Michael Wilson & Partners Limited v Slater and Michael Wilson & Partners Limited v Nicholls
[2014] FCCA 2871
•19 December 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MICHAEL WILSON & PARTNERS LIMITED v SLATER and MICHAEL WILSON & PARTNERS LIMITED v NICHOLLS | [2014] FCCA 2871 |
| Catchwords: BANKRUPTCY – Two Creditor’s Petitions against separate respondents – Petitions heard concurrently – Judgment debts and bankruptcy notices arising from same judgment of NSW Court of Appeal – Notices stating grounds of opposition to creditor’s petitions filed – whether one debtor currently in United Kingdom ordinarily resident in Australia to satisfy having committed act of bankruptcy under provisions of s.43(1)(b)(i) of the Bankruptcy Act 1966 (Cth) – whether creditor’s petitions should be dismissed as there has been satisfaction and will be double recovery of debts – relevant principles. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.43(1)(b)(i), 52, 309 Evidence Act 1995 (Cth), ss.91, 135, 136, 186 |
| Armacel Pty Ltd (ACN 070 642 901) v Smurfit Stone Container Corporation (2008) 247 ALR 573 Napiat Pty Ltd v Salfinger; Re Salfinger (No. 7) (2011) 202 FCR 264 Re Mendonca; Ex Parte Commissioner of Taxation (1969) 15 FLR 256 Restom v Battenberg [2007] FCA 46 |
| Applicant: | MICHAEL WILSON & PARTNERS LIMITED |
| Respondent: | DAVID ROSS SLATER |
| File Number: | SYG 2427 of 2013 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing date: | 14 May 2014 |
| Delivered at: | Sydney |
| Delivered on: | 19 December 2014 |
| Applicant: | MICHAEL WILSON & PARTNERS LIMITED |
| Respondent: | ROBERT COLIN NICHOLLS |
| File Number: | SYG 2617 of 2013 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing date: | 14 May 2014 |
| Delivered at: | Sydney |
| Delivered on: | 19 December 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Johnson |
| Solicitors for the Applicant: | ACA Lawyers |
| Counsel for Mr Slater: | Mr G McGrath SC |
| Solicitors for Mr Slater: | Henry Davis York |
| Counsel for Mr Nicholls: | Mr G. McGrath SC |
| Solicitors for Mr Nicholls: | Henry Davis York |
SYG 2427 of 2013
ORDERS:
The Creditor’s Petition filed on 9 October 2013 be dismissed.
The Applicant Creditor pay the Respondent Debtor’s costs and disbursements of and incidental to the Creditor’s Petition as agreed or, in failure of such agreement, as taxed.
SYG 2617 of 2013
ORDERS:
The Notice Stating Grounds of Opposition filed on 31 January 2014 be dismissed.
The Creditor’s Petition be set down for hearing on a date to be fixed.
Costs be reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2427 of 2013
| MICHAEL WILSON & PARTNERS LIMITED |
Applicant
And
| DAVID ROSS SLATER |
Respondent
SYG 2617 of 2013
| MICHAEL WILSON & PARTNERS LIMITED |
Applicant
And
| ROBERT COLIN NICHOLLS |
Respondent
REASONS FOR JUDGMENT
Introduction
On 12 February 2014, I made an order that the two Creditor’s Petitions presently before the Court, being SYG 2427/2013 (the “Slater Petition”) and SYG 2617/2013 (the “Nicholls Petition”), travel together. I also made an order that all evidence in the Slater Petition and the Nicholls Petition be evidence in the other proceedings.
On 25 August 2014, the parties contacted my chambers to seek to have orders made, by consent, to extend the life of the Creditor’s Petition. The following order was made in both the Slater Petition and the Nicholls Petition:
1. Pursuant to s.52(5) of the Bankruptcy Act 1966 (Cth) the Creditor’s Petition filed on 9 October 2013 in these proceedings be extended and shall not expire before 9 October 2015.
Slater Petition
On 9 October 2013, the Applicant Creditor, Michael Wilson & Partners Limited (“MWP”) applied to the Court for a Sequestration Order under s.43 of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) against the estate of David Ross Slater (“Slater”), Kent, United Kingdom. The Slater Petition states:
1. The respondent debtor owes the applicant creditor the amount of $2,332,102.02 pursuant to:
a) Certificate of Taxation of the High Court of Australia in proceedings no. S67 of 2001 dated 31 August 2012 certifying that the costs of the appellant as against the respondents (including the respondent debtor) had been assessed and allowed at $247,291.09; and
b) Judgment and order of the Supreme Court of New South Wales Court of Appeal made in proceedings no. 2009/298561 on 14 December 2012 in which the respondent debtor was the second appellant. The Court ordered the first and second appellants to pay the applicant creditor:
i. USD 676,335.00; and
ii. Euros 378,160.00.
2. The applicant creditor does not hold security over the property of the respondent debtor.
3. At the time when the act of bankruptcy was committed, the respondent debtor:
a) had a dwelling house or place of business in Australia; and
b) was carrying on business in Australia wither personally or by an agent or manager.
4. The following act of bankruptcy was committed by the respondent debtor within 6 months before presentation of this petition:
a) the respondent debtor failed to comply on or before 24 September 2013 with the requirements of the amended bankruptcy notice, deemed to be served on him on 27 August 2013 pursuant to Orders made my Raphael J on 12 August 2013, or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the amended bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the amended bankruptcy notice was obtained;
b) on 11 December 2009, the applicant creditor obtained judgment against the respondent debtor (and other defendants) in the Supreme Court of New South Wales in proceedings arsing in relation to the respondent debtor’s employment with the applicant creditor;
c) that judgment was the subject of an appeal to the NSW Court of Appeal;
d) The applicant creditor sought and was granted leave by the High Court of Australia to appeal the decision of the NSW Court of Appeal. That appeal was allowed on 1 December 2011 and certain matters were remitted to the NSW Court of Appeal for further consideration;
e) on 31 August 2012, the High Court of Australia issued a Certificate of Taxation certifying that the costs as against the respondent debtor and other respondents to that appeal had been assessed and allowed at $247,291.09;
f) following a further hearing in the NSW Court of Appeal in July and August 2012, the applicant creditor obtained judgment and orders against the respondent debtor in the NSW Court of Appeal for:
i. USD 676,335.00; and
ii. Euros 378,160.00.
5. The applicant creditor provides the following information, to the extent it is known to the applicant creditor, for use by the Australian Financial Security Authority:
- The date of birth of the respondent debtor is 6 October 1965.
Nicholls Petition
On 25 October 2013 MWP applied to the Court for a Sequestration Order under s.43 of the Bankruptcy Act against the estate of Robert Colin Nicholls (“Nicholls”), 3/35 Cavendish Street, Stanmore, NSW, 2048. The Nicholls Petition states:
1. The respondent debtor owes the applicant creditor the amount of $2,331,000.87 pursuant to:
a) Certificate of Taxation of the High Court of Australia in proceedings no. S67 of 2001 dated 31 August 2012 certifying that the costs of the appellant and allowed at $247,291.09; and
b) Judgment and order of the Supreme Court of New South Wales Court of Appeal made in proceedings no. 2009/298561 on 14 December 2012 in which the respondent debtor was the second appellant. The Court ordered the first and second appellants to pay the applicant creditor:
i. USD 676,335.00; and
ii. Euros 378,160.00.
