Kiddle v Nguyen
[2021] FedCFamC2G 53
•17 September 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
Kiddle v Nguyen [2021] FedCFamC2G 53
File number(s): SYG 1246 of 2020
SYG 2597 of 2020
SYG 2633 of 2020
SYG 2634 of 2020Judgment of: JUDGE MANOUSARIDIS Date of judgment: 17 September 2021 Catchwords: BANKRUPTCY – whether a proceeding in which a claim is made for compensation under s 545 of the Fair Work Act 2009 (Cth) (FW Act) and a claim is made for the payment of a pecuniary penalty under s 546(1) of the FW Act is a proceeding in respect of a “provable debt” within the meaning of s 229(2)(c) of the Bankruptcy Act 1966 (Cth) (Act) – neither a claim for compensation nor a claim for the payment of a pecuniary penalty is a “provable debt” within the meaning of s 229(2)(c) of the Act and therefore the proceeding in which such claims are made is not a proceeding in respect of a “provable debt” within the meaning of s 229(2)(c) of the Act. Legislation: Bankruptcy Act 1966 (Cth) ss 52(1), 58(1), 58(3), 82, 102(1), 109, 187(1), 187(2), 188(1), 188(2), 188(2C), 188(2D), 188(2E), 188(6), 188A(1), 188A(2), 189(1), 189(1A), 204, 216(1), 229, 231
Fair Work Act 2009 (Cth) ss 45, 341(1)(a), 345, 545, 546, 550(1), 550(2)
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 8
Cases cited: ABB Australia Pty Limited v Commissioner of Taxation [2007] FCA 1063
Australian Competition and Consumer Commission v Smart Corporation Pty Ltd (No 3) [2021] FCA 347
CFMEU & Ors v RGN Mining Services Pty Ltd & Anor [2018] FCCA 162
Cornelius v Barewa Oil & Mining (NL) (in liq) (1982) 64 FLR 287
Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234
Ex parte Llynvi Coal and Iron Co (1871) LR 7 Ch App 28
Ex parte Ruffle; In re Dummelow (1873) LR 8 Ch App 997
Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52
Klein v Minister for Education [2007] HCA 2
McDermott v Black [1940] HCA 4; (1940) 63 CLR 161
Saif Ali v Sydney Mitchell and Co [1980] AC 198
State of Victoria v Mansfield [2003] FCAFC 154
Division: Division 2 General Federal Law Number of paragraphs: 45 Date of hearing: 26 May 2021 Place: Sydney Counsel for the Applicants: Mr A Britt Solicitor for the Applicants: Fletch Law The Respondent: No appearance by, or on behalf of, the respondent Solicitor for the Trustee of Nguyen: Mr A Rollins of Sage Solicitors ORDERS
SYG 1246 of 2020 THE FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: NICHOLAS KIDDLE
Applicant
AND: TRUNG NGUYEN
Respondent
SYG 2597 of 2020 BETWEEN: LUKE WILLERS
Applicant
AND: TRUNG NGUYEN
Respondent
SYG 2633 of 2020 BETWEEN: JOSHUA HALL
Applicant
AND: TRUNG NGUYEN
Respondent
SYG 2634 of 2020 BETWEEN: DOMENIC GRASSO
Applicant
AND: TRUNG NGUYEN
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
17 SEPTEMBER 2021
THE COURT DECLARES THAT:
1.No part of this proceeding is in respect of a “provable debt” within the meaning of s 229(2)(c) of the Bankruptcy Act 1966 (Cth).
THE COURT ORDERS THAT:
2.The proceeding is listed for directions at 9:30 am on 1 October 2021.
THE COURT NOTES THAT:
3.These orders are the orders of the Federal Circuit and Family Court of Australia (Division 2).
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
In these reasons for judgment I consider as a separate question whether s 229(2)(c) of the Bankruptcy Act 1966 (Cth) (Act) applies to prevent four former employees (Employees) of T2HD Networks Pty Ltd (Employer) from taking any fresh step in proceedings they separately commenced in this Court against Mr Nguyen under the Fair Work Act 2009 (Cth) (FW Act). The determination of that question turns on whether, and, if so, to what extent, each proceeding is a “legal proceeding in respect of a provable debt” within the meaning of s 229(2)(c) of the Act. More particularly, the question turns on whether any one or more of the claims the Employees make in the proceedings is a “provable debt” for the purpose of s 229(2)(c) of the Act.
To be in a position to consider this question, it will be necessary to describe how the question arises, the relevant statutory provisions by reference to which the question is to be determined, the terms of a personal insolvency agreement (PIA) Mr Nguyen executed on 25 January 2021, and the meaning of “provable debt”.
