KUMAR v BATHINI

[2014] FCCA 1592

FEDERAL CIRCUIT COURT OF AUSTRALIA

KUMAR & ANOR v BATHINI & ANOR [2014] FCCA 1592

Catchwords:
BANKRUPTCY – Application to set aside bankruptcy notice, or to extend time for compliance until disposition of application for special leave in the High Court – whether applicants have s.40(1)(g) set-off or counterclaim – whether claim could have been brought in proceeding upon which debt in bankruptcy notice is based – where claim was brought in County Court but abandoned – consideration of decision of Federal Court in Carver v Westpac – whether Court should adjourn in any event until after High Court special leave application – application dismissed.

Legislation:  

Bankruptcy Act 1966, ss.40(1)(g), 41(6A)

Carver v Westpac Banking Corporation [2000] FCA 1517

Applicants: AAKASH KUMAR & ALOKE KUMAR

Respondents: MALA BATHINI & ANIL BATHINI

File Number: MLG 1676 of 2012

Judgment of: Judge Burchardt

Hearing date: 26 May 2014

Date of Last Submission: 26 May 2014

Delivered at: Melbourne

Delivered on: 25 July 2014

REPRESENTATION

The Applicants: Mr Selimi

Counsel for the Respondent: Mr Fary

Solicitors for the Respondents: Mathew James Lawyers

ORDERS

1. The application for review is dismissed. 

2. The applicants are to pay the respondents’ costs, including any reserved costs. 

FEDERAL CIRCUIT COURT
OF AUSTRALIA

AT MELBOURNE

MLG 1676 of 2012

AAKASH KUMAR & ALOKE KUMAR

Applicants

And

MALA BATHINI & ANIL BATHINI

Respondents

REASONS FOR JUDGMENT

1. This is an application for review of the decision of Registrar Luxton made on 29 April 2014, whereby the Registrar ordered that the applicant’s application to set aside a bankruptcy notice served upon them be dismissed, and that the applicants pay the respondents’ costs. 

2. Although there is more to it, the applicants’ position is essentially that time for compliance with the bankruptcy notice should be extended until after the disposition of their presently pending application to the High Court of Australia for special leave to appeal from the decision of the Victorian Court of Appeal, which dismissed their appeal from a decision of Judge Shelton in the County Court of Victoria.

3. For the reasons that follow, I do not propose to adjourn (which is the net effect of what the applicants seek) the matter until the special leave application is heard, and I am going to dismiss the application for review. 

The history of the matter

1. The applicants issued their original application in this Court on

   
   

   24 December 2012.  They sought that the Bankruptcy Notice served on 5 December 2012 be set aside and, in any event, time for compliance be extended until the hearing and determination of a proposed appeal in the Supreme Court of Victoria. 

2. The affidavit in support filed by the first-named applicant on

   
   

   24 December 2012 reveals that on 26 October 2012 his Honour Judge Shelton delivered judgment in favour of the respondents in the County Court of Victoria.  Exhibit AK1 is a copy of his Honour’s judgment and orders made pursuant to that judgment.  The applicants were ordered to pay the respondents the sum of $240,000 plus interest and costs.

3. The applicants’ Notice of Appeal was also annexed as exhibit AK2 to the affidavit. 

4. At paragraph 9 of the affidavit, the first applicant deposed:

   “Further, in the unlikely event that the Appeal against the judgment is dismissed, I believe that my brother and I shall have a claim and or set/off against the respondents for misleading and deceptive conduct and for breach of an agreement to pay commission.  I believe that this claim is valued in the sum of $1,206,805.27 which far exceeds the value of the judgment debt which forms the basis of the bankruptcy notice issued against us.  In the unlikely event that the Appeal is unsuccessful, we propose to file evidence in support of this claim in due course in support of the setting aside of the Bankruptcy Notice.”

5. Thereafter, time for compliance with the Bankruptcy Notice has been extended from time-to-time, and has reflected skirmishing between the parties, both in this Court and in the Supreme Court, in the Court of Appeal.  The affidavits filed do not, in my view, take the matter much further.  It seems reasonably clear that the proceeding in this Court was essentially put off pending the outcome of the appeal to the Court of Appeal of Victoria. 

6. As is apparent from the affidavit of the second-named respondent filed 23 April 2014, the appeal was heard on 31 March 2014 and dismissed with costs on 16 April 2014.  Annexure MA 5 to the second respondent’s affidavit is a copy of the judgment of the Court of Appeal. 

7. The affidavit filed by the first-named applicant on 28 April 2014 deposes to the fact that an application for special leave to appeal to the High Court of Australia was filed by the applicants on 28 April 2014. 

8. The affidavit also goes on to set out the basis of the claim for commission to which I have already referred, and indicates that the applicants seek to have the bankruptcy notice set aside on the basis of the set-off of over $1 million:

   “... after full and proper directions are given with respect to the just determination of our set off.”