2. The applicant creditor does not hold security over the property of the respondent debtor.
3. At the time when the act of bankruptcy was committed, the respondent debtor:
a) had a dwelling house or place of business in Australia; and
b) was carrying on business in Australia wither personally or by an agent or manager.
4. The following act of bankruptcy was committed by the respondent debtor within 6 months before presentation of this petition:
a) The respondent debtor failed to comply on or before 16 October 2013 with the requirements of the amended bankruptcy notice, deemed to be served on him on 25 September 2013 pursuant to Orders made by Registrar Hannigan on 10 September 2013, or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the amended bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the amended bankruptcy notice was obtained;
b) On 11 December 2009, the applicant creditor obtained judgment against the respondent debtor (and other defendants) in the Supreme Court of New South Wales in proceedings arsing in relation to the respondent debtor’s employment with the applicant creditor;
c) That judgment was the subject of an appeal to the NSW Court of Appeal;
d) The applicant creditor sought and was granted leave by the High Court of Australia to appeal the decision of the NSW Court of Appeal. That appeal was allowed on 1 December 2011 and certain matters were remitted to the NSW Court of Appeal for further consideration;
e) On 31 August 2012, the High Court of Australia issued a Certificate of Taxation certifying that the costs as against the respondent debtor and other respondents to that appeal had been assessed and allowed at $247,291.09;
f) Following a further hearing in the NSW Court of Appeal in July and August 2012, the applicant creditor obtained judgment and orders against the respondent debtor in the NSW Court of Appeal for:
i. USD 676,335.00; and
ii. Euros 378,160.00.
5. The applicant creditor provides the following information, to the extent it is known to the applicant creditor, for use by the Australian Financial Security Authority:
- The date of birth of the respondent debtor is 12 May 1942.
Notice Stating Grounds of Opposition to Petition – Slater Petition
A Notice Stating Grounds of Opposition to the Slater Petition (the “Slater Notice of Opposition”) was filed on 15 November 2013. The grounds of the Slater Notice of Opposition state as follows:
David Ross Slater, the Respondent, intends to oppose the petition on the following grounds:
1. At the time when the act of bankruptcy is alleged to have been committed the Respondent debtor did not have a dwelling house or a place of business in Australia.
2. At the time when the act of bankruptcy is alleged to have been committed the Respondent was not carrying on business in Australia either personally or by an agent or manager.
3. The sum set out in the Applicant’s petition has been satisfied at law and in equity and the petition is an abuse of process.
Notice Stating Grounds of Opposition to Petition – Nicholls Petition
A Notice Stating Grounds of Opposition to the Nicholls Petition (the “Nicholls Notice of Opposition”) was filed on 31 January 2014. The grounds of the Nicholls Notice of Opposition state as follows:
Robert Colin Nicholls, the Respondent, intends to oppose the petition on the following grounds:
1. The sum set out in the Applicant’s petition has been satisfied at law and in equity and the petition is an abuse of process.
Background
In Slater’s and Nicholls’ updated outline of submissions, filed on 12 May 2014, Mr McGrath, SC, counsel for Slater and Nicholls set out a short outline of facts and state at [7]-[17]:
7. The dramatis personae in this, and in various related court proceedings, include relevantly Mr John Emmott, Mr Michael Wilson and MWP [Michael Wilson & Partners Limited]. MWP describes itself as a full service law firm with offices in both Almaty and Baku covering Azerbaijan, Kazakhstan, the Central Asian Region and the Caucasus.
8. Mr Wilson and Mr Emmott were partners in MWP up until mid-2006, when Mr Emmott resigned on 30 June 2006 without giving due notice. At the relevant persons included Mr David Slater, who was a short –term employee of MWP, and Mr Robert Nicholls who worked there for a longer period than Mr Slater.
9. Mr Slater left to go to what are known as the Temujin entities, called TIL and TSL in various proceedings in several international jurisdictions, Mr Nicholls left to join TIL and TSL as a consultant and later on his resignation, Mr Emmott went to TIL and TSL as a consultant. Save for Mr Wilson’s assertion that Mr Slater, Mr Emmott and Mr Nicholls were all involved in setting up the Temujin entities, whereas Mr Slater says he set up those entities, the parties are ad idem in relation to the facts...1
1. The same persons who are pertinent to the NSW proceedings (which underpins the alleged debt claimed in the Bankruptcy Notices and Creditors Petitions) are also pertinent to the London Arbitration proceedings… see Emmott Affidavit 3/2/14 Exhibit JE – 1 tab A pages 1-3. In the NSW proceedings those persons are described in paragraphs and identified and described in paragraphs 11 to 17 in MWP’s Second Further Amended Commercial List Statement in, relevantly ,similar terms.
10. Other persons of particular importance in all of the proceedings are Mr Thomas Sinclair and the corporate entities associated with him and Mr Robert Schoonbrood and corporate entities associated with Mr Schoonbrood. They were existing clients of MWP at the times of the events outlined above and they left, giving evidence that they would not stay with MWP if Mr Emmott, Mr Nicholls and Mr Slater were not there. They then instructed the Temujin entity to do their work.
11. It is for the loss of those same existing clients that MWP relevantly sued Mr Emmott in arbitral proceedings in the United Kingdom initially (in August 2006)2 and, subsequently (in October 2006) in the ancillary proceedings, sued Mr Nicholls, Mr Slater, TIL and TSL in the New South Wales proceedings. There is a considerable overlapping of the claims between the claims in the London Arbitration and the claims in the NSW Proceedings. MWP concedes that the they are based on the same substratum of facts.3 There are some joint and some several causes of action in each case.
2. This procedural history concerning the commencement of the London Arbitration and also the NSW Proceedings is set out in paragraphs 10 to 12 of the Emmott Affidavit of 3/2/14. The Amended Points of Claim in the Arbitral Proceedings are at Exhibit JE- 1 Tab A p 1 to the Emmott Affidavit of 3/2/14.
3. Michael Wilson & Partners Ltd v Emmott [2008] EWCA 184, at [13].
12. In the London Arbitration, Mr Emmott brings a cross-claim for his 1/3rd (33%) partnership share of the business and assets of MWP, of which he was a quasi partner/director4. Mr Emmott’s share of MWP is of substantial value, with the Steppe Cement Shares that are owned by MWP being worth in the order of 9 million pounds sterling5, through its businesses value is subject of the pending reserved judgment of the Arbitrators. Mr Emmott has declined to disclose the evidence concerning quantum in the arbitration proceedings pending the handing down of the award6.
