Lindalow Pty Ltd v Ambrosy (No.2) - [2003] FMCA 579

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LINDALOW PTY LTD v AMBROSY (No.2)

[2003] FMCA 579

BANKRUPTCY – Pending Supreme Court claim – fiduciary relationship – no basis for claim – late claim made.

Bankruptcy Act 1966, ss.43, 51AA, 52

Private Agents Act 1966

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Gibbs and Anor v Kinna (1999) 2 VR 19
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Zakrzewski v Rogers (2000) FCA 1187 (23 August 2000)
Ahern v DCT (Qld) (1987) 76 ALR 137

Applicant:

LINDALOW PTY LTD
(ACN 006 685 892)

Respondent:

PETER AMBROSY

File No:

MZ 802 of 2003

Delivered on:

12 December 2003

Delivered at:

Melbourne

Hearing Date:

27 November 2003

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr A Broadfoot

Solicitors for the Applicant:

Middletons

Respondent:

In person

ORDERS

A sequestration order be made against the estate of PETER AMBROSY.
The Applicant Creditor’s costs be taxed in accordance with the Federal Court Rules and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.

The Court notes that the date of the act of bankruptcy is 1 April 2003.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 802 of 2003

LINDALOW PTY LTD (ACN 006 685 892)

Applicant

and

PETER AMBROSY

Respondent

REASONS FOR JUDGMENT

This is a creditor's petition where the applicant creditor, Lindalow Pty Ltd (the Creditor) applies to the court for a sequestration order under s.43 of the Bankruptcy Act 1966 (the Act) against the estate of Peter Ambrosy (the respondent debtor). In the creditor's petition filed on 28 July 2003 the Creditor asserts that the respondent debtor owes the Creditor the amount of $44,436.30 for a judgment debt, the execution of which has not been stayed.
The judgment was entered against the respondent debtor in favour of the Creditor on 13 March 2002 in the Magistrates Court of Victoria at Melbourne in the total sum of $39,813. Interest accrued on the judgment debt from the time of judgment and the rates of interest and amounts are set out in the creditor's petition. Further details of the judgment debt are set out in the bankruptcy notice which in this instance was served on 11 March 2003 with an expiry date of 1 April 2003. There is no dispute that the date of the act of bankruptcy for the present purposes would be 1 April 2003.
The applicant relies upon the usual affidavits verifying the petition and affidavits of search which have been filed in these proceedings. By leave of the court the applicant this day has filed a further updated affidavit of search sworn by Matthew Cresdee Whittle on 27 November 2003 and an affidavit of debt sworn by Graeme Bruce Worcester on

26 November 2003.
No issue has been taken by the respondent debtor in relation to the form of the bankruptcy notice or indeed any other procedural issues which might relate to service or the content of either the bankruptcy notice or the petition in these proceedings. There is also no issue taken in relation to the formal proofs which are embodied in the affidavit material, including those affidavits referring to the debt and the search, save and except that in relation to the debt the respondent debtor claims that he ought to be entitled to pursue, prior to any sequestration order being made, proceedings which he has now commenced in the Supreme Court of Victoria to which reference will be made further in this judgment.
The Creditor and Respondent Debtor have both filed written submissions and otherwise relied upon oral submissions made to the court. It is perhaps useful to note by way of background that the dispute between the Respondent Debtor and Creditor is a dispute which culminated in proceedings being commenced by the applicant creditor against the respondent debtor on 16 November 1999.
An affidavit relied upon by the applicant and sworn by Graham Bruce Worcester on 17 October 2003 annexes by way of exhibit GBW1 being a copy of the reasons for decision of the Magistrates Court which forms the basis of the judgment relied upon in the bankruptcy notice and creditor's petition delivered 13 March 2002. In that decision reference is made to the complaint, as indicated, being issued on