HOW THE QUESTION ARISES
In each of the proceedings the Employees claim the Employer breached a number of provisions of the Fitness Industry Award 2010 (Award) and, therefore, contravened s 45 of the FW Act; Mr Nguyen knowingly or recklessly made a false or misleading representation in relation to a workplace right and, for that reason, contravened s 345 of the FW Act; and Mr Nguyen was a person involved in the Employer’s contraventions of s 45 of the FW Act within the meaning of s 550(2) of the FW Act and, therefore, is to be taken to have contravened s 45 of the FW Act. Each Employee claims declarations, orders under s 546 of the FW Act for the payment of pecuniary penalties (Penalty Claims), and an order for compensation under s 545 of the FW Act in an amount that reflects “all amounts arising from the Respondent’s breach of civil penalty provisions as set out” in the relevant statement of claim (Compensation Claims).
Mr Nguyen filed a response and cross-claim in the proceeding commenced by Mr Kiddle, and that proceeding was referred to mediation. The mediation did not proceed, and the matter came back before me for directions on 24 November 2020. On that day I made directions for the filing of evidence, and listed the matter for further directions on 5 March 2021.
By letter dated 25 January 2021 Mr Chubb (Trustee) informed the Registrar of this Court that Mr Nguyen executed an authority under s 188 of the Act, and the Trustee had consented to act as trustee. The Trustee further stated that on 18 January 2021 the creditors of Mr Nguyen agreed to his signing a personal insolvency agreement, and Mr Nguyen signed the PIA on 25 January 2021. The Trustee said he was aware that four proceedings were on foot against Mr Nguyen, that s 229(2)(c) of the Act provided that all creditors are bound by the PIA, and that it is not competent for any of the Employees to take any fresh step in the proceedings they had commenced. The Trustee requested the Court stay each of the proceedings.
By email sent to my associate on 28 January 2021 the lawyer for the Employees said the Employees opposed any of the proceedings being stayed. That resulted in my making directions for the filing of submissions and evidence in relation to the determination of the question whether the PIA has the effect of staying each of the proceedings. Submissions and evidence were filed, and on 26 May 2021 I heard submissions on whether s 229(2)(c) of the Act applies to stay the proceedings.
PART X SCHEME
The usual scheme by which an insolvent debtor’s affairs are administered under the Act is that which applies when the Court makes a sequestration order under s 52(1) of the Act (Part IV scheme). On the making of a sequestration order, s 58(1) of the Act vests the bankrupt’s property in a trustee in bankruptcy (Part IV trustee). The Part IV trustee must then collect and realise the bankrupt’s property, and apply any available proceeds towards the payment of the bankrupt’s debts and liabilities that had accrued by, or which were liable to accrue after, the date on which the bankrupt committed the act of bankruptcy on the basis of which the sequestration order was made. The proceeds must be distributed according to the priorities prescribed by s 109 of the Act.
The Act defines the “property” the Part IV trustee is required or entitled to hold and collect.[1] The Act also defines the debts and liabilities to which the Part IV trustee must apply any proceeds of sale of the bankrupt’s property. The Act describes these debts and liabilities as debts and liabilities that are “provable” in a person’s bankruptcy; and s 82 of the Act identifies debts and liabilities that are and are not provable in a person’s bankruptcy. Further, the Act provides a procedure by which a person may claim that he or she is a creditor of the debtor, and by which the Part IV trustee considers and determines such claims. Under that procedure a person who claims to be a creditor must lodge with the Part IV trustee a proof of debt;[2] and such person will not be taken to be a creditor until “that debt has been admitted”.[3] The word “admitted” directs attention to two of the outcomes of the tasks s 102(1) of the Act requires the Part IV trustee to undertake after a person has lodged a proof of debt. That subsection provides:
The trustee shall examine each proof of debt and the grounds of the debt sought to be proved and, subject to the power of the Court to extend the time, shall, not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend as the period within which creditors may lodge their proofs of debt, either:
(a)admit the proof of debt in whole;
(b)admit it in part and reject it in part;
(c)reject it in whole; or
(d)require further evidence in support of it.
[1] See, for example, s 5 of the Act (definition of “property”); s 116 of the Act (property divisible among creditors); s 121 of the Act (transfers to defeat creditors), and s 122 of the Act (avoidance of preferences)
[2] Section 84 of the Act
[3] Section 83 of the Act
Part X of the Act provides an alternative scheme (Part X scheme) for administering the affairs of an insolvent debtor. As with the Part IV scheme, a trustee (Part X trustee) takes control of the debtor’s property to deal with it for the benefit of the debtor’s creditors. But the Part X scheme differs from the Part IV scheme in three principal ways; and these relate to the process by which the Part X trustee assumes control of the debtor’s property, the legal basis on which the Part X trustee holds the debtor’s property, and the terms on which a Part X trustee administers the debtor’s property.
