not adduce evidence which would be admissible on a final hearing making out that case (Ebert v The Union Trustee Co of Australia Ltd [1960] HCA 50; (1960) 104 CLR 346 (“Ebert”) at 350; Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 (“Brink”) at 141; Gomez v State Bank of NSW Ltd [2002] FCAFC 101 at [17], [18]);
Relevantly, as the High Court stated in Ebert at 350; [5]:
The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out. In Re Duncan; Ex parte Modlin (1917) 17 SR (NSW) 152; 34 WN 49 Street J. said that the debtor need not satisfy the Court that there are reasonable grounds for believing that he will establish his cross action, but only that he has a bona fide claim which he is fairly entitled to litigate. This perhaps is expressed too favourably to the debtor.
Rather, as Dodds-Streeton J pointed out in Axarlis and Another v Pets Paradise Franchising (SA) Pty Ltd (2010) 183 FCR 521; [2010] FCA 319 at [23], the High Court in Ebert:
…apparently preferred the formulation of Roxburgh J who, in Re A Debtor (1958) 1 Ch 81 stated (at 99):
But not every demand will suffice. A demand made in bad faith would not be good enough. The debtor must satisfy the Court that he has a genuine demand. ... But in my opinion a demand must be more than bona fide. The Court must be satisfied that it had a reasonable probability of success.
The High Court in Ebert concluded (at 350):
Perhaps the standard may be expressed by saying that the debtor must show that he had a prima facie case, even if then and there he does not address the admissible evidence which would make out a prima facie case before a court trying the issues that are included in the counter-claim, set off or cross demand.
Insofar as in Re Brink Lockhart J treated the reference to a “prima facie” case in Ebert as a reference to “a fair chance of success” (at 439), in Glew v Harrowell Lindgren J suggested (at [9]) that the second matter to be established by the debtor was:
…that they have “a fair chance of success” or are “fairly entitled to litigate” the claim: Brink at 141; Re Gould; Gould v Day [1999] FCA 1650 at [27], [28]; Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 at [11])
The third requirement is (Glew v Harrowell at [9]):
…that they are advancing a “genuine” or “bona fide” claim (Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 at [11]).
As Lindgren J pointed out in Glew v Harrowell at [10] the court “is not required to undertake a preliminary trial of the counter-claim, set-off or cross demand” (Re Brink at 439) although it must make “some kind of preliminary assessment”. The necessary state of satisfaction “involves weighing up considerations as to the legal and factual merit of the claim relied on by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim” as discussed in Guss v Johnstone at [40], although “the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor” (Glew v Harrowell at [11].
I have also borne in mind that evidence tendered on an application to set aside a bankruptcy notice “is to be tested for admissibility, not as if the proceedings were one in which the debtor’s claim was being finally determined, but by reference to the question whether the Court should be satisfied that the debtor has a claim deserving to be finally determined” (Glew v Harrowell at [11]).
Lindgren J summarised the effect of these principles by concluding at [12] that:
a debtor must satisfy the Court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
The Industrial Court proceedings claim
Mr Rose asserted (and it is not in dispute that) a claim under s.106 of the IR Act is capable of being a counter-claim or cross demand (see Re Zakrzewski; Zakrzewski v Rodgers (2000) 178 ALR 694; [2000] FCA 1187 at [33] – [34] per Madgwick J).
The issue of the jurisdiction of the Industrial Court and the standing of Mr Rose to bring such proceedings against Meriton (and the Owners Corporation) was the subject of consideration by the New South Wales Court of Appeal at the time of the hearing in this matter. As discussed above, the Court of Appeal has since found that the Industrial Court had no jurisdiction to hear and determine Mr Rose’s claim in its present form because the application had not been made by a person with standing within any of the categories identified in the IR Act. The Court of Appeal made orders prohibiting the Industrial Court from making the substantive orders sought by Mr Rose in his summons of 27 April 2005.