4. See Emmott Affidavit 3/2/14, at paragraph 11.
5. As to the lodgement of the cross-claim and MWP’s ownership of 9.93 million shares in Steppe Cement, see Emmott Affidavit 3/2/14 at paragraph 17. As to Mr Emmott’s entitled to his share of MWP, see Emmott Affidavit 3/2/14 at paragraph 24(b) & 34 and see also the Second Interim Award of the London Arbitrates paragraphs 8.23 and 8.25 particularly at 8.25.1 (which is at Exhibit JE-1 Tab D pages 158 to the Emmott Affidavit of 3/2/14).
6. Emmott Affidavit, 3/2/14 at paragraph 31.
13. The Arbitral Tribunal comprises Ms Valerie Davies of Norton Rose LLP, Lord Millett and Mr Christopher Berry of Edwin Coe LLP. Relevantly, for the purposes of this Federal Circuit Court’s consideration of Mr Slater’s Mr Nicholls’ applications:
a) The pleadings, evidence, witnesses, calculations of claim loss and damage or compensation by MWP are the same or substantially overlap in the London arbitration and the NSW Supreme Court proceedings7.
b) The evidence relied upon by MWP concerning the quantum of damages or compensation for loss of tis clients to the Temujin entities was virtually identical in the London Arbitration and the NSW Proceedings8. Mr Schilling’s report was used in both cases, as to the quantum of MWP’s claim in that regard.
c) It is for the same loss of clients or projects that MWP claims in both the London Arbitration and the NSW Proceedings.
7. For example, reference to MWP’s Points of Claim in the London Arbitration proceedings (Exhibits JE-1, Tab A, page 1, to the Emmott affidavit of 3/2/14…
8. As to the reliance on Mr Schilling’s report in the NSW Proceedings, see for example, Michael Wilson & Partners v Nicholls & Ors [2009] NSWSC 1377, which is at Tab 3 of the Exhibit DS-1 to the Second Slater Affidavit.
14. The Arbitral Tribunal has heard and determined liability9. It found, relevantly, the MWP suffered a loss of clients, including Mr Sinclair’s company Sokol, to Temujin, and Mr Emmott is liable to pay to MWP damages or equitable contribution for that and is jointly and severally liable for the loss that is the subject of the judgment in the NSW Proceedings10. Mr Emmott was held to be successful on his cross-claim in the arbitration11. Mr Emmott’s entitlement to 33% of MWP has been reduced by way of set-off against MWP’s claim for relevantly, the loss of its clients to the Temujin entities including Kanagmuit and Lancaster Group12. In its terms the liability award affords a substantial and actual benefit to MWP, reducing Mr Emmott’s share of MWP’s business by, at the least, a sum in the order of $3.2 million (Aus) 13. The hearing on quantum took place some time ago in June 201(sic) and the arbitral tribunal’s final award is reserved and imminent14.
9. See the Second Interim Award of the London Arbitrators, (at Exhibit JE-1 Tab D to the Emmott Affidavit of 3/3/14.
10. See paragraph 8.22 at page 157 of the Second Interim Award of the London Arbitrators (at Exhibit JE-1 Tab D to the Emmott Affidavit of 3/3/14.
11. See paragraphs 8.10 to 8.13 at pages 153 to 154 of the Second Interim Award of the London arbitrators (at Exhibit JE-1 Tab D to the Emmott Affidavit of 3/3/14).
12. See Seventeenth Procedural Orders made on 24 March 2010 in the London Arbitration, particularly orders 1 and 4.
13. See paragraphs 32 of the Emmott Affidavit of 3/2/14.
14. See paragraphs 3 and 42 of the Emmott Affidavit of 3/2/14.
15. Relevantly (for the purposes of the considerations of this Federal Circuit Court), in their final award on liability the Arbitral Tribunal determined that Mr Emmott was liable to MWP for the loss of clients, principally Mr Sinclair and Mr Schoonbrood and their companies. The Tribunal then fashioned a means to expressly compensate MWP for that loss of business of those clients and their projects, by backdating the date for calculation of Mr Emmott’s cross-claim. The Tribunal commented that provisions of its award “probably over compensates MWP, which lost two thirds of the value of the work which TEMUJIN charged the shared clients but will gain one third not only of the value of the work which it was charged to those same clients for the work which Mr Emmott undertook on behalf of MWP but also of the value of the work undertaken by Mr Wilson for all MWP’s other clients.”
16. The Second Interim Award of the Tribunal issued on 22 February 2010 and reissued on 6 April 2010, and was subject to a subsequent Clarification of Award.
17. Critically, it is for the loss of the same former clients and project of MWP, i.e. Mr Sinclair and Mr Schoonbrood and their corporations (plus the Lancaster Group and Kangamuit, that MWP obtained judgment at first instance in the NSW Supreme Court proceedings and, ultimately, a judgement for a greatly reduced sum from the Court of Appeal.
Adjournment Application
Mr McGrath submitted that on all previous occasions this matter had been before the Court he had sought an adjournment, pending the handing down of a decision in arbitration proceedings in London by the Arbitral Tribunal (the “London Arbitration”) constituted by the appointment of Mr Christopher Berry of Edwin Coe LLP as Chairman of the Tribunal by the President of the Law Society on 31 January 2007. MWP appointed Lord Millett as its arbitrator, while Mr Emmott appointed Ms Valerie Davis of Norton Rose LLP as his arbitrator final decision. The adjournment is sought in order to enable Slater and Nicholls to:
a)Assert what, if any, debt is due to MWP; and/or
b)Obtain the benefit of set-offs or satisfaction arising from those proceedings.
Mr McGrath acknowledged that this application had been made previously and had been rejected, however, he respectfully sought to make it again and in the circumstances that the proceedings do continue he will make it again at the end of the hearing.
As there was no evidence before this Court that would justify an adjournment and taking into account of the proceedings to date, I ruled against the adjournment.
Evidence
In the Slater Petition, MWP filed and relied on:
a)Affidavit of Debt, sworn by Michael Earl Wilson on 13 May 2013 and filed 14 May 2014;
b)Affidavit of Search, sworn by Steven Lewis on 13 May 2013 and filed 14 May 2014;
c)Exhibit “A2” Entry and Departure Card of Slater, dated 28 January 2010 and 9 February 2010;
d)Affidavit of Service, sworn by Beverly Oakes on 26 August 2013, filed 9 October 2013;
e)Affidavit of Service sworn by Angela Wong on 22 August 2013 and filed 9 October 2013; and
f)Orders of the Federal Circuit Court – substituted service orders, dated 28 October 2013.
In the Nicholls Petition, Mr Johnson filed and read the following affidavits:
a)Affidavit of Final Debt, sworn 13 May 2014 by Michael Earl Wilson and filed 14 May 2014;
b)Affidavit of Search, sworn 13 May 2014 by Steven Lewis, filed 14 May 2014; and
c)Affidavit of Service, sworn by John Abboud on 21 January 2014, filed 14 May 2014.