Appointment of Part X trustee
The appointment of a trustee under the Part X scheme occurs in two stages. The first commences when the person who is a registered trustee, a solicitor, or the Official Receiver (authorised person) consents in writing pursuant to s 188(2) of the Act to exercise an authority a debtor gives to such person under s 188(1) of the Act to call a meeting of the debtor’s creditors and take control of the debtor’s property. A debtor may give an authority under s 188(1) of the Act only if he or she is connected with Australia in one of the ways specified by s 188(1) of the Act; and the authorised person can only consent to such authority if the authority the debtor gives is in the approved form signed by the debtor, the debtor gives to the authorised person a statement of the debtor’s affairs, and the debtor gives the authorised person a proposal for dealing with the debtor’s affairs under Part X of the Act that includes a “personal insolvency agreement”.[4] A “personal insolvency agreement” is defined in s 188A(1) of the Act to mean a deed that is expressed to be entered into under Part X of the Act, and which complies with s 188A(2) of the Act.[5]
[4] Subsections 188(2C), (2D), and (2E) of the Act
[5] Subsection 188A(1) of the Act
When the authorised person gives his or her consent, the authorised person “becomes the controlling trustee”;[6] “the property of the debtor becomes subject to control under” Division 2 of Part X of the Act;[7] and such control continues until one of the events specified in s 189(1A) of the Act occurs. One of those events is where “the debtor and a trustee execute a personal insolvency agreement following a special resolution of creditors”.[8]
[6] Subsection 188(6) of the Act
[7] Subsection 189(1) of the Act
[8] Paragraph (b) of s 189(1A)
The principal function of the controlling trustee is to call a meeting of the debtor’s creditors “in pursuance of” the authority the controlling trustee accepted for the purpose of the creditors’ considering and by special resolution resolving to do any one of the three things specified by s 204(1) of the Act. These are resolving that the debtor’s property be no longer subject to the Part X scheme, or requiring the debtor to execute a personal insolvency agreement, or requiring the debtor to present a debtor’s petition within 7 days from the day on which the resolution is passed. The controlling trustee is required to perform a number of tasks in connection with such creditors’ meeting. One is to prepare, and provide to the creditors and the Official Trustee, a report summarising and commenting on the information about the debtor’s affairs that is available to the controlling trustee, and stating whether the controlling trustee believes that the creditors’ interests would be better served by accepting the debtor’s proposal for dealing with the debtor’s affairs, or by the bankruptcy of the debtor.[9] Another task is to convene a meeting of creditors for the purpose of the passing of resolutions under s 204 of the Act; and prepare a written statement about the special resolutions under s 204 of the Act that may reasonably be expected to be passed at a meeting of creditors.[10]
[9] Section 189A of the Act
[10] Section 189B of the Act
The first stage of the process by which a person becomes a trustee of the debtor’s property under the Part X scheme ends, and the second stage begins, when three things occur: first, pursuant to s 204(1)(b) of the Act the creditors of the debtor, by special resolution, “require the debtor to execute a personal insolvency agreement”; second, pursuant to s 204(3) of the Act, the creditors, by resolution, nominate a trustee or trustees to be trustee or trustees “of the agreement”; and, third, pursuant to s 216(1) of the Act, within 21 days from the day on which a resolution has been passed requiring the debtor to execute a personal insolvency agreement, the debtor and the trustee execute a personal insolvency agreement.
Legal basis of control
A Part IV trustee holds and deals with the debtor’s property (as defined for the purposes of such scheme) by the direct application of the provisions that comprise the Part IV scheme. A Part X trustee, on the other hand, is a trustee of a personal insolvency agreement the debtor and the Part X trustee execute. That is the effect of s 204(3) of the Act, which requires the creditors to nominate by resolution “a trustee or trustees to be trustee or trustees of the agreement”, after the creditors, by special resolution, require the debtor to execute a personal insolvency agreement. This is reinforced by s 229(1) of the Act, which provides that a personal insolvency agreement that has been entered into in accordance with Part X of the Act, and which complies with the requirements of Part X of the Act, is “binding on all the creditors of the debtor”. Subsection 229(1) of the Act is in turn reinforced by s 229(2) of the Act, which provides:
If a personal insolvency agreement has become binding on the creditors of the debtor, it is not competent for a creditor, so long as the agreement remains valid:
(a) to present a creditor’s petition against the debtor, or to proceed with such a petition presented before the agreement became so binding, in respect of a provable debt; or
(b) to enforce any remedy against the person or property of the debtor in respect of a provable debt; or
(c) to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
Terms on which property administered
Given the Part X trustee is a trustee of a personal insolvency agreement, and, under s 229(1) of the Act, the Part X trustee and all creditors are bound by the terms of a personal insolvency agreement, it might reasonably be expected the property would be administered according to the terms of a personal insolvency agreement. That, in fact, is the case; but many of the provisions that comprise the Part IV scheme are made to apply in relation to a personal insolvency agreement and in relation to the Part X trustee, except to the extent those provisions are incapable of applying to a personal insolvency agreement or to a Part X trustee, or to the extent they are inconsistent with Part X of the Act. That is the effect of s 231(3), (4), and (6) of the Act, which are as follows:
(3)Subsection 58(4) and sections 60, 61, 62, 82 to 118, 127 to 130 and 133 to 139H, Subdivisions I and J of Division 4B of Part VI and sections 140 to 147 apply, with the prescribed modifications (if any), in relation to such an agreement [being a personal insolvency agreement as referred to in s 231(1)] as if:
(a) a creditor’s petition had been presented against the debtor by whom the agreement was executed on the day on which the special resolution requiring the execution of the agreement was passed; and
(b) a sequestration order had been made against him or her on that petition on the day on which he or she executed the agreement; and
(c) the trustee of the agreement were the trustee in his or her bankruptcy.