This raises a significant obstacle in relation to the issue of whether the legal and factual merit of the claim warrants requiring any further bankruptcy proceedings to await the determination of Mr Rose’s asserted claim against Meriton. In any event, whatever the effect of the Court of Appeal decision and whether or not Mr Rose has any prospect of success in his application for special leave to appeal (which cannot be determined on the evidence before the court), for the reasons that follow I am not satisfied that Mr Rose has established that there is sufficient substance to the asserted claim to make it one which he should in justice be permitted to have heard and determined such as to warrant setting aside the bankruptcy notice. The decision of the Court of Appeal merely reinforces that conclusion.
First, having regard to the existence and history of the Industrial Court proceedings and associated proceedings, I am satisfied on the evidence before me that Mr Rose is bona fide in holding the view that he has a genuine claim. However a claim must be more than bona fide to warrant setting aside a bankruptcy notice (In re A Debtor [1958] 1 Ch. 81 at 99; [1957] 2 All ER 551). The evidence before the court is not such as to satisfy me that Mr Rose’s asserted claim has a reasonable probability of success such that it is just that that claim should be determined before any bankruptcy proceedings are allowed to continue, in the sense that it is proper and reasonable to litigate such a claim (In Re Foster; Ex parte Basan [1885] 2 Morr. 29 at 33 - 34; Re Duncan; ex Parte Modlin (1917) 17 SR (NSW) 152; (1917) 34 WN(NSW) 49; Rivett; Ex parte Edward Fay Ltd (1932) 5 ABC 182 at 187 - 188 per Lukin J; Vogwell v Vogwell (1939) 11 ABC 83 at 85 per Latham CJ; Bhagat at [53] and Guss v Johnstone at [39] per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ).
I have borne in mind that Mr Rose commenced the Industrial Court litigation well before the bankruptcy notice was issued, so that in no sense can such litigation be characterised as a mere response to bankruptcy proceedings. However this does not establish that it is a claim that the debtor is fairly entitled to litigate in the sense considered in Glew v Harrowell.
Indeed, Mr Rose has not provided sufficient evidence to this court to enable it to “weig[h] up considerations as to the legal and factual merits” of the substantive claim relied upon by him as considered in Guss v Johnstone at [40]. Even if the Industrial Court had jurisdiction, that would not of itself demonstrate any substance in the asserted claim. Mr Rose has not established a “reasonable probability of success” (In re A Debtor at 99 and Bhagat at [52]).
It is the case that in Glew v Harrowell at [11] Lindgren J acknowledged that the debtor was not required to prove as on a final hearing the asserted entitlement to recover from the creditor and:
Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor’s claim was being finally determined, but by reference to the question whether the Court should be satisfied that the debtor has a claim deserving to be finally determined.
However, it is well established that the mere production of a statement of claim or other pleading in an action that pleads facts which, if proven, would support a claim, is not sufficient. As Brett MR stated In re Foster at 33 “[a] statement of claim is no evidence of anything” (See Re Cox (1934) 7 ABC 98 at 101; Rivett; Re Player (1962) 19 ABC 277 at 282; Re Verma; Ex Parte Deputy Commissioner of Taxation (1985) 4 FCR 181 at 187; [1984] FCA 340, Bhagat at [53], Glew v Harrowell and Axarlis at [29]). The same may be said about a summons.
In this case, the summons is not accompanied by any evidence filed or intended to be filed in the Industrial Court. In contrast, in Zakrzewski there was more than a mere assertion of unfairness in a claim under the IR Act, including evidence to support the debtor’s claim such as statements made on oath by him about the factual basis for his IR Act claim. Moreover, while the summons referred to “further particulars” being given, there is no evidence before this court of any such particulars. The summons is very limited in the manner in which it articulates the asserted liability of Meriton to Mr Rose, beyond the pleading that Mr Rose was a director and shareholder of Regis, that he “personally purchased approximately ten units” in an apartment complex (Regis Towers) being developed by Meriton and that Meriton made “certain representations” to him and to Regis about which he claimed:
Further particulars of the representations will be furnished in an amended Summons for Relief, or otherwise provided to the Respondents.