   (Affidavit paragraph 11).  

9. As earlier indicated, the matter was heard by Registrar Luxton, who made the orders now sought to be reviewed on 29 April 2014. 

10. I note that in an affidavit filed 7 May 2014, the first applicant relevantly deposes (at paragraphs 4-6):

    “4.    The Registrar also refused to consider my latest Affidavit in support of my Application to set aside the Bankruptcy Notice on the basis of a set off. 

    5.    We believe that we will suffer serious prejudice if the respondents are allowed to make application for our bankruptcy before our application for special leave is determined by the High Court.  Our reputation will be severely damaged and we will be exposed to the risk of bankruptcy. 

    6.    Further, we believe that we have a strong set off which we shall seek to pursue if special leave to appeal is refused.”

11. The second-named respondent filed an affidavit in reply on 22 May 2014.  Relevantly, that extracted parts of the judgment of Judge Shelton and of the Court of Appeal, which, it was clearly going to be submitted, show that the claim for commission now advanced had already been disposed of by the Courts, and the respondent in any event deposed that there was no agreement to pay commissions to the applicants. 

12. It should be noted in the hearing before this Court that neither side sought to cross-examine, and the matter proceeded solely by way of oral submissions. 

The submissions made by counsel for the applicants

1. Counsel submitted that application had been made to amend the pleadings before Judge Shelton to raise the alleged agency agreement, but leave was refused.  He conceded that the claim could have been raised, and indeed had been sought to be raised twice and was refused on each occasion. 

2. Counsel also acknowledged that it was conceded before the Court of Appeal that the applicants were not legally entitled to a claim for commission. 

3. Counsel sought that the time for compliance with the Bankruptcy Notice be extended until the determination of the application for special leave, and undertook through on behalf of his clients to prosecute that application with due diligence.  Counsel submitted that the applicants should not be exposed to the risk of a Sequestration Order, and that there was no prejudice to the respondents if the applicants were granted this short indulgence.  He asserted that the special leave application would be determined within months.  He went on to assert, (although beyond the brief reference to it in the affidavit material that I have already set out above, there is no evidence to support the proposition), that the applicants are very concerned about their reputation and the filing of the Creditor’s Petition would have a serious effect. 

The submissions of counsel for the respondents

1. Counsel took the Court to the transcript of the proceedings before Judge Shelton, which was admitted without objection as exhibit F1.  He took the Court to the passages at pages 216-228, and 322-338 of the transcript, at which the applicants sought to raise their claim for commission and were prevented from doing so by Judge Shelton. 

2. It should be noted that the transcript is not entirely easy to follow, because, of course, this Court does not have the Court Books and other materials to which reference is therein made. Nonetheless, it does seem reasonably clear, and I find for this purpose that it is so, that a claim for commission of the sort now sought to be relied upon by the applicants was expressly abandoned in the County Court proceedings, albeit that it was sought to be resuscitated unsuccessfully on the two occasions I have referred to. Counsel, who relied upon the written submissions filed by leave on 26 May 2014 in Court, pointed to the difficulties the respondents faced. It was submitted that any claims that were the subject of the County Court proceeding, or that ought to have been litigated in that proceeding, would be the subject of a res judicata or Anshun estoppel. It was further submitted that, in order to constitute an off-setting claim within the meaning of s.40(1)(g) of the Bankruptcy Act 1966 (“the Act”), the applicants would need to demonstrate that it was a counter-claim set-off or cross-demand, that could not have been set up in the proceeding in which the judgment was obtained. 

3. The written and oral submissions submitted that the applicants had not adduced evidence that demonstrated they had a prima facie case, or a case that had a fair chance of success, or that they were fairly entitled to litigate and were advancing a claim that was genuine or bona fide. 

4. It was submitted that to permit the applicants to proceed in such a fashion would undermine the rulings of Judge Shelton and could constitute an abuse of process. 

5. In dealing with the special leave application, counsel submitted that, while he conceded that the application for special leave fell within the operation of s.41(6A) of the Act, the Court nonetheless retained a discretion as to whether to extend time.  

6. Counsel submitted that there was an extraordinary delay since judgment, following a 12-day hearing, in 2012. There would be further delay if special leave were granted before final disposition by the High Court. The Bankruptcy Notice would not stop the special leave application.

Submissions in reply

1. Not surprisingly, counsel submitted that the applicants’ affidavits do in fact show an agency agreement and loss of commission. He submitted that Anshun estoppel was an irrelevant consideration of the cross-claim or set-off arising under s.40(1)(g) of the Act.

Consideration

1. It seems clear beyond doubt to me that the applicants could have set up the claim for commission upon which they now essentially rely in the original proceeding before Judge Shelton.  Indeed, it seems to me that it was set up, but abandoned.  Two attempts to reintroduce it failed. 