(4)In the application, by virtue of subsections (1), (2) and (3), of the provisions referred to in those subsections:
(a) a reference to the property of the bankrupt is to be read as a reference to the divisible property of the debtor; and
(b) a reference to a provable debt is to be read as a reference to a provable debt within the meaning of this Part; and
(c) a reference to the end of the bankruptcy is to be read as a reference to the end of the personal insolvency agreement.
. . . .
(6)If, after taking into account the prescribed modifications and the provisions of subsection (4), a provision specified in subsection (1), (2), (3) or (5) is incapable of application in relation to a personal insolvency agreement, or the trustee of such an agreement, as the case requires, or is inconsistent with this Part, that provision does not so have application.
The expression “divisible property” when used in relation to a personal insolvency agreement executed by a debtor under Part X of the Act is defined in s 187(1) of the Act to mean:
… the property, other than property that was acquired by, or devolved on, the debtor on or after the day on which he or she executed the agreement, that would be divisible amongst his or her creditors under Part VI if he or she had become a bankrupt on that day.
Subsection 187(2) of the Act provides that the expression “provable debt”, when used in relation to a personal insolvency agreement executed by a debtor under Part X of the Act, is to:
… be read as a reference to a debt or liability that would have been a provable debt in the debtor’s bankruptcy if the debtor had become a bankrupt on the day on which he or she executed the personal insolvency agreement.
Thus, a Part X trustee is required to administer a bankrupt’s property on the terms contained in a personal insolvency agreement, and subject to the provisions identified in s 231 of the Act to the extent such provisions are capable of applying in relation to a personal insolvency agreement or in relation to the Part X trustee, and only to the extent that such provisions are not inconsistent with the terms of a personal insolvency agreement, assuming it meets the requirements of s 188A(2) of the Act.
THE PIA
The PIA may be summarised as follows:
(a)The property that is available to be distributed to creditors is the net proceeds of sale of real property of which Mr Nguyen is the registered proprietor and which the Trustee will sell.
(b)Mr Nguyen agreed to make a voluntary contribution of $50,000, with $25,000 having been paid at the time the Trustee signed the authority Mr Nguyen had given the Trustee, and $25,000 on the execution of the PIA.
(c)Mr Nguyen offers no income to satisfy creditors’ claims.
(d)Mr Nguyen’s spouse has provided a signed statement that she will not participate in any distribution under the PIA for any debts owing to her or to her company.
(e)All other admitted creditors are “to be dealt with in accordance with the priorities afforded in section 109” of the Act.
(f)Mr Nguyen is to be released absolutely from “his provable debts upon distribution of the Property and voluntary contribution pro-rata amongst the creditors after deduction of” the Trustee’s costs.
(g)The PIA’s coming into effect is subject to two conditions, one of which is Mr Nguyen’s paying the $50,000 contribution.
PARTIES’ SUBMISSIONS
The Trustee submits:
(a)Each of the Penalty Claims and Compensation Claims is a “provable debt” within the meaning of s 229(2)(c) of the Act.[11]
(b)The Compensation Claims are provable debts because they are “claims for unpaid employee entitlements that have been dealt with as provable debts” in the PIA.[12]
(c)Subsection 82(3) of the Act does not apply to the Compensation Claims or the Penalty Claims; and that is because s 82(3) applies only where a court has “imposed” a penalty, that is, only after a court has made an order requiring the debtor to pay a penalty or, at least, only after a court had made findings on the basis of which it would be open to a court to make an order requiring the debtor to pay a penalty.[13]
[11] Respondent’s Outline of Submissions – Stay of Proceedings, [1]
[12] Respondent’s Outline of Submissions – Stay of Proceedings, [2]
[13] Respondent’s Outline of Submissions – Stay of Proceedings, [12]-[17], relying on State of Victoria v Mansfield [2003] FCAFC 154
Although in his written submissions counsel for the Employees referred to s 82(2) of the Act (to which I will refer later in these reasons), counsel appears to accept that each of the Compensation Claims is a “provable debt”, and, for that reason, s 229(2)(c) of the Act applies to each of the proceedings to the extent of those claims. Counsel for the Employees submits, however, that the Penalty Claims are not provable debts because they fall within s 82(3) of the Act. Counsel relies on a number of cases including a judgment of this Court in CFMEU & Ors v RGN Mining Services Pty Ltd & Anor.[14]
[14] CFMEU & Ors v RGN Mining Services Pty Ltd & Anor [2018] FCCA 162
That counsel for the Employees appears to concede that each of the Compensation Claims is a “provable debt” does not mean that I must accept that is the case. As Lord Wilberforce said in Saif Ali v Sydney Mitchell and Co, “Judges are more than mere selectors between rival views - they are entitled to and do think for themselves”;[15] and, as Kirby J said in Klein v Minister for Education, no “party, by its process or arguments can impose on this Court an incorrect application of the law”.[16] A court is of course bound to ensure that in deciding an issue on a basis that does not reflect the common assumption of the parties, it does not deny the parties procedural fairness; and that may require a court to give the parties notice that it does not accept a commonly held assumption. That consideration, however, does not apply in the proceedings before me. The Trustee has positively contended that the Compensation Claims are provable debts, and the Trustee relies on the correctness of that submission to submit the Penalty Claims are also provable debts. I am not bound to accept the first of those contentions only because counsel for the Employees appears to have accepted it to be correct.