There is no evidence of particulars, yet such representations are the crux of his action against Meriton.
It was also pleaded that on 20 April 1999 Meriton executed a Deed with Regis (not Mr Rose) whereby Meriton agreed to procure a Caretaker Agreement between the company Regis and the Owners Corporation and that “[c]ontrary to the representations” made by Meriton to Regis and to Mr Rose “the standard of the Regis Towers Strata Scheme was not satisfactory in that it did not comply in certain material respects with the Building Code of Australia and consequently, the remuneration payable under the Caretaker Agreement was insufficient to permit Regis Towers Real Estate and [Mr Rose] to discharge their duties under the Caretaker Agreement”, so they “bore considerable expenses at their own loss”.
Beyond this, there is no evidence as to what representations were made, by whom and in what circumstances and why they were said not to be accurate. Rather, it was generally contended that the contract was unfair in that Mr Rose “was induced to invest money in consideration for entering into the contract based upon representations made by [Meriton] which were untrue at the time that they were made, or which later became untrue, thereby causing [Mr Rose] to suffer loss and damage”. Moreover in the summons the losses claimed were said to be due to the conduct not only of Meriton but also of the Owners Corporation.
In addition, Mr Rose’s quantification of his claims in his affidavit (to the extent that it nominated amounts) is unsupported by anything but his statement that these were his estimates of the quantification (see Dekkan v Macquarie Leasing Pty Limited (No.2) [2008] FCA 1431 at [15]). The claims of loss are not properly particularised. Mr Rose’s affidavit also describes the relief he asserts he is seeking in different terms to that asserted in the summons. The affidavit does not set out any facts on which the claims are said to be based.
While the summons contains particulars purporting to set out the manner in which certain amounts claimed were calculated, they provide little assistance in explaining how such amounts were arrived at. The amounts referred to in the affidavit differ from the amounts referred to in the summons. It is not sufficient for a debtor to file an affidavit which merely propounds a claim and states how the debtor proposes to establish it: (Ebert at 350; Bhagat at [53]; Vogwell v Vogwell at 88 per Latham CJ; Re Player at 282 and see Re Brink (at 439)). Some evidence, including documents, is necessary to enable the court to determine whether the claim is one which the debtor is “entitled to litigate” in the sense considered in these cases (Ebert at 350). Mr Rose’s affidavit does not contain such evidence. Even if Mr Rose was able to overcome the Court of Appeal decision by the foreshadowed appeal in relation to jurisdiction or by reformulating his claim and somehow joining Regis as a party (an issue discussed below) the evidence does not satisfy me that he has a fair chance or a reasonable probability of success against Meriton.
I have had regard to the contention for Mr Rose that the affidavit sworn by Katerina Mihail, the solicitor for Meriton, filed in these proceedings on 31 May 2011 in some way supported the validity of his claim in the Industrial Court. I am not persuaded that the fact that Ms Mihail stated that Meriton disputed all of the claims of the applicant in the Industrial Court proceedings establishes the validity of Mr Rose’s claim or even that it is capable of being argued.
The applicant submitted that the history of the litigation between the parties was also relevant in that it showed that issue had been joined and that the claim was proceeding in circumstances where there had been a number of challenges as to its competence. This was said to suggest that there was a claim that was capable of being prosecuted because it had been prosecuted, notwithstanding that the background of the claim to date has rested on the competency of those proceedings.
The fact that after Mr Rose became bankrupt Meriton filed a strike out motion challenging the validity of the actions of his trustee in bankruptcy based on provisions in the Bankruptcy Act and submitting that Mr Rose lacked standing to apply for relief under the IR Act on the basis that he was not a “party to the contract” and that it did not seek summary dismissal on some other basis, was said by the applicant to involve a recognition of the merits of Mr Rose’s underlying claim such that the court should, notwithstanding the limited evidence before it, be satisfied in that respect. I do not accept that such an inference should be drawn from the basis for the strike out motion.
