Catchwords: BANKRUPTCY – Long history of litigation between parties in Federal Court of Australia – judgment debt entered by primary judge which was increased by decision of the Full Court of the Federal Court – complex factual history of litigation including more recent litigation filed in the ACT Supreme Court by debtor who claims to have a counter-claim against the petitioning creditor – extension of time of petition under “slip rule” – explanation by debtor of delay between obtaining benefit of assignment of right of action under building contract from liquidator of one of his companies and commencing action in Supreme Court – challenge to decision of NSW Supreme Court of Appeal that otherwise would prevent the debtor’s action in the ACT Supreme Court proceeding – claims by debtor of quantum meruit claim – challenge to assignment of debt by liquidator to debtor – sequestration order made.
The Order of 3 May 2016, adjourning the matter be varied, pursuant to r.39.05(h) of the Federal Court Rules 2011 (Cth), by the addition of an Order that…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Li v Wu [2016] FCCA 2836
Case
[2016] FCCA 2836
Decision Date
CaseChat Overview and Summary
This matter concerned an application by Mr Wu for the dismissal of a creditor's petition, and a cross-application by Mr Li for a sequestration order against Mr Wu's estate. The court was required to determine whether Mr Wu's application for dismissal should be granted and whether Mr Li's application for a sequestration order should succeed.
A key legal issue before the court was the concept of "mutuality" in the context of a cross-demand. Specifically, the court had to consider whether Mr Wu could establish that he was legally entitled to claim against Mr Li for several liability, independently of any claim against a third party, Ms Hong Chen. This requirement for mutuality dictates that the judgment debt and the cross-demand must be mutual and due in the same right, meaning a personal claim against a creditor cannot be met by a claim against the creditor in a different capacity, such as a trustee or partner.
The court noted that the Registrar had previously expressed concerns regarding the applicant's ability to establish mutuality. The Registrar's reasoning, as quoted, highlighted that for a cross-demand to be effective in setting aside a bankruptcy notice, it must be mutual and due in the same right as the judgment debt. In this instance, Mr Wu intended to pursue a cross-demand against both Mr Li and Ms Chen, which raised questions about whether he could demonstrate several liability against Mr Li alone. Ultimately, Mr Wu's earlier application was refused with costs awarded to Mr Li. The court then proceeded to consider the applications before it, including the timing of proceedings and the ACT Supreme Court proceedings.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
There was another important matter considered by the Registrar, but ultimately not decided, for not acceding to Mr Wu’s Application. It concerned the issue of “mutuality.” In this regard, the Registrar said, at [36] – [41] (emphasis added): [36] Even if the Court were to grant leave to the Applicant to rely on the interlocutory application, the Court expressed concerns that the Applicant would have had to overcome the burden of establishing mutuality between the parties. The Applicant intended to commence proceedings against both the Respondent and Ms Hong Chen for the cross demand. The test is whether the Applicant is able to demonstrate that he is legally entitled to claim against the Respondent for several liability, independently of any claim against Ms Chen.[37] The requirement for mutuality was explained in the following terms by Beaumont, Branson and Sundberg JJ in Stec v Orfanos [1999] FCA457 at [24]:Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right: Re Anderson; Ex parte Alexander [1927] NSWStRp 35; (1927)27SR(NSW)296; James v Abrahams [1981] FCA 46; (1981)51FLR16 at 27. The requirement that the two claims be “in the same right” is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee. In the event, Mr Wu’s Application was refused with an Order for costs in favour of Mr Li. I turn now to the Applications before me: (a) by Mr Li for a sequestration Order against the estate of Mr Wu, and (b) by Mr Wu, for the creditor’s petition to be dismissed. In turn, (i) I set out the written submissions of each of the parties, (ii) discuss and determine the two Applications, and (iii) deal with the extension of time of the petition. Before doing so, I set out a detailed chronology provided on behalf of Mr Li, followed by relevant details regarding the ACT Supreme Court proceedings. The Applicant’s detailed chronology was in the following terms: Although some basic detail of this proceeding has been noted earlier in these reasons, for ease of reference it is as well to return to them before outlining submissions which, in certain respects, refer to them. First: issues of “timing”. Mr Li commenced proceeding against Mr Wu in the Federal Court of Australia on 30th September 2011. According to the liquidator of Golden Constructions, Mr Kazar, he identified a claim by that company against Mr Li on 26th October 2011. A letter of demand was sent to Mr Li in relation to this claim on 20th March 2012. The liquidator confirmed the claim of Golden Constructions against Mr Li on 17th October 2012. The judgment of Jagot J in favour of Mr Li against Mr Wu was delivered on 22nd October 2013, with Orders made by her Honour on 6th November 2013.