[15] Saif Ali v Sydney Mitchell and Co [1980] AC 198, at page 212
[16] Klein v Minister for Education [2007] HCA 2, at [38]
The issues, therefore, are whether any one or more of the Compensation Claims is a “provable debt”, and whether any one or more of the Penalty Claims is a “provable debt”.
MEANING OF “PROVABLE DEBT”
It is reasonably clear that “provable debt”, as it appears in s 229(2) of the Act, is intended to have the meaning that is derivable from s 82 of the Act, being a provision that specifies debts and liabilities that “are provable” in a person’s bankruptcy. That follows from s 231(3) of the Act, which specifies s 82 of the Act as one of the sections that applies in relation to a personal insolvency agreement. Section 82 of the Act is not incapable of applying in relation to the PIA; and the PIA is consistent with s 82 of the Act.
Section 82 of the Act, however, does not use the expression “provable debt”. That expression is used in s 229 of the Act and other provisions of the Act as shorthand to describe the debts and liabilities s 82 of the Act specifies are “provable in his or her [i.e., the bankrupt’s] bankruptcy”.[17] These words direct attention to the procedure to which I have referred by which persons who claim they are creditors of a bankrupt may assert that claim by lodging with the trustee in bankruptcy a proof of debt, and the trustee determines whether to accept or reject such claim. The words “provable in his or her bankruptcy”, therefore, when applied to the debts and liabilities s 82 of the Act identifies as being so provable, identify the types of debts or liabilities that can be the subject of a proof of debt, and which are capable of being admitted by the trustee under s 102(1) of the Act.
[17] “Provable debt” is defined in s 5(1) of the Act to mean “a debt or liability that is, under this Act, provable in bankruptcy”.
Section 82 of the Act identifies the debts and liabilities that are provable in a bankruptcy by defining a class of debts and liabilities that are provable in a person’s bankruptcy, and by separately defining particular classes of debts or liabilities that are not provable in a person’s bankruptcy. Subsection 82(1) of the Act identifies the debts and liabilities that are provable as follows:
Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
Subsection 82(1) of the Act is broad:[18]
Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.
[18] Ex parte Llynvi Coal and Iron Co (1871) LR 7 Ch App 28, at pages 31-32 (James LJ, speaking of s 31 of the Bankruptcy Act 1869 (UK))
The balance of s 82 of the Act identifies classes of debts or liabilities that are not provable in bankruptcy. One class is the liabilities identified in s 82(2) of the Act, namely, “[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust”. The High Court considered the meaning and application of s 82(2) of the Act in Coventry v Charter Pacific Corporation Ltd.[19] The question in that case was whether a “statutory claim for unliquidated damages for misleading or deceptive conduct which induced the claimant to make a contract not with the bankrupt but with a third party” is a “debt provable in bankruptcy”.[20] The High Court held that such a claim is “a demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise”.[21] By contrast, the High Court also held that a “claim for unliquidated damages for misleading or deceptive conduct by the bankrupt, which induced the claimant to make a contract with the bankrupt, would be a debt provable in bankruptcy”.[22]
[19] Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234
[20] Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234, at page 239 (plurality)
[21] Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234, at page 239 (plurality) (emphasis in original)
[22] Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234, at page 239 (plurality)
That a claim is expressed to be made for a liquidated amount of money does not necessarily mean the claim is not a demand “in the nature of unliquidated damages”. That point was made in the judgments of the Full Court of the Supreme Court of Western Australia in Cornelius v Barewa Oil & Mining (NL) (in liq).[23] Burt CJ said:[24]
In my opinion s. 82(2) of the Bankruptcy Act when speaking, as in terms it does, of the “nature” of the demand, is using that word in its ordinary dictionary meaning so that the question raised by the subsection in any particular case is: What is the essential quality of the demand made? Hence for present purposes the question must be whether a claim or a demand for damages for the tort of conspiracy is a claim or a demand “in the nature of unliquidated damages” or whether it is not. The answer to that question does not depend upon the whim of the pleader. It is to be answered by the substantive law. A claim for damages for fraudulent misrepresentation remains a claim or demand for unliquidated damages even if the relief as claimed is for a liquidated amount: Ex parte Baum; Re Edwards (1874) 9 Ch. App. 673. A conspiracy to injure is only actionable if it results in damage and the damages are in all such actions unliquidated. To quantify the damage in a pleading cannot, in my opinion, change the “nature” of the demand or the “nature” of the cause of action. It remains a demand “in the nature of unliquidated damages” and it arises “otherwise than by reason of a contract, promise or breach of trust” and hence it is a demand not provable in bankruptcy.