In the Slater Petition, in respect of evidence, Slater:
a)Sought to rely on the affidavits of David Ross Slater and John Foster Emmott. The Court notes that the affidavits of David Ross Slater and John Forster Emmott have been verified in front of someone not normally recognised by the Court which fails to comply with s.59(2) of the Federal Circuit Court of Australia Act 1999 (Cth). However, having regard to the logistics of preparing the affidavits I will dispense with that requirement under r.1.06 of the Federal Circuit Court Rules 2001 (Cth);
b)Read the first affidavit of David Ross Slater, sworn 14 November 2013 (“First Slater Affidavit”):
i)Paragraphs [5] and [16] were not read.
c)Read the second affidavit of David Ross Slater (the “Second Slater Affidavit”), sworn 23 January 2014:
i)Paragraphs [32], [33] and [34] were not read; and
d)Presented the affidavit of John Foster Emmott (the “Emmott Affidavit”), sworn 3 February 2014, to the Annexure “JE1” – (affidavit not read):
i)Mr Johnson, in written submissions, indicated that the Emmott Affidavit, sworn 3 February 2014, was referred to in the Second Slater Affidavit as being relied upon by Slater. An incomplete unsigned copy of the Emmott Affidavit was provided by the solicitors for the respondent debtor to the solicitors for MWP on 30 January 2014, but the executed complete document was not provided until late on 4 February 2014. It is clear that Slater had access to the Emmott Affidavit when he executed his second affidavit as at 23 January 2014. This evidence was not provided to MWP in accordance with the orders made on 20 November 2013. On 30 January 2013, it was stated by Senior Counsel for the Slater that this was the substantive affidavit sought to be relied upon by Slater in relation to his opposition to his Creditor’s Petition, even though it had not, at the time, been sworn. On the same day and subsequently following the delivery of the Emmott Affidavit, a notice was given to the solicitors for the Respondent Debtors that Mr Emmott was required to be available for cross examination upon his evidence, if it was permitted to be read. On 6 February 2014 the solicitors for the Respondent Debtor were advised of a general objection to the Emmott Affidavit on the basis of ss.135 and 136 of the Evidence Act 1995;
ii)Annexure “JE1” contained a number of documents relating to the London Arbitration. Mr Johnson indicated that he raised no objection to those awards being treated as judgments for the purposes of s.91 of the Evidence Act and for them to be used for that purpose;
iii)The following documents Annexure “JE’1”, were tendered:
(i)Tab A – Document titled “In the matter of an Arbitration Act 1996 and in the matter of an Arbitration, between Michael Wilson & Partners, Limited and John Forster Emmott – Amended Points of Claim”;
(ii)Tab D – Document titled “Second Interim Award”, made 19 February 2010;
(iii)Tab E - Document titled “Clarification”, dated 6 April 2010;
(iv)Tab F – Document titled “Seventeenth Procedural Order” made on 24 March 2010; and
(v)Tab G – Document titled “In the High Court of Justice, Queens Bench Division, Commercial Court Judgment of Mr Justice Andrew Smith” dated 8 June 2011.
Issues not in dispute
In MWP’s submissions it states that there is no dispute between the parties in respect of the following issues:
a)There is no dispute as to the judgment relied upon by the applicant having been made in the amount for which they were made;
b)There is no dispute as to the service of the bankruptcy notice and that it has been served in accordance with the orders made by the Court for substituted service in accordance with the provisions of s.309 of the Bankruptcy Act;
c)There is no dispute as to the service of the Creditor’s Petition and supporting material and both respondents have filed notices of appearance and notices stating grounds of opposition; and
d)The Respondent Debtors do not assert solvency.
The above contentions were not challenged by Counsel for the respondents in written or oral submissions.
Cross-examination of Slater
Slater gave sworn evidence via video-link from London. MWP indicated it had served notices on Slater and Nicholls, requiring them to be available for cross-examination in Sydney on their affidavits if they are sought to be read. A medical certificate has been provided in respect of Slater and to the extent that it has been considered, MWP did not oppose the cross-examination of Mr Slater by video-link, but indicated that it still wishes to cross-examine him. The affidavit of Rodney Hawkins, sworn and filed on 12 February 2014, attaches correspondence from Dr J. Sharif of Chelsfield Surgery, Orpington, Kent, stating Slater’s current medical condition and expressed the view that he has been advised not to travel by air and to avoid any stressful situations, such as giving evidence.
Under examination-in-chief by Mr McGrath, Slater confirmed that his full name was David Ross Slater and that he resided at 153 Warren Road, Chelsfield, Orpington, Kent, BR6 6ES, United Kingdom, that he was not currently employed and that his occupation was that of a solicitor and from time to time carried out some project management services. Under cross-examination by Mr Johnson, Slater confirmed that in September 2013 that he was an Australian citizen and held an Australian passport and indicated that he visited Australia in February 2010 to attend Court. He stated that he had completed a departure card when he exited Australia and the contents of that departure card were truthful. Slater confirmed that he held a practicing certificate, issued by the Law Institute of Victoria which contained a condition, because he was not practicing within Australia. That condition excused Slater of the obligation to maintain insurance and he was unable to hold trust monies. Slater confirmed that he had entered his name on the Register of Practitioners maintained under the Judiciary Act 1903 (Cth) in Australia.
Slater confirmed that he was born in Australia and that his mother and sister still reside in Hamilton, Victoria, but he did not have any possessions of his own at Hamilton. He stated that he had last seen his mother and sister in either 2002 or 2003. Slater confirmed that a personal friend, Ms D. Ligazolo, resided at Bronte, NSW and that he had provided the Department of Immigration, on two occasions of entering Australia that address at which he was staying during his visits.
Slater indicated that he used an address in Bannerman Crescent, Rosebery, NSW which is occupied by the mother of a person identified as Alex Neovius. Slater confirmed that he had used that address for Westpac bank statements, MasterCard statements and, from time to time, some documents from the managing agent of his investment property in Canberra. Slater confirmed that as at September 2013 that address was used for MasterCard and Westpac bank statements. Slater confirmed that he owned a property in Ainslie, ACT. He confirmed that he filed income tax returns with the Commissioner of Taxation in Australia, but was unable to verify whether he had filed a tax return for the period ending 30 June 2013, however, it was his intention to do so.
Slater confirmed that in respect of the Slater Petition he had been served with the bankruptcy notice, issued by the Official Receiver in Australia, but he did not make any application to set that bankruptcy notice aside. The bankruptcy notice was in respect of a judgment obtained by MWP in NSW Court of Appeal proceedings, which included a number of defendants other than Slater and he had not paid the judgment debt as far as it relates to him. There was no re-examination and Slater was excused from further attendance.