Further, while Mr Rose’s subsequent appeal to the Full Bench of the Industrial Court was consistent with his belief in the bona fides of his underlying claim, it does not establish the merits of any underlying claim by him against Meriton. Even if Mr Rose had standing to commence the proceedings and was bona fide in his claim, this would not address the substance of the underlying claim by him against Meriton. In that respect I note that the Full Bench of the Industrial Court was dealing with a strike out application and proceeded without any “substantive examination of the relevant contractual arrangements and the appellant’s connection with those arrangements” (Rose v Meriton Apartments (2007) at [41]). Moreover the Court of Appeal has found that the Industrial Court has no jurisdiction to hear and determine Mr Rose’s claim for relief in its present form as he has not been shown to be a party to any relevant contract or arrangement.
The Federal Court proceedings, in which Meriton (and the Owners Corporation) sought to quash the Industrial Court finding based on provisions of the Bankruptcy Act as an impermissible exercise of the jurisdiction in bankruptcy, did not relate to the merits of the substantive application.
Insofar as the applicant appeared to contend that it could be implied from the fact of such litigation that there must be some substance in his underlying claim, it is important to note that his claim is not only against Meriton but also against the Owners Corporation. Moreover as matters presently stand, the Industrial Court has no jurisdiction in relation to the claims asserted in the summons. Even if in some circumstances such an inference might be warranted, this is not such a case, notwithstanding the “saga” of litigation involving all three parties described by Handley AJA (at [39]) in the 2009 Court of Appeal decision.
The degree to which the parties have engaged in litigation in the Industrial Court and in other courts is not such as to establish that the debtor has a substantive claim that ought fairly to be litigated, such as to warrant setting aside the bankruptcy notice. The existence of such proceedings between the parties does not, either of itself or in combination with all the other evidence before the court, establish that the applicant has a reasonable probability of success or some reasonable ground for bringing his action against Meriton (see Bhagat at [12]) such as to satisfy me to the standard considered in Glew v Harrowell that it is a claim such that the bankruptcy notice should be set aside.
I do not accept the submission of counsel for Mr Rose that the decision of the Court of Appeal did not change the position in relation to the claim Mr Rose brought in the Industrial Court. The fact that the Court of Appeal has held that the Industrial Court does not have jurisdiction to hear and determine Mr Rose’s claim in its present form reinforces my conclusion that the “claim” against Meriton is not such as to warrant setting aside the bankruptcy notice.
I accept that Mr Rose intends to seek special leave to appeal to the High Court in relation to the jurisdiction of the Industrial Court. There is, however, no evidence of the basis for such application. As indicated above, the fact that he believes he has a genuine claim is not sufficient and even if the Industrial Court had jurisdiction on the basis that Mr Rose was a party to a relevant contract or arrangement that would not establish a claim against Meriton of sufficient substance to warrant setting aside the bankruptcy notice. The likelihood that the High Court may grant special leave to appeal and uphold a foreshadowed appeal was not addressed in these proceedings.
Further, as Sackville AJA pointed out in the Court of Appeal, even if Mr Rose could reformulate his claim to establish that he was a party to an agreement or arrangement, no such arrangement is identified in the summons (at [96]). Nor is there any evidence in these proceedings of any basis for such a reformulation.
The applicant submitted that the Court of Appeal did not rule that the claim was “hopeless”, but rather found that the Industrial Court lacked the jurisdiction to make the orders sought in the form of the summons before it. However the Court held that the Industrial Court had no jurisdiction to hear and determine the claim in summons. While the Court of Appeal left open the possibility that Mr Rose could establish facts that would establish an arrangement to which he was a party for the purposes of s.108 of the IR Act could amend to the summons so as to allege a contract or arrangement to which he was a party, there is no evidence as to the nature of any such possible reformulated claim. Such a theoretical possibility does not satisfy me that there is a claim with a reasonable probability of success.