[23] Cornelius v Barewa Oil & Mining (NL) (in liq) (1982) 64 FLR 287
[24] Cornelius v Barewa Oil & Mining (NL) (in liq) (1982) 64 FLR 287, at page 312
That s 82(2) of the Act refers to a “demand” having a particular character, namely, “in the nature of unliquidated damages”, may suggest that s 82(2) relies on the distinction between liquidated and unliquidated money obligations. A liquidated money obligation is one that binds one person, the debtor, to pay to another person, the creditor, an agreed, established, or ascertainable amount of money; and an unliquidated money obligation is one that binds the debtor to pay to the creditor such amount as will be assessed by a court or by some other agreed or otherwise lawfully constituted person or body.[25] An example of a liquidated money obligation is a term of a contract under which a debtor agrees to pay to the creditor a specific sum of money by a particular day. An example of an unliquidated money obligation is that which arises when a court orders a party to pay the costs of another party.[26]
[25] Proctor, C., Mann on the Legal Aspect of Money, Seventh edition, Oxford University Press, 2012, at [3.04]; Proctor, C., Goode on Payment Obligations in Commercial and Financial Transactions second edition, Sweet & Maxwell 2009, at [1-36]
[26] See, for example, Ex parte Ruffle; In re Dummelow (1873) LR 8 Ch App 997; Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52
One consequence of the distinction between liquidated and unliquidated money obligations relates to the manner by which such obligations may be discharged. A liquidated money obligation is capable of being discharged by performance, namely, by payment. That is, the debtor may pay the liquidated amount to the creditor, the act of payment consisting of the debtor tendering to the creditor, according to the terms of the contract or other source of the obligation to pay the liquidated amount, the money he or she owes the creditor, and the creditor accepting the tender.[27] An unliquidated money obligation, on the other hand, cannot be discharged by performance, that is, by payment, because the amount the debtor is liable to pay remains to be ascertained. An unliquidated money obligation, however, is capable of being discharged in other ways. One is by accord and satisfaction; that is, by the debtor and creditor agreeing, before a court or other agreed or otherwise lawfully constituted person or body assesses the amount the debtor is to pay to the creditor, and the debtor paying to the creditor the amount so agreed.[28] An unliquidated money obligation may also be discharged when a court or other agreed or otherwise lawfully constituted person or body assesses the amount the debtor must pay the creditor. Where that occurs, the unliquidated money obligation is replaced by a liquidated obligation to pay the creditor the amount a court or person or body has assessed. Thus, on this analysis, s 82(2) of the Act provides that unliquidated money obligations are not provable in a person’s bankruptcy unless they arise from a contract, promise, or breach of trust.
[27] ABB Australia Pty Limited v Commissioner of Taxation [2007] FCA 1063, at [166]
[28] McDermott v Black [1940] HCA 4; (1940) 63 CLR 161, at pages 183-184
Another class of liabilities that are not provable in bankruptcy are those identified in s 82(3) of the Act, namely “[p]enalties or fines imposed by a court in respect of an offence against a law, whether a law of the Commonwealth or not”. The Trustee appears to accept that s 82(3) of the Act is capable of applying to a liability that arises on a debtor’s being ordered to pay a pecuniary payment; but, as I have already noted, the Trustee submits that s 82(3) can apply only where a court has made an order that a pecuniary penalty be paid, or where a court has made findings on the basis of which an order for the payment of a pecuniary penalty may be made. These submissions, however, must be assessed in light of what Jackson J said and decided in Australian Competition and Consumer Commission v Smart Corporation Pty Ltd (No 3) [2021] FCA 347.[29]
[29] Australian Competition and Consumer Commission v Smart Corporation Pty Ltd (No 3) [2021] FCA 347
In Smart Corporation the applicant (ACCC) applied for orders for pecuniary penalties against a bankrupt because of the bankrupt’s alleged contravention of civil remedy provisions of the Australian Consumer Law. The question arose whether the ACCC required an order under s 58(3) of the Act before it could take any step in the proceeding to claim such orders; and the determination of that question turned on whether this would constitute any fresh step in a legal proceeding in respect of a provable debt. Jackson J expressed doubts about whether s 82(3) of the Act applied to the claim for pecuniary penalties; but his Honour decided it was not necessary to decide that question. His Honour so decided because his Honour held that any liability that would attach to the bankrupt under an order for the payment of a pecuniary penalty would not have accrued before the day of the act of bankruptcy. Jackson J said:[30]
The monetary remedies the ACCC seeks against Ms Kosukhina are pecuniary penalties, non-party consumer redress orders and the costs of the proceedings. As to the penalties, there is a question about whether s 82(3) applies, because it is arguable that the reference to an ‘offence’ is only to a criminal offence, and here the ACCC seeks civil penalty orders. In Mathers v Commonwealth of Australia [2004] FCA 217; (2004) 134 FCR 135 at [29]‑[30], Heerey J held that civil penalties which the ACCC was pursuing under s 76 of the Trade Practices Act 1974 (Cth) came within the meaning of ‘penalties or fines imposed by a court in respect of an offence against a law’ and so were not admissible to proof against an insolvent company under s 553B of the Corporations Act 2001 (Cth). But a similar result does not necessarily follow in relation to s 82 of the Bankruptcy Act. That is because s 82(3AA) expressly provides that civil penalties under the Corporations Act are not provable debts, which might suggest that civil penalties under other legislation such as the ACL may be provable. There was no provision in the Corporations Act comparable to s 82(3AA) of the Bankruptcy Act which was drawn to Heerey J’s attention; in fact, s 553B(1), in providing that pecuniary penalty orders under the Proceeds of Crime Act 1987 (Cth) were admissible to proof, points in the opposite direction to s 82(3AA).