16 November 1999. His Worship also states that the proceedings had a "tortured history". Reference is made to the proceedings being listed for trial on six occasions and that there was a trial in July 2000 which aborted during the second day of the hearing. The prolonged history of this matter ultimately concluded in the Magistrates Court by the judgment and orders on 13 March 2002.
In this court the creditor's petition relied upon by the applicant was filed on 28 July 2003. As indicated, the usual affidavits of service and proof of debt and searches had been provided. The proceedings were the subject of an adjournment granted by the registrar on 7 October 2003 adjourning the petition to 21 October 2003. The Respondent Debtor was then directed to file and serve affidavits setting out material on which it proposes to rely in opposing the petition and the applicant then was required to file and serve affidavits in response.
When the matter came before the court on 21 October 2003 a further adjournment was granted of the petition to 10 November 2003 and the respondent was further ordered to file and serve affidavits upon which he intended to rely with the applicant likewise being required to file and serve contentions of fact and law by a certain date.
On 10 November 2003 the proceedings were further adjourned by a Federal Magistrate to 27 November 2003. As indicated, the parties had been directed to file and serve material upon which they seek to rely in this matter. The Creditor had filed, apart from the standard affidavits, contentions of fact and law, on 5 November 2003. The Respondent Debtor filed submissions dated 13 October 2003. The respondent further relied upon two significant affidavits, one sworn by him on