2. Further, and in any event, even if the claim for commission now advanced was not in fact abandoned, nor pursued at all in the proceeding before Judge Shelton, it clearly could have been and should have been.  It is an instantly obvious alternative cause of action arising from the facts revealed by Judge Shelton’s judgment. 

3. Deciding, as I do, that the claim for commission was set up and abandoned takes us immediately to the judgment of Moore J in Carver v Westpac Banking Corporation [2000] FCA 1517. In that proceeding, the judgment debtor commenced a proceeding in the Supreme Court of New South Wales which he abandoned by a Notice of Discontinuance (see Carver at [3]-[4]). At [7]-[8], Moore J said:

   “7.    Against this background, I turn to consider the legal question of whether the judgment debtor has a claim of the type referred to in s 40(1)(g) that “could not have (been) set up” in the proceedings that gave rise to the judgment debt of approximately $93,000 upon which the bankruptcy notice is based.  A very similar issue was considered by Whitlam J in Amos v Lillyman (unreported, Federal Court of Australia, Whitlam J, 1 July 1998).  In that matter the judgment debtor commenced proceedings in the Supreme Court and was unsuccessful in seeking interlocutory relief against the judgment creditor.  The judgment creditor's costs were ordered to be paid by the judgment debtor.  In due course, the costs were assessed and a certificate issued.  The amount assessed as costs founded the bankruptcy notice which the judgment debtor sought to set aside.  At some point, the proceedings that had earlier been commenced by the judgment debtor were discontinued.  Fresh proceedings were later commenced by the judgment debtor against the judgment creditor.  In issue before Whitlam J was whether the judgment debtor had a claim that “she could not have set up” in the action or proceeding in which the judgment or order was obtained.  That is, whether the judgment debtor had a claim that could not have been set up in the proceedings in which the costs order was made.  His Honour concluded that the claim could have been set up.  Indeed, his Honour pointed to the fact that it had been set up in the proceedings but that the proceedings had been discontinued by the judgment debtor.

   8.    While the facts in Amos differ from the facts in the present case, the differences are not material.  That is, in the proceedings in which the order was made which founds the bankruptcy notice, the judgment debtor had had the opportunity to set up the claim and indeed had done so.  The prosecution of the claim was effectively abandoned (at least for the time being) by the discontinuance of the proceedings in which the claim was made.  Whitlam J concluded that in those circumstances the requirement in s 40(1)(g) that the claim could not have (been) set up could not be satisfied.  By parity of reasoning the same is so in this matter.  That is, the judgment debtor in this matter could have, and did, set up the claim in the proceedings in which the judgment was obtained.  No submission was made that Amos was wrongly decided and if it had been, I should only depart from the conclusion of law decided by Whitlam J if I thought his Honour was plainly wrong: see Bank of Western Australia Ltd v Commissioner of Taxation (1994) 55 FCR 233 at 255.  I do not hold that view.”

4. Here, the applicants could have and indeed did set up the claim now sought to be relied upon but abandoned it.  Following the authority of Carver, which of course followed earlier authority of Whitlam J, it is clear that the applicants cannot now assert that this claim was one they could not have set up in the original proceeding before Shelton J. It therefore follows that they do not have a set-off or counterclaim of the sort envisaged by s.40(1)(g) of the Act.

5. The question further arises, of course, as to whether this Court should extend time for compliance in the light of the application to the High Court.  There are a number of considerations that weigh against this, and I refer without incorporating them seriatim to the matters set out in paragraph 25 of the respondents’ written contentions.  The reality is that this proceeding has been on foot for a long time, and the creditors face the fact that the date of commission of the act of bankruptcy by the applicants has already been postponed for a significant period, a matter which may, if a Sequestration Order is ultimately made, have significant consequences. 

6. I do not accept the respondents’ submission that the applicants have not demonstrated that any particular prejudice would result if they committed acts of bankruptcy.  I accept that that proposition is true on its face, but a finding that a party has committed an act of bankruptcy involves some measure of damage to reputation on any view. 

7. However, the finding that a party has committed an act of bankruptcy is, as the authorities make very clear, a totally different matter to the making of a Sequestration Order.  Further, my decision will not cause the application for special leave to be in any way inhibited. 

8. Further, I have had regard to the terms of the application for special leave to appeal which is annexure AK1 to the first applicant’s affidavit filed 28 April 2014.  While self-evidently it is for the High Court to determine the validity or strengths, so to speak, of the application, it does not immediately impress me as being over-imbued with striking prospects of success. 

Conclusion

1. In all the relevant circumstances, it is clear that the applicants do not have a counter-claim, set-off or cross-demand within the meaning of s.40(1)(g) of the Act, and it is inappropriate for the reasons I have given to further extend the time for compliance until after the determination of the application for special leave.

2. It follows that I will dismiss the application for review. 

3. While this is a hearing de novo and the Court exercises the power, as it were, afresh, I will simply order the Application for Review be dismissed and the applicants pay the respondents’ costs, including any reserved costs. 

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date:  25 July 2014