Moreover, Sackville AJA stated that the failure to join Regis as a party to the Industrial Court proceedings deprived the Industrial Court of jurisdiction to entertain a claim by Mr Rose for relief under s.106(2) of the IR Act.
Regis was deregistered on 21 September 2009 and was previously in liquidation. The applicant conceded that a deregistered company could not be made a party to any legal proceedings, but submitted that insofar as it was necessary for Regis to be a party to any reformulated Industrial Court proceedings (which Mr Rose was said to intend to dispute in the High Court) a company’s registration could be restored if a court was satisfied it was just to do so. It was submitted that Mr Rose could seek such an order as a person aggrieved by the deregistration within s.601AH(2) of the Corporations Act. Reliance was placed on the fact that a person who wished to pursue litigation against a deregistered company was such a “person aggrieved” (see Australian Competition and Consumer Commission v Australian Securities and InvestmentsCommission (2000) 174 ALR 688; [2000] NSWSC 316, but there was no explanation of any basis on which Mr Rose could seek orders against Regis in the Industrial Court proceedings. Moreover, even if registration could be restored, Regis was in liquidation.
The consent of the liquidator would be required.
There is no evidence to support any inference that if the registration of Regis was restored, the liquidator would give any necessary consent.
It was submitted that the absence of Regis in the claim as presently formulated was not an “insurmountable obstacle” to Mr Rose’s claim against Meriton in the Industrial Court. However the issue is not whether there is an “insurmountable obstacle” but rather whether the evidence is sufficient to satisfy the court that Mr Rose has a claim of the nature and substance referred to in Glew v Harrowell.
In conclusion, even if Mr Rose was able to overcome the existing jurisdictional obstacle by success in the High Court the evidence, including the summons for relief in the Industrial Court proceedings, the affidavit sworn by Mr Rose in these proceedings and the evidence of proceedings between the parties is insufficient to satisfy the court that he has a counter-claim, set-off, or cross demand of the kind referred to in s.40(1)(g) of the Act. The material before the court does not satisfy me that there is sufficient substance to the asserted claim consisting of the proceedings in the Industrial Court to make it one in which Mr Rose “should in justice, be permitted to have heard and determined in the usual way”, rather than being forced to comply with the bankruptcy notice or commit an act of bankruptcy (Glew v Harrowell at [12]). Apart from the jurisdictional issue, there is insufficient evidence before this court of the basis for Mr Rose’s claim against Meriton.
The fact that the Industrial Court lacks jurisdiction to determine Mr Rose’s claim as presently formulated reinforces my view that a s.40(1)(g) claim has not been established and that the bankruptcy notice should not be set aside, particularly in the absence of any evidence as to grounds of appeal or how the claim might be intended to be reformulated in the manner left open by the Court of Appeal. Sackville AJA was of the view that any claim on the basis that Mr Rose was party to an arrangement was not formulated with precision (at [96]). There has been no suggestion as to any possible reformulation in these proceedings.
In these circumstances the possibility of pursuing an application for special leave to appeal or an as yet unformulated claim against Meriton does not suffice. Further, it would appear that Mr Rose would face significant obstacles in the need to obtain orders restoring Regis’s registration (and leave to proceed against Regis as a company in liquidation should any unformulated claim involve an attempt to join Regis as a respondent in the Industrial Court proceedings as now appears to be suggested). There is no evidence of any basis for such a claim by Mr Rose against Regis.
The circumstances (including the history of the litigation between the parties) are not such as to satisfy me that Mr Rose has a prima facie case or a reasonable prospect of success in a claim against Meriton that ought fairly to be litigated such that the bankruptcy notice should be set aside.
I am not satisfied that Mr Rose has a claim of the sort referred to in s.40(1)(g) of the Act such that the bankruptcy notice should be set aside.