3 October 2003 and a second sworn 28 October 2003. By way of reply the Creditor filed and served an affidavit of Graeme Bruce Worcester sworn 17 October 2003 and a further affidavit by the same deponent sworn 5 November 2003.
In a matter of this kind it is common ground that when considering the issue of whether the court is satisfied that it is appropriate to make a sequestration order the court is bound by s.52 of the Bankruptcy Act. Apart from providing for the court to require proof of the matters stated in the petition, along with service of the petition and the fact that the debt is still owing, subsection (2) of s.52 provides as follows:
“(2)If the court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a)that he or she is able to pay his or her debts; or
(b)that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.”
In essence, the Respondent Debtor, as indicated earlier in this judgment, does not take issue with the technical or formal proofs required by s.52, nor has there been any attempt for and on behalf of the respondent debtor to establish solvency; that is, that he is able to pay his debts. Instead relying upon the affidavit material to which I shall refer presently, the Respondent Debtor has relied upon there being other sufficient cause which would persuade this court that a sequestration order ought not to be made.
The ‘other sufficient cause’ relied upon by the respondent debtor arises from the affidavit material and submissions made to the court. In particular, the Respondent Debtor relied upon the fact that on 20 October 2003 he caused to be issued in the Supreme Court of Victoria a writ in the commercial and equity lists against the Creditor and, in particular, against a director of the Creditor, Graeme Bruce Worcester. The Statement of Claim in the Supreme Court proceedings sets out three claims; namely, a breach of fiduciary duty, a breach of sections 51AA and 52 of the Trade Practices Act.
In brief terms, the writ claims against the defendants in those proceedings, therefore, a breach of fiduciary duty and breach of provisions of the Trade Practices Act as described.
The proceedings before the Magistrates Court which led to the judgment of that court on 13 March 2002 involved a claim by the applicant creditor for what has been agreed to be a sum of $39,813 for professional services rendered. The Creditor had at all material times conducted business as a licensed private agent under the Private Agents Act 1966 (the Private Agents Act). It had held a licence as an inquiry agent under that act and indeed the individual director Mr Worcester held a similar licence.
It does not appear to be in dispute that there was a retainer of the services of the Creditor by the respondent debtor to provide services of the kind usually provided by the Creditor arising from what are described in the affidavit material of the respondent debtor as a series of threats to his person and immediate family. It is not necessary for the court to deal in detail with those threats and what are described as other demands.
Again it is not in dispute that work had been commenced by the Creditor and by Mr Worcester, either directly or through contractors or employees. It also does not appear to be in dispute that certain accounts have been rendered by the Creditor to the Respondent Debtor over the period 31 May to 16 July 1999. The total of the accounts was found in the Magistrates Court to be $120,332.50. All save $39,813 had been paid and hence that was the sum claimed for what is agreed to be effectively a claim for work and labour done on a quantum meruit basis before the Magistrates Court.
It is not in dispute that in the proceedings before the Magistrates Court the respondent debtor relied upon an amended counterclaim which was amended on 14 August 2000 pursuant to an order made of the court. The amended counterclaim, which is exhibited to the affidavit of Mr Worcester sworn 5 November 2003, seeks to raise by way of a counterclaim a number of issues, but essentially pursues an argument that there had been a breach of agreement.
The breach of agreement in the counter claim was based upon assertions that having retained the Creditor, the respondent debtor advised the Creditor of the seriousness of the death threats and associated risks arising out of that matter. The amended counterclaim refers to representations being made by the Creditor to the respondent debtor that it was in the business of providing advice relating to security of individuals and property and the provision of security services for the protection of individuals and property. It is asserted that the respondent debtor entered into an agreement with the Creditor. The agreement involved the provision of security and private detective advice and services to the Respondent Debtor.
It is not necessary to recite the claimed particulars in the counterclaim of the terms of the agreement said to be breached. It is sufficient, however, to note that in the allegations of breach of agreement the respondent debtor had alleged that the services provided by the Creditor were not rendered with due care and skill, not fit for the purpose for which services of that kind are commonly bought or reasonable to expect having regard to the price of the services, the terms of sale and all other relevant circumstances. Other pleadings relate to what might be described as a standard claim arising out of a work and labour done contract. There are other complaints in that pleading in relation to lack of supervision and failure to provide accounts and the like.
There can be no doubt on the material before me, including the decision of the state magistrate, that all the issues to which I have referred were agitated actively before the court on a contested hearing where both parties were represented. An order was made on the claim for the amount outstanding for work and labour done of $39,813 and the counterclaim dismissed.
In the affidavit material relied upon by the respondent debtor he deposes to a number of matters, some of which have been the subject of objection as to admissibility. For reasons which will become apparent, it is not necessary for me to formally rule upon the admissibility of those paragraphs in the affidavit. Essentially it is argued that the Respondent Debtor allegedly became aware of information that there was some evidence which existed as to the source of the threats which were of concern to the respondent debtor. It is sufficient for present purposes to note that he became aware of this matter at a hearing date in 2001 in the Magistrates Court when the case did not proceed on that day. In other words, in the year prior to the date of the judgment in this matter the respondent debtor became aware of the matters of concern to him. Whether they were mere assertions or based upon hearsay is not necessary to decide, but in general terms he then became aware of the matters which now form, in part, the basis of his claim in the proceedings commenced against the Creditor in the Supreme Court of Victoria.
As indicated, the claim in the Supreme Court is a claim for breach of fiduciary duty and, in addition, claims are relied upon by the respondent debtor in relation to what are alleged to be breaches of ss 51AA and 52 of the Trade Practices Act.