Issue 1 – Jurisdiction – s.43; Slater’s Challenge to Jurisdiction
Section 43 of the Bankruptcy Act relevantly states:
Section 43(1) of the Act
Jurisdiction to make sequestration orders
(1) Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling-house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
Respondent Debtor’s Submissions
Mr McGrath indicated that he relied on his written submissions filed in these proceedings on 12 May 2014 which states at [18]-[20]:
18. As stated in his prior submissions of 29 January 2014, Mr Slater seeks leave to amend his Grounds of Opposition to the Creditor’s Petition, to contend that he is not connected with Australia in any of the ways mentioned in section 43(1)(b) of the Act as prerequisites for the conferral of the bankruptcy jurisdiction on this Court.
19. MWP has the onus of establishing jurisdiction (Re Mendonca; Ex parte FCT [1970] ALR 337; Re Barnes (1886) 16 QBD 522).
20. Whether a person “ordinarily resident in Australia” within the meaning of that expression in s43(1) (b)(ii) is a question of fact and degree in all the circumstances of the particular case. See the comments of the Court, coram Lockhart J, in Re Taylor; Ex parte Natwest Bank Ltd (1992) 37 FCR 194):
The concept of “ordinary residence” for the purposes of the Act, in my opinion, connotes a place where in the ordinary course of a person's life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression "ordinarily resident in" connotes some habit of life, and is to be contrasted with temporary or occasional residence:
Mr McGrath indicated that nothing arose from the cross-examination of Slater that would assist further in respect of the issue of jurisdictional nexus.
Applicant Creditor’s Submissions
Mr Johnson indicated that he relied initially on his written submissions which state at [9] as follows:
9. To the extent that the Respondent Debtor puts in issue jurisdiction as identified in s 43(1)(b) of the Bankruptcy Act 1966, the Applicant says that on the available evidence before the court to be read by the Applicant sufficient nexus has been established. It is for the Respondent Debtor to rebut such a prima facie position and this will to a large extent depend upon the evidence to be relied upon by him, to the extent that it is admitted and the answers given by him in relation to cross examination: Re Taylor Ex part Natwest Bank Limited (1992) 37 FCA 194; Mathai v Kwee [2005] FCA 932 and in particular [116]; Battenberg v Restom [2007] FCAFC 195. It is submitted that as the evidence presently stands, jurisdiction exists and the factual investigation which will involve cross-examination of the Respondent is an essential part of the fact-finding exercise upon which the court draws the necessary conclusion. The Applicant will also be relying upon the documents produced by the Department of Immigration in answer to the subpoena served upon it at the hearing.
In oral submissions Mr Johnson referred to the decision in Napiat Pty Ltd v Salfinger; Re Salfinger (No. 7) (2011) 202 FCR 264 per Foster J. In the reported head note, it states:
That the applicant sought a sequestration order against the estate of the respondent. The issue for the Court to determine was whether the bankruptcy notice relied upon by the applicant as the foundation for the act of bankruptcy alleged in the Petition was validly served upon the respondent at the “last known address” of the respondent in accordance with the Regulation 16.01(1)(c) of the Bankruptcy Regulations 1996 (Cth). Regulation 16.01(1)(c) provides that where the document is required by the Bankruptcy Act to be served on a person, the document could be left an envelope marked with a person’s name at the last known address of the person. Records maintained by the Australian Securities and Investment Commission showed that the respondents residential address as an address Dianella, Western Australia, and in proceedings in the Family Court in February 2011, the respondent informed the Family Court that he was ordinarily resident at the Dianella address. Service of the bankruptcy notice was affected at that address on 11 April 2011. However, on 18 May 2011 the respondent informed ASIC that from 1 April 2011 his address has been a business address in Israel.
Foster J dealt with the question of jurisdiction in Salfinger (supra) at [73]-[77] where he stated:
73. The expressions “resident” and “ordinarily resident” are not technical terms and have their ordinary English meaning (Re Taylor; Ex parte Natwest Australia Bank Limited [1992] FCA 296; (1992) 37 FCR 194 at 197 per Lockhart J). Whether a debtor is ordinarily resident in Australia is a question of fact and degree (Re Taylor at 197). It is the debtor’s settled and usual place of abode (Re Taylor at 198)—the place where he or she regularly or customarily lives (Re Taylor at 198). As Lockhart J went on to say in Re Taylor (at 158):
There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression “ordinarily resident in” connotes some habit of life, and is to be contrasted with temporary or occasional residence: see Levene (supra) and Lysaght (supra). As Lord Warrington said in Levene (at 232): “‘Ordinarily resident’ means according to the way a man’s life is actually ordered.” The concept of ordinarily resident cannot be stated in definite terms; each case must be determined on its facts and after taking into account all relevant matters: see the Canadian case of Thomson v Minister of National Revenue [1946] SCR 209 per Estey J at 231.
74. Where the debtor views himself or herself as living at the relevant time is an important factor in assessing his or her “ordinary residency” (Restom v Battenberg 4 ABC(NS) 474 at [47] per Stone J).
75. Whether a temporary absence from Australia prevents a debtor from being “ordinarily resident” here is a question of fact and degree (Re Vassis; Ex parte Leung [1986] FCA 21; (1986) 9 FCR 518 at 525 per Burchett J). Whether, at the time of departure and during the temporary absence, the debtor intends to return to live in Australia after the temporary absence is relevant to determining whether he or she is “ordinarily resident” in Australia during the absence (Re Vassis at 525).
76. Whether the debtor “has” a dwelling-house or a place of business in Australia is a question of fact. The debtor must use the premises to live in or to conduct business from, but does not necessarily have to own the premises. These questions are also questions of fact and degree.
77. The Courts have taken a broad view of what constitutes “carrying on a business” but the business must be the debtor’s own business. He or she must be carrying on the relevant business on his or her own account (Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 260–261 per Gibbs J).
In Restom v Battenberg [2007] FCA 46 per Stone J the debt relied on in the creditor’s petition was founded on an order for costs made by the Supreme Court of NSW. There were a number other supporting creditors. The respondent debtor filed a notice of opposition on the grounds that at the time of the commission of the act of bankruptcy alleged in the petition the respondent was not present in Australia; was not ordinarily resident in Australia; did not have a dwelling or house in Australia and did not carry on a business in Australia. Ultimately, the issue that was before the Court for determination was whether the respondent was “ordinarily resident” in Australia at the time of the commission of the act of bankruptcy relied upon in the creditor’s petition.
Her Honour Stone J addressed the issue of being or not being ordinarily resident in Australia in the following passages of Restom v Battenberg (supra) at [5]-[9] where she stated:
Ordinarily resident in Australia
5. In Re Taylor; Ex parte Natwest Australia Bank Limited [1992] FCA 296; (1992) 37 FCR 194 at 197 Lockhart J said, in a statement that is now settled law:
‘I shall not attempt to give any comprehensive definition of the word "resident". It has no technical or special meaning for the purposes of the Act. Nor do the words "ordinarily resident" have any such technical or special meaning. They are ordinary English words. Whether a debtor is ordinarily resident in Australia is a question of fact and degree.’