But it is not necessary to decide the issue on that basis, because I consider that the monetary remedies, if ordered, are neither debts or liabilities to which Ms Kosukhina was subject at the time of her bankruptcy, nor debts or liabilities to which she may become subject before her discharge by reason of an obligation incurred before the date of the bankruptcy. For Ms Kosukhina to become liable to pay a pecuniary penalty, it will be necessary for this court to determine that she has breached relevant civil penalty provisions and to exercise a discretion that she should be liable for a penalty. For her to be liable for non-party redress orders, the court will have to determine that she was involved in contraventions of relevant provisions of the ACL and to exercise a discretion to make the redress orders: see ACL s 239. A costs order will similarly require the exercise of the court's discretion. None of those matters constitute debts or liabilities to which Ms Kosukhina was subject at the time of the bankruptcy or liabilities to which she will become subject by reason of an obligation incurred before that time. At most, there was a vulnerability to a determination that A4WD had breached the ACL, that Ms Kosukhina had been involved in those breaches, and that the court's discretion should be exercised in a way giving rise to monetary obligations on her part: see Gaffney v Federal Commissioner of Taxation (1998) 81 FCR 574 at 581; Australian Competition and Consumer Commission v Black on White Pty Ltd [2004] FCA 363; (2004) 138 FCR 314 at [34]‑[35]; Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [35]-[36].
[30] Australian Competition and Consumer Commission v Smart Corporation Pty Ltd (No 3) [2021] FCA 347, at [19] and [20]
COMPENSATION CLAIMS
In the statement of claim filed by Mr Kiddle, the following is alleged:
(a)The Employer employed Mr Kiddle from 9 January 2017 as a casual personal trainer.
(b)The Award applied to Mr Kiddle’s employment with the Employer; and his position fell within the classification of a Level 4A employee.
(c)Mr Kiddle’s employment with the Employer ceased on 7 September 2018.
(d)On about 23 October 2018 Mr Nguyen informed Mr Kiddle the Employer had conducted an independent audit of its pay records that revealed Mr Kiddle had been underpaid and overpaid compared to the Award; and the Employer would make good the underpayments if Mr Kiddle were to sign a deed of release.
(e)The representation in (d) was a representation in relation to a workplace right within the meaning of s 341(1)(a) of the FW Act.
(f)Mr Kiddle refused to execute a deed of release.
(g)Contrary to the representation Mr Nguyen made to Mr Kiddle, the Employer did not conduct any independent audit of the wages due to be paid to Mr Kiddle; and Mr Nguyen knew the representation was false and misleading.
(h)From 9 January 2017 to 7 September 2018 the Employer failed to pay to Mr Kiddle $110,468.99 it was obliged to pay under the Award, and, for that reason, the Employer contravened s 45 of the FW Act.
(i)Mr Nguyen was involved in the Employer’s contraventions of s 45 of the FW Act.
On the basis of these allegations, Mr Kiddle claims relief which includes the following:
(a)A declaration that Mr Nguyen breached s 345 of the FW Act by knowingly or recklessly making a false or misleading representation about Mr Kiddle’s workplace rights.
(b)Declarations that Mr Nguyen was involved in the Employer’s contraventions of s 45 of the FW Act.
(c)The payment of penalties for Mr Nguyen’s contravention of s 345 of the FW Act and his involvement in the Employer’s contraventions of s 45 of the FW Act.
(d)An order pursuant to s 545 of the FW Act that “the Respondents [sic] pay the Applicant all amounts arising from the Respondent’s breach of civil penalty provisions as set out above in the amounts of $110,468.99”.
The other three Employees make similar allegations and claims for relief except they do not specify the amount of the payments they claim the Employer failed to make; and, for that reason, they have not quantified the amount of compensation they claim.