In the context of that background information it was submitted for and on behalf of the Creditor that in this case the court should not be persuaded to exercise its discretion to refuse to make a sequestration order under s.52 of the Bankruptcy Act. It is not in dispute that in these proceedings there has been no application to set aside the bankruptcy notice, nor has there been any application to seek to review the judgment and order of the Magistrates Court of Victoria made on 13 March 2002. The Creditor otherwise draws attention to the issues required to be proved under the Bankruptcy Act and submits that in the present circumstances the statement of claim in the Supreme Court proceedings does not disclose a cause of action against the Creditor.
It is submitted that there is no recognised category of fiduciary duty as alleged by the respondent debtor against the Creditor. It is further submitted that the respondent debtor's claim against the Creditor has no foundation in law. Whilst it is conceded in the written submissions that vulnerability may be a hallmark of the existence of fiduciary duty, it does not itself give rise to fiduciary duty. It was otherwise submitted that in the circumstances the claim is not one of sufficient strength that in the circumstances where the applicant has otherwise made out an entitlement for a sequestration order he ought not be allowed to litigate it. It was submitted that it is not in the public's interest for the respondent debtor to be allowed to litigate baseless claims endlessly. Where the creditor has made out the requirements for a sequestration order and there is no suggestion that the debtor is solvent, it was submitted the sequestration order should ordinarily follow.
Counsel for the Creditor further referred the court to the well-known authority of the High Court in the matter of Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 (Anshun) In particular, the court was taken to a number of passages in that High Court decision which appear at page 598 where the court refers to the principles expressed by Sir James Wigram VC in Henderson v Henderson as follows:-
“where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.”
I note in the Anshun case the joint judgment of that court in passages which appear at page 602 as follows:-
“… Even then the abuse of process test is not one of great utility. And its utility is no more evident when it is applied to a plaintiff’s new proceeding which is said to be estopped because the plaintiff omitted to plead a defence in an earlier action.
In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim , and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding.”
In the present case it was submitted, having regard to that authority and indeed other authorities referred to during the course of argument, that a court should in all the circumstances be satisfied that even if there is no proper legal basis for establishing fiduciary duty or otherwise pursuing the claims that are now said to be available to the respondent debtor, the court should rely upon what is described as the ‘Anshun estoppel’ and should not effectively permit the respondent debtor to use the outstanding or pending claim in the Supreme Court to otherwise provide a basis upon which the court should exercise its discretion and find there is sufficient cause that a sequestration order ought not to be made pursuant to s.52 of the Bankruptcy Act.
Both parties adopted and referred to a decision of the Court of Appeal in the Supreme Court of Victoria in the matter of Gibbs and Anor v Kinna (1999) 2 VR 19. In particular, I was referred to the following passages:
“23.Whether or not it is unreasonable for a party asserting a cause of action in a later proceeding not to have done so in an earlier proceeding depends almost entirely on the particular circumstances. It seems, however, that there are two matters which must first be established before it can be said that the failure to raise a cause of action earlier might be said to have been unreasonable. The first is that the cause of action must be one that could have been raised in the previous proceeding. For the reasons already stated, leaving aside the Trade Practices Act claims, this much is established in the present case. Secondly, it must appear that the same or substantially the same facts will arise for consideration in the second as in the first proceeding. For the purposes of this case, I assume, as counsel for the appellants submitted, that, if the Magistrates' Court proceeding continues, there will be a good deal of overlap between the evidence and the facts which fell for consideration in the Industrial Relations Court and that which falls for consideration in the Magistrates' Court. But, in my view, adopting the analysis favoured by the majority in Anshun's Case, these are necessary but not sufficient conditions for the application of the principle in Henderson v. Henderson.
24.In considering whether it was unreasonable in the circumstances not to raise a cause of action in earlier litigation, I do not think the notion of relevance is especially helpful. In Anshun's Case, the majority said, at 602-3, that the relevance of the matter relied on as a defence in a second action to the subject matter of the first action was indicative of unreasonableness in failing to plead the defence in the first action. I am inclined to the view expressed by Samuels, J.A in Boles v. Esanda Finance Corporation Ltd. (1989) 18 N.S.W.L.R. 666, at 674, namely, that although the notion of relevance may be helpful when considering a defence which might have been raised in an earlier proceeding, the same notion is not particularly helpful when considering the failure to advance a claim. As his Honour said " [a]ll that means is really that the passage in Port of Melbourne Authority v. Anshun (at 602) must be confined to defences."
25.There is at least one factor, however, which is indicative of "unreasonableness" in not asserting a cause of action in an earlier proceeding: if any judgment or order which might be made on the cause of action in the subsequent proceeding would conflict with a judgment or order in the earlier proceeding, then it will ordinarily be unreasonable to refrain from raising the cause of action in the first proceeding. In this context, the majority in Anshun's Case said, at 603-4:
‘It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment. ... By 'conflicting' judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction.’
26.This factor was the most important in Anshun's Case. It also explains the outcome of a number of other cases: see, for example, Boles v. Esanda Finance Corporation Ltd. (1989) 18 N.S.W.L.R. 666, at 673 per Samuels, J.A. with whom the other members of the Court agreed; Rahme v. Commonwealth Bank of Australia (unreported, Court of Appeal, Supreme Court of New South Wales, 20 December 1991) and, at first instance, (1991) A.T.P.R. 41-089 per Bryson, J.; Bryant v. Commonwealth Bank of Australia (1995) 57 F.C.R. 287, at 294, 298; and Westpoint Corporation Pty. Ltd. v. Coles Supermarkets Australia Pty. Ltd. (1996) 71 F.C.R. 584, at 592, 595. It suffices to say that in this case the respondent was not seeking to pursue any claim in the Magistrates' Court which might give rise to a judgment or order "conflicting" with the order made by the Judicial Registrar in the Industrial Relations Court. Counsel for the appellants did not contend otherwise.”