His Honour further noted at 198:
‘To say that a person is ordinarily resident in Australia must mean something more than that he is resident in Australia. The word "ordinarily" connotes a comparison, a measure of degree. A person may have more than one residence, but he is not necessarily ordinarily resident in each of them. The question must be determined for the purposes of s 43 of the Act at a particular time. One must ask the question whether at that time the person was ordinarily resident in Australia. The concept of "ordinary residence" for the purposes of the Act, in my opinion, connotes a place where in the ordinary course of a person’s life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression "ordinarily resident in" connotes some habit of life, and is to be contrasted with temporary or occasional residence...’
(emphasis added)6. Lockhart J’s views are consistent with those expressed by Burchett J in Re Vassis; Ex parte Leung [1986] FCA 21; (1986) 9 FCR 518 to which his Honour referred. In Vassis, at 524 – 525, Burchett J made the following comment:
‘The question where a person is ordinarily resident is a question of fact: ... It is obviously not to be answered, in respect of any particular time, by asking where that person was then resident. Otherwise, the word, "ordinarily" would have no meaning. But even the unqualified concept of residence is not tied to the accidents of a day; for, as Viscount Sumner said in Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 245: "One thinks of a man’s settled and usual place of abode as his residence." At the same time his Lordship pointed out that "in many cases in ordinary speech one residence at a time is the underlying assumption and, though a man may be the occupier of two houses, he is thought of as only resident in the one he lives in at the time in question". In s 43 of the Bankruptcy Act, the phrase is not "resident in Australia" but "ordinarily resident in Australia", and it expresses an alternative to "personally present ... in Australia". In such a context it must convey the former of the meanings which I have quoted from Viscount Summer’s speech rather than the latter. If a man’s home is in Australia, a merely temporary absence will not prevent his being ‘‘ordinarily resident in Australia". It is a question of fact and degree at what point a temporary absence might, if sufficiently prolonged, prevent its being proper to continue to regard him as ordinarily resident in Australia.’
7. In Taylor, whilst Lockhart J considered that ordinary residence required a degree of regularity or permanence, his Honour also expressed the view (at 198) that a person might have more than one ordinary residence:
‘A person may have two places of residence; for example, a city flat and a country house. He may regularly live in each. He cannot be physically present in both at the same time, but he may be resident (or ordinarily resident) in each at the same time. People may come and go from the place in which they are ordinarily resident in a large variety of circumstances and on various occasions. It is always a question of fact and degree. ...
At first blush it may seem strange to say that a person can be ordinarily resident in more than one country at the same time; but on closer analysis it is not. Plainly you cannot be physically present in more than one place at the same time. But the lifestyles of people vary greatly. Some people in the ordinary pursuit of their lives regularly or customarily live in more than one place, each of which has an element of permanence about it and is not merely a place of casual or intermittent resort."8. This statement was referred to with apparent approval by Graham J in Mathai v Kwee [2005] FCA 932 at [124]. His Honour referred to tennis and golf professionals as examples of people who travel away from the place or places where they are ordinarily resident, in order to earn their incomes. Indeed, in Mathai, Graham J found that a tax consultant who had spent only two out of the preceding 20 or so years actually residing in Australian was, nonetheless, ordinarily resident here.
9. The extracts from Vassis and Taylor above both focus on the conduct and habits of the debtors in question however, in their respective judgments, both Burchett J and Lockhart J also referred to the debtors’ statements or beliefs regarding their residency. In Taylor Lockhart J placed significant reliance on outgoing and incoming passenger cards, on which the debtor had recorded that he was an Australian resident, either leaving Australia temporarily or returning from a temporary absence. Although his Honour stated (at 200) that ‘[o]f course, statements by persons on migration forms are not definitive of their truth’, in the context of the rest of the evidence his Honour found the passenger cards persuasive. In Vassis, Burchett J also referred to a departing passenger card in which the debtor indicated that he was an Australian resident, and to the debtor’s evidence that he intended to come back to Australia to live permanently after his trip to Greece. Burchett J found that the debtor was ordinarily resident in Australia throughout the two year period that he spent living in Greece.
The decision of her Honour Stone J in Restom v Battenberg (supra) went on appeal to the Full Federal Court in Battenberg v Restom [2007] FCAFC 195 per Marshall, Tracey and Buchanan JJ, who dismissed the appeal, and held that the primary judge was entitled to make a factual finding that the applicant was ordinarily resident in Australia and a person can be ordinarily resident in more than one place at a time.
Mr Johnson submits that in the matter before this Court the factual foundation is contained in the incoming passenger card (Exhibit “A2”), where Slater states that he is an Australian citizen.
The other objective facts are that as at September 2013 he had a postal address at Bannerman Crescent, Rosebery, NSW, which Slater identified that communications were sent, for example bank statements, MasterCard statements and reports that relate to a property that he owns in Canberra. Slater confirmed that he owed the property in Canberra and received rental income. He was lodging tax returns within Australia and intended to continue to do so. Mr Johnson argues that in the overall scheme the evidence available establishes that Slater falls within the jurisdiction of this Court as an “ordinary resident”, for the purposes of s.43 of the Bankruptcy Act.
Consideration - Issue 1
The Creditor’s Petition in the Slater proceedings, filed 9 October 2013 states that the Respondent Debtor failed to comply on or before 24 September 2013 with the requirements of the amended bankruptcy notice deemed to be served on him on 27 August 2013 pursuant to orders made by Judge Raphael on 12 August 2013.
During Slater’s cross-examination the following sequence of questions and answers occurred:
Mr Johnson: Now, you are still an Australian citizen?
Mr Slater: Yes.
Mr Johnson: In September 2013 you were an Australian citizen?
Mr Slater: Yes.
Mr Johnson: In September 2013 you held and Australian passport?
Mr Slater: Yes.
Mr Johnson: The – you have said that you came to Australia in February 2010 to attend at court?
Mr Slater: Yes.
Mr Johnson: And when you left you completed a departure card?
Mr Slater: That is correct.
Mr Johnson: And when you completed that departure card it was truthful?
Mr Slater: Yes.
(Transcript, Federal Circuit Court proceedings, 14 May 2014, p.23)
Mr Johnson tendered an incoming passenger card completed by Slater on 28 January 2010 and an outgoing passenger card completed by Slater on 9 February 2010 (Exhibit “A2”). On an outgoing passenger card, a person leaving Australia is required to complete therein:
a)Item D – Visitor or Temporary Entrant departing; or
b)Item E – Australian resident departing temporarily; or
c)Item F- Australian resident departing permanently.
Slater has marked under “Item D” that he spent most of his time in NSW by placing an “X” next to that option. Under “Item E”, Slater has also indicated, next to the heading “Australian resident departing temporarily”, with an “X” next to it. The next question in respect to “Which state do you live” – has been left blank. In respect of the period of absence, Slater has identified 12 months to be spent in Kazakhstan, for the purpose of business.
In the First Slater Affidavit the following evidence was given which is unchallenged. Slater stated at [1]-[8]:
I. INTRODUCTION
1. I am an Australian citizen and hold an Australian passport numbered [NUMBER], which was issued on 19 August 2004 and which expires on 19 August 2014.