The Industrial Court costs order
Counsel for the applicant conceded that the costs order made in favour of Mr Rose in the Full Court of the Federal Court had been taxed and paid and was of no relevance in the present proceedings. No costs order was made in his favour by the Court of Appeal. However, Mr Rose sought to rely on the order made by the Full Bench of the Industrial Court on 14 February 2008 that Meriton pay his costs of the proceedings at first instance with respect to the hearing of the Notice of Motion that had been filed by Meriton on 23 February 2006 (which was dismissed by the Full Bench of the Industrial Court), notwithstanding that the Court of Appeal has subsequently quashed the order dismissing Meriton’s notice of motion.
Initially it was suggested in submissions for Mr Rose that this costs order had been lodged for assessment. However the material before the court consists of copies of a tax invoice dated 11 May 2011 rendered to Mr Rose by his solicitors in the amount of $25,907, a copy of his fee agreement with his solicitors and a copy of an incomplete application for assessment of party/party costs under the Legal Profession Act 2004. There is no evidence that any such application has been lodged.
It was submitted that the costs order gave rise to a counter-claim, set-off or cross demand that would be a complete set-off in relation to the amount of the debt relied on in the bankruptcy notice and that the fact that an application for party/party costs assessment had been prepared demonstrated the applicant’s readiness to pursue those costs at the conclusion of the proceedings in the Industrial Court.
The applicant also submitted that even though these costs were not payable forthwith and related to interlocutory proceedings, provided there was an order of the court, even if that was not immediately enforceable, that indicated “the existence of something in the nature of a claim”. There was said to be no requirement that there “be a claim that [wa]s crystallised or quantified” (except insofar as one had to meet the requirements of the Bankruptcy Rules by making some attempt to quantify the claim in the supporting affidavit). Hence it was submitted that this was a counter-claim, set-off or cross demand within s.40(1)(g) notwithstanding that it was in relation to interlocutory proceedings and was not final and not yet payable.
The applicant acknowledged that reliance could not be placed on a “contingent or inchoate claim”, but submitted that there was nothing preventing there from being some restriction on immediate recovery of a claim that nonetheless fell within s.40(1)(g) of the Act. It was contended that the costs claim had “reasonable prospects of being recovered at the conclusion of the proceedings”, that the claim was capable of being quantified as deposed to in Mr Rose’s affidavit, and that it was capable of off-setting the costs order that formed the basis for the bankruptcy notice in full.
In the alternative it was submitted that the costs order related to a quantified amount which was capable of off-setting the amount of the judgment debt forming the basis of the bankruptcy notice which would be “litigated or brought to crystallisation…at the conclusion of the Industrial Court proceedings” and that on that basis the bankruptcy notice should be “set aside to await determination of that claim”.
Insofar as the respondent submitted that the order for costs made by the Full Bench of the Industrial Court on 14 February 2008 was not currently enforceable and may never be and pointed out it was not an order that the costs be paid forthwith, the applicant submitted that this sought to conflate the requirement imposed on a creditor to obtain a “final judgment or final order” with the debtor’s entitlement to have a bankruptcy notice set aside when possessed of a counter-claim, set-off or cross demand and that this was contrary to the clear terms of s.40(1)(g) of the Act. It was also submitted that if a claim that was proceeding in the courts, but was not yet subject to an order, was capable of being a counter-claim, set-off or cross demand for the purposes of s.40(1)(g) of the Act, then the same could be said about a costs order of this nature. It was submitted that the fact that a costs order was not immediately payable (due to the operation of Uniform Civil Procedure Rules 2005 (NSW) 42.7(2)) did not mean that it could not be the subject of a counter-claim, set-off or cross demand, as if the Industrial Court case continued to its conclusion the plaintiff would have the benefit of that order regardless of the outcome.
The applicant also submitted that the Court of Appeal decision left the Full Bench of the Industrial Court costs order in effect. It did, however, quash the order dismissing Meriton’s notice of motion to which the costs order related. The respondent submitted that as the result of the decision of the Court of Appeal the order for costs of the Full Court was not enforceable and could not be enforceable. It was also pointed out that there was no evidence before the court of any prospect of a reformulated claim.