The Respondent Debtor relied upon detailed written and oral submissions and otherwise relied upon oral submissions where he made extensive reference to a number of cases. In making those submissions it became apparent that the main thrust of the arguments advanced on his behalf relied to a large extent on acceptance by this court that there is sufficient material before this court to at least establish a prima facie case that a fiduciary relationship existed between the respondent debtor and the Creditor.
A number of cases were referred to by the respondent debtor in relation to what is understood to be the concept of a fiduciary relationship. In my view, the reference to the authorities by the respondent debtor need go no further than the leading authority in the judgment of the High Court in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 where Mason J held at page 96 the following:
“The critical feature of the fiduciary relationships is that their fiduciary undertakes or agrees to act for or on behalf of or in the interests of another in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. In Daly v Sydney Stock Exchange Ltd Brennan J indicated that a financial adviser generally owed fiduciary duties to the client. His Honour said at (385): ‘Whenever a stockbroker or other person who holds himself out as having expertise in advising on investments is approached for advice on investments and undertakes to give it, in giving that advice the adviser stands in a fiduciary relationship to the person whom he advises.”
Reference was made by the respondent debtor to other decisions, including a decision of the Federal Court in Zakrzewski v Rogers (2000) FCA 1187 (23 August 2000) and other cases were referred to to establish that in the present circumstances a fiduciary relationship exists.
I have considered the submissions made for and on behalf of the respondent debtor. In my view, on a proper analysis of the meaning of "fiduciary duty" I can see no possible basis upon which it could be asserted that there is or ever has been what would be regarded at law, having regard to the definition referred to by Mason J in the decision to which I referred earlier of Hospital Products Ltd, a fiduciary duty or relationship. A fiduciary relationship, whilst clearly possessing a number of qualities which the respondent debtor may claim to exist in terms of his vulnerability and dependence, goes beyond what would otherwise be described as a normal commercial relationship which in the present case I am satisfied exists purely on the basis of there being an agreement between a purchaser and a provider of security investigation services, to provide a service.
That relationship led understandably to a claim for work and labour done and a counterclaim for breach of agreement. Both the claim and the counterclaim were properly raised and agitated before the Magistrate. I cannot see any basis at law which would enable the respondent debtor to pursue even as an arguable case a claim which had its foundation in establishing a fiduciary relationship between the respondent debtor and the applicant creditor. Further, I am satisfied that notwithstanding the alleged excess of jurisdiction that any fiduciary relationship claim and breach of duty arising therefrom, together with any claimed breach of the Trade Practices Act, could and should have been commenced either in the Magistrates Court by way of counterclaim or commenced elsewhere since the proceedings had been issued in the Magistrates Court as far back as 1999.
Further submissions were made by the respondent debtor that the pursuit of the current creditor’s petition in itself constitutes conduct by a fiduciary in breach of the fiduciary's duty. Obviously that depends upon there being a fiduciary relationship which, as I have indicated, does not exist. It is further suggested that issuing or relying upon a creditor's petition is conduct of a kind which would otherwise provide a basis for a claim under ss.52 or 51AA of the Trade Practices Act.
In my view, those submissions are misconceived, as indeed is the assertion by the respondent debtor that there is a fiduciary relationship. It is a misconception to suggest that a cause of action may arise against an applicant creditor simply because that applicant creditor in the context of this case pursues, firstly, a bankruptcy notice based on a judgment debt and then a creditor's petition and further then seeks a sequestration order. There is no merit in the arguments advanced on behalf of the respondent debtor. I cannot see in the material relied upon by the respondent debtor, both as presented to this court and otherwise set out in the submissions, any basis upon which this court should seek to exercise its discretion to refuse to make a sequestration order.
In my view, the arguments now sought to be advanced at this late stage, bearing in mind that the proceedings in the Supreme Court of Victoria were commenced as recently as 20 October 2003 and where the creditor's petition was filed on 28 July 2003, may well constitute a sham particularly when the facts forming the basis of the Supreme Court were known to the Respondent in 2001. The suggestion at this late stage, albeit by proceedings commenced in the Supreme Court of Victoria, that there is a fiduciary relationship and/or that there have otherwise been breaches of the Trade Practices Act in my view, given the chronology of events to which I have referred, it is reasonable for this court to conclude that there is no basis in those claims and indeed never has been a basis for those claims the true purpose and intent of both the proceedings and the application and submissions made before this court by the respondent debtor is to delay the making of a sequestration order. I can see no merit in the arguments advanced by the respondent debtor.
I am mindful of the principles to be considered by the Court when proceeding to sequestrate an estate of a debtor where there is an appeal pending. In particular I note the following extract from the Full Court decision in Ahern v DCT (Qld) (1987) 76 ALR 137 where the Court states at 148 the following:-
“It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49;Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181.
These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as investigated before he is made bankrupt. Bankruptcy is not a mere inter partes litigation. It involves change of status and has quasi-penal consequences.”
For the reasons stated and applying the principles of law in the cases to which I have referred it follows that the orders of the Court should be:-
(1)A sequestration order be made against the estate of PETER AMBROSY.
(2)The Applicant Creditor’s costs be taxed in accordance with the Federal Court Rules and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
The Court notes that the date of the act of bankruptcy is 1 April 2003.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 12 December 2003