2. I hold a B.Ec. (Hons) LLB, from Monash University, Melbourne, Victoria, Australia.
3. I am a barrister and solicitor of the Supreme Court of Victoria, Australia. I have been admitted to practice in Victoria, Australia since 1993, and currently hold a full unrestricted practicing certificate from the Supreme Court of Victoria, Australia. I am also admitted to practice in the Federal Court of Australia and the High Court of Australia.
4. The facts deposed to herein are either: within my own knowledge and are true; or, the source of information is stated and such matters are true to the best of my knowledge and belief.
…
II. RESENTIAL(sic) RESIDENTIAL STATUS
6. In late August 2005, I left Australia to work for Michael Wilson & Partners, (MWP) for a 3 month trial period in Almaty, Kazakhstan.
7. From the end of my trial period of employment in MWP, in January 2006, up until November 2009 I resided in Almaty Kazakhstan with my fiancée Ms. Alexandra Neovius (who joined me there in March 2006) I resided at the following residential apartments in Almaty, Kazakhstan:
a) Apartment 54, 246A Furmanova Street;
b) Apartment 39, 64/30 Karasai Batyr Street;
c) Apartment 53, 20 Kumangazy Street; and
d) Apartment 34, 78 Zenkov Street.
8. On 9 November 2010 I left Almaty, Kazakhstan and joined my fiancée Ms. Neovius who had re-located to London, United Kingdom. Since then, Ms. Neovius and I have resided continuously in the United Kingdom, initially in rented premises at 247 Eversleigh Road, Clapham Junction SW11 5XF, United Kingdom and, subsequently, since September 2012 in rented premises located at 153 Warren Road, Chelsfield, BE66ES, United Kingdom.
Objection was raised to paragraphs [9], [10] and [11] of the First Slater Affidavit on the grounds of relevance and, in particular, paragraph [11] on the basis of ss.135 and 136 of the Evidence Act 1995 (Cth). When the objection was raised, I indicated to the parties that I would allow those paragraphs to be read and reliance to be placed on that material, to the extent, that they may be relevant. I include [11] to the extent that it explains Slater’s visit to Australia in January and February 2010 and the entry and exit forms that he completed in immigration control:
11. During the period from 1 September 2006 up to the date of swearing this my affidavit, I have not resided in Australia. I have on two (2) occasions visited Australia: first to attend the mediation and trial proceedings commenced by MWP in the Supreme Court of New South Wales in June and July of 2009; and, secondly, in January 2010 in answer to a notice to attend for cross examination in the Court of Appeal of the Supreme Court of New South Wales which notice was not called on by MWP…
In respect of Slater’s investment property he gives the following evidence in the First Slater Affidavit where he states at [12]-[13]:
III. INVESTMENT PROPERTY
12. In about July 2006, I purchased a property at 41 Officer Crescent, Ainslie 2602, Australian Capital Territory (Investment Property). It is the only real estate in which I have interest in Australia.
13. Since its purchase:
a) the Investment Property has been tenanted and is currently managed by McGrath Dickson, Real Estate Agents 4/3 Cape Street, Dickson, ACT 2602; and
b) I have never resided in the Investment Property.
Slater’s business operations are explained in the First Slater Affidavit at [14]-[15] as follows:
IV. BUSINESS OPERATIONS
14. I cause to be established TIL[Temujin International Limited] in January 2006. It operated its principal legal advisory and project management business in Kazakhstan, through its office in Almaty, Kazakhstan, where I was TIL’s general director.
15. Since leaving Kazakhstan in November 2010, I have continued to be retained as the general director of TIL and now conduct a small consulting business on its behalf based in the United Kingdom, which provides project services for various investors from Russia, Ukraine, Kazakhstan, China, United States and Hong Kong seeking to invest in various mining and resources projects, agricultural projects, commercial property and green energy projects located in Kazakhstan, Afghanistan, China, the United Kingdom and Australia.
On the material before the Court, the question as to whether the debtor, Slater, is ordinarily resident in Australia is raised. Following the authority set out by her Honour Stone J in Restom v Battenberg (supra), this is a question of fact and degree. As noted in the above judgment, a person “may have more than one residence, but he is not ordinarily resident in each of them”, with the further qualification, that the question must be asked whether at that particular time the person was ordinarily resident in Australia. If the relevant time to be applied to address this question is taken from the date of service of the bankruptcy notice being deemed as 27 August 2013, pursuant to the orders made by his Honour Judge Raphael on 12 August 2013 and the date of the Creditor’s Petition being 9 October 2013, Slater was not present in Australia, having departed on 9 February 2010, according to his outgoing passenger card when he left Sydney on flight EY 455, destined for Abu Dhabi (Exhibit “A2”).
The question arises as to whether Slater’s absence can be characterised as merely temporary. This is not supported by the evidence before the Court. Slater, in the First Slater Affidavit, indicated at [7] that he departed Australia in August 2005 to work for MWP in Almaty, Kazakhstan for an initial three month trial period, which in January 2006 was extended on a permanent basis. As of March 2006 he was accompanied by his fiancée Alexandra Neovius. In November 2009 Ms Neovius relocated to London, and in 2010 Slater left Kazakhstan and moved to London to reside with Ms Neovius. Since November 2010, Slater and his fiancée have resided continuously in the United Kingdom. The First Slater Affidavit at [8] indicates that he initially rented premises at 247 Everleigh Road, Clapham Junction, SW11 5XF, United Kingdom and subsequently since September 2012 in rented premises at 153 Warren Road, Chelsfield, Orpington, Kent, BR6 6ES, United Kingdom.
Based on the authority of Re Vassis; Ex parte Leung (1986) 9 FCR 518 I am not satisfied that the unchallenged evidence of Slater, set out above, could be interpreted as him being “ordinarily resident in Australia” as he has been absent from Australia in excess of 8 years with only two very brief return visits because he was required to attend legal proceedings. I believe these circumstances of absence are “sufficiently prolonged, prevent it being proper to continue to regard him as ordinarily resident in Australia.”
The residence of Ms Lighezzolo in Bronte, Ms Neovius’ mother’s residence in Rosebery and the Ainslie investment property do not have the character of an alternate residence as considered by his Honour Lockhart J in Re Taylor; Ex parte Natwest Australia Bank Ltd (1992) 37 FCR 194, where he referred to tennis and golf professionals as examples of people who travel away from the place or places where they are ordinarily resident, in order to earn their incomes. Nor does Slater fit into the category of persons identified by his Honour Graham J in Mathai v Kwee [2005] FCA 932 with Mr Mathai, being a tax consultant who had spent cumulatively only two out of the preceding twenty years before bankruptcy proceedings were commenced against him residing in Australia, was nonetheless found to be ordinarily resident in Australia. The immigration records establish that Mr Mathai, during the period of 1 February 1981 to 31 December 2003 lived in Australia little over 1,032 days (approximately 2.83 years) and lived overseas for a little under 7,336 days (approximately 20.09 years).