There is no dispute that the costs order in the Industrial Court proceedings was not one that could have been raised in the High Court proceedings or in any assessment of the costs of those proceedings that formed the basis for the bankruptcy notice.
Given the result of the proceedings in the Court of Appeal I am not satisfied that it would be appropriate to “await” determination of Mr Rose’s Industrial Court claims as appeared to be contended for by the applicant.
As to the nature of the claim for costs made in an interlocutory proceeding, at the time the costs order was made (14 February 2008) the applicable regulations were the Industrial Relations Commission Rules 1996 (NSW). These had to be seen in light of s.181 of the IR Act which gave the Commission (as the Industrial Court) the power to make orders in relation to costs. As at 14 February 2008, reg.203(2) of the Industrial Relations Commission Rules provided that:
Where the Commission makes an order in any proceedings for the payment of costs the Commission may require that the costs be paid forthwith notwithstanding that the proceedings are not concluded.
At the time the costs order was made the proceedings were not concluded. The Industrial Court did not require that the costs in question be paid forthwith.
In any event, the parties were in agreement that r.42.7 of the Uniform Civil Procedure Rules was applicable (and see former reg.89 of the Industrial Relations Commission Rules as in force at the relevant time). It provides:
(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including:
(a) costs that are reserved, and
(b) costs in respect of any such application or step in respect of which no order as to costs is made,
are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.
(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings. (Emphasis added).
The costs of the appeal to the Full Bench of the Industrial Court in relation to the strike out and security for costs applications of Meriton and the Owners Corporation and Mr Rose’s amendment application were dealt with by the orders made on 14 February 2008. One of those orders provided specifically that the Owners Corporation was to pay “forthwith” Mr Rose’s costs of the appeal proceedings. However the order that is relevant in these proceedings simply ordered Meriton to pay his costs of the hearing at first instance. This was the hearing of Meriton’s strike out application. The costs order did not nominate a time for payment of such costs. In the absence of an order that those costs were payable forthwith, they would not be payable until the conclusion of the proceedings (either on the basis of the Industrial Relations Commission Rules or having regard to r.42.7 of the UCPR). Moreover, the order in favour of Mr Rose that led to this costs order has been quashed against Meriton. The matter has been remitted to the Industrial Court on the basis that the Industrial Court is prohibited from making the substantive orders sought by Mr Rose in his summons.
Even if the costs order were for some reason to remain unchallenged and the Industrial Court proceedings remain on foot, notwithstanding the Court of Appeal decision, Mr Rose has no presently enforceable right to recover any monies as a result of the order made by the Full Bench of the Industrial Court. Unless and until the substantive proceedings are determined (which would in practical terms depend on Mr Rose succeeding in establishing jurisdiction or reformulating a claim) he may never have such a right. Moreover the draft application for assessment of party/party costs annexed to Mr Rose’s affidavit does not suffice to quantify the claims. There is no evidence that the applicant is at liberty to have his costs taxed until the end of the proceedings (and no evidence of any order to the contrary by the Industrial Court). Nor is there any evidence that the solicitor’s recent tax invoice has been paid, such that it could be contended that Mr Rose had given some sort of imprimatur to the quantification of the bill by paying it.
There has not been such quantification of the costs order and as the order is not taxable or payable until the end of the proceedings, it has not been established that there is a “crystallised claim of the kind contemplated by s.40(1)(g)” (see Carriage v Stocklands Developers Pty Ltd, in the matter of Carriage [2004] FCA 930 at [9] per Madgwick J). That case is directly in point. On this basis I am not satisfied that Mr Rose has an extant counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt relied on in the Bankruptcy Notice.
The application to set aside the Bankruptcy Notice should be dismissed with costs.
I certify that the preceding one-hundred and fourteen (114) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 16 September 2011
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