In his written submissions the Trustee characterises the Compensation Claims as claims for employee entitlements. That is incorrect to the extent the characterisation implies the Compensation Claims are made against the Employer. Each of the Compensation Claims is a claim for an order under s 545 of the FW Act against Mr Nguyen, a person who was not an employer of the Employees, and who is not alleged to have been in any contractual relationship with the Employees. Each of the Compensation Claims is made on the basis that Mr Nguyen was a person involved in the Employer’s contraventions of s 45 of the FW Act within the meaning of s 550(2) of the FW Act and who, because of s 550(1) of the FW Act, is to be taken to have also contravened s 45 of the FW Act.
It is true that the compensation each Employee claims is capable of being quantified to equate to the amount each Employee claims the Employer ought to have paid him; and one of the Employees, Mr Kiddle, has quantified the amount in his statement of claim. That, however, does not render the Employees’ claims liquidated demands. In form each of the Employee’s claims is an unliquidated demand for an order for compensation under s 545 of the FW Act. Further, it is not open to Mr Nguyen to satisfy the claims each Employee makes by tendering a liquidated amount of money. Mr Nguyen can satisfy or be in a position to satisfy the claims each Employee makes either by an accord and satisfaction or by tendering such amount of compensation as the Court may order.
For these reasons, the Compensation Claims are “[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust” within the meaning of s 82(2) of the Act and, for that reason, none of the Compensation Claims is a “provable debt” within the meaning of s 229(2)(c) of the Act. That means that s 229(2)(c) of the Act does not apply to the proceedings the Employees have brought against Mr Nguyen to the extent those proceedings relate to the Compensation Claims.
PENALTY CLAIMS
There is merit in the Trustee’s submission that the Penalty Claims do not fall within s 82(3) of the Act. That submission is given added weight by the judgment of Jackson J in Smart Corporation. But it does not follow that the Penalty Claims are “provable debts” only because they do not fall within s 82(3) of the Act.
First, the decision in Smart Corporation binds me to find that none of the Penalty Claims is a “provable debt”. As I have already noted, Jackson J found that the pecuniary penalties the ACCC claimed, if ordered, were neither debts or liabilities to which the bankrupt in that case was subject at the time of her bankruptcy, nor debts or liabilities to which she may have become subject before her discharge by reason of an obligation incurred before the date of her bankruptcy. The same applies in each of the proceedings before me. Under s 187(2) of the Act a “provable debt” must be read as a reference to a debt or liability that would have been a provable debt in Mr Nguyen’s bankruptcy if he had become a bankrupt on 25 January 2021, being the day on which the Trustee and Mr Nguyen executed the PIA. If I were to order pecuniary penalties under s 546 of the FW Act they would not represent debts or liabilities to which Mr Nguyen was subject on 25 January 2021, or to which he may have become subject before termination of the PIA because of an obligation he incurred before that day.
Second, there is the question whether the Penalty Claims fall within s 82(2) of the Act, assuming, contrary to the decision in Smart Corporation, the ordering of pecuniary penalties against Mr Nguyen under s 546 of the FW Act would represent debts or liabilities to which Mr Nguyen was subject on 25 January 2021. In my opinion each of the Penalty Claims is a demand in the “nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust”. A claim under s 546 of the FW Act for the payment of a penalty is analogous to a claim for exemplary or punitive damages in certain classes of torts. The Penalty Claims do not arise under a contract, or promise, or breach of trust. Further, each Employee claims an order under s 546(3) of the FW Act that any penalty that may be ordered under s 546(1) be paid to the Employees.
For these reasons, none of the Penalty Claims is a “provable debt”, either because none would represent a liability that had accrued at the time Mr Nguyen and the Trustee executed the PIA on 25 January 2021; or because the Penalty Claims represent “[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust” within the meaning of s 82(2) of the Act. That means s 229(2)(c) of the Act does not apply to the proceedings the Employees have brought against Mr Nguyen to the extent of the Penalty Claims.
DISPOSITION
I propose to make a declaration in each of the four proceedings that no part of the proceeding is a legal proceeding in respect of a provable debt within the meaning of s 229(2)(c) of the Act. I will also list each of the proceedings for directions at 9:30 am on 1 October 2021.
I will note in the orders I propose to make that the orders are those of the Federal Circuit and Family Court of Australia (Division 2). That is necessary because the seal of this Court that will be affixed to the orders I propose to make only includes the words “Federal Circuit and Family Court of Australia”. The Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFCOA Act), however, does not constitute any court by the name of the “Federal Circuit and Family Court of Australia”. Section 8 of the FCFCOA Act continues the existence of two federal courts and renames them. The first federal court the FCFCOA Act continues is the Court that, before 1 September 2021, was named the “Family Court of Australia”, and s 8(1) renames that Court the “Federal Circuit and Family Court of Australia (Division 1)”. The second federal court the FCFCOA Act continues is this Court which, before 1 September 2021, was named the “Federal Circuit Court of Australia”, but which s 8(2) of the FCFCOA Act renames the “Federal Circuit and Family Court of Australia (Division 2)”.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 17 September 2021
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