However, I believe the facts in Mathai v Kwee (supra) distinguish it from the matter before this Court. In that decision under the subheading “Having a dwelling house in Australia” Graham J recorded the following material at [114]-[119], where he stated:
114. Where a debtor owns a house in Australia, does not occupy it although he could reoccupy it at any time, but has abandoned its use as a residence, he will not have a dwelling-house in Australia (per Wilcox J at first instance in Re Boles [2000] FCA 1782 at [48]).
115. If a debtor is away from his dwelling-house for a temporary purpose but with an intent to return, he may still have a dwelling-house. The more there is actual occupation, the easier it is to conclude that he has a dwelling-house (per Goff LJ in In re Brauch at p 335).
116. As I see it, a debtor will have a dwelling-house in Australia if there is a house in Australia which he uses or has used and may use as his residence and to which he may repair at his whim at any time.
117. In my opinion, Mr. Mathai has had 69 Wellington Street, Kew, Victoria as a dwelling-house in Australia since 1991. Firstly, he was involved in its purchase and in arranging the finance for its purchase.
118. Secondly, it was invariably nominated as his intended address in Australia when he returned from overseas. Thirdly, when he travelled overseas for his work, he always declared that he “lived” in Victoria and that he intended to return. Fourthly, he maintained a wardrobe of clothing at the house. Fifthly, it was undoubtedly his wife’s “home” and he was in frequent contact with her in relation to family matters. He never sought nor needed to seek permission to return to the house or to dwell in it. Sixthly, he used it as his residence whenever he was in Australia.
119. At the time when the act of bankruptcy was committed, Mr. Mathai had a dwelling-house in Australia.
His Honour then proceeded to consider the issue of “being ordinarily resident in Australia” as follows at [120]-[126], where he stated:
BEING ORDINARILY RESIDENT IN AUSTRALIA
120. Whether a debtor is ordinarily resident in Australia is a question of fact and degree (per Goff LJ in In re Brauch at 330 and 334; per Burchett J in Re Vassis; Ex parte Leung (“Re Vassis”) [1986] FCA 21; (1986) 9 FCR 518 at 525; and, per Lockhart J in Re Taylor; Ex parte Natwest Australia Bank Limited (“Re Taylor”) [1992] FCA 296; (1992) 37 FCR 194 at 197 and 198).
121. A debtor can be ordinarily resident in more than one country (per Goff LJ in In re Brauch at p 331 and per Lockhart J in Re Taylor at p 198).
122. A debtor who comes to Australia as a casual or purely transitory visitor will not be ordinarily resident in Australia (per Goff LJ in In re Brauch at p 334 and per Buckley LJ at p 337).
123. Temporary residence overseas will not prevent a finding that a debtor is ordinarily resident in Australia (per Burchett J in Re Vassis at p 525).
124. In Re Taylor Lockhart J said at p 197-8:-
“‘Resident’ and ‘ordinarily resident’ are not terms of art in Australian law. Rather, they have been used in the statute law of this country and the United Kingdom for many years. The question of residence arises in many different statutory contexts including legislation concerning bills of sale (Attenborough v Thompson [1857] EngR 911; (1857) 2 H & N 559 at 563; [1857] EngR 911; 157 ER 230 at 232 per Pollock CB); copyright (Phonographic Performance Ltd v Pontin’s Ltd [1968] Ch 290, per Cross J at 297-298); and income tax (Robertson v Commissioner of Taxation (Cth) [1937] HCA 32; 1937) 57 CLR 147; Koitaki Para Rubber Estates Ltd v Commissioner of Taxation (Cth) [1941] HCA 13; (1941) 64 CLR 241 per Starke J at 246 and Williams J at 249; Commissioners of Inland Revenue v Lysaght [1928] UKHL 1;[1928] AC 217 per Lord Warrington of Clyffe at 232).
...
I shall not attempt to give any comprehensive definition of the word ‘resident’. It has no technical or special meaning for the purposes of the Act. Nor do the words ‘ordinarily resident’ have any such technical or special meaning. They are ordinary English words. Whether a debtor is ordinarily resident in Australia is a question of fact and degree. ...
...
... A person may have two places of residence; for example, a city flat and a country house. He may regularly live in each. He cannot be physically present in both at the same time, but he may be resident (or ordinarily resident) in each at the same time. People may come and go from the place in which they are ordinarily resident in a large variety of circumstances and on various occasions. It is always a question of fact and degree.
To say that a person is ordinarily resident in Australia must mean something more than that he is resident in Australia. The word ‘ordinarily’ connotes a comparison, a measure of degree. A person may have more than one residence, but he is not ordinarily resident in each of them. The question must be determined for the purposes of s 43 of the Act at a particular time. One must ask the question whether at that time the person was ordinarily resident in Australia. The concept of ‘ordinary residence’ for the purposes of the Act, in my opinion, connotes a place where in the ordinary course of a person’s life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression ‘ordinarily resident in’ connotes some habit of life, and is to be contrasted with temporary or occasional residence: see Levene (supra) and Lysaght (supra). As Lord Warrington said in Levene (at 232): ‘Ordinarily resident’ means according to the way a man’s life is actually ordered.’ The concept of ordinarily resident cannot be stated in definite terms; each case must be determined on its facts and after taking into account all relevant matters: see the Canadian case of Thomson v Minister of National Revenue [1946] SCR 209 per Estey J at 231.
It depends on the facts of each case whether the debtor is ordinarily resident in Australia at the time of the commission of the relevant act of bankruptcy. At first blush it may seem strange to say that a person can be ordinarily resident in more than one country at the same time; but on closer analysis it is not. Plainly you cannot be physically present in more than one place at the same time. But the lifestyles of people vary greatly. Some people in the ordinary pursuit of their lives regularly or customarily live in more than one place, each of which has an element of permanence about it and is not merely a place of casual or intermittent resort."
(see also per Olney J, at first instance in Re Ginnane; Ex parte Diner’s Club Limited [1992] FCA 627 at p 7)
125. In the era of wide bodied jet aircraft it is not quite so unusual for people to be ordinarily resident in more than one country. One only has to contemplate the position of tennis and golf professionals who travel away from the place or places where they are ordinarily resident so as to pursue their livelihoods and earn their incomes. Much the same can be said in respect of (say) concert pianists on the world stage who may ordinarily reside in Australia but travel extensively overseas to earn their incomes. Much the same could be said in relation to a taxation consultant ordinarily resident in Australia whose business or employment takes him to places such as Hong Kong, Singapore, Kuala Lumpur, India and England so that he may exploit his expertise. One might say of them that they "still call Australia home".
126. In my opinion having regard to all of the circumstances of this case as set out above, Mr. Mathai was, at the time of the commission of the relevant act of bankruptcy, ordinarily resident in Australia. I reach this conclusion notwithstanding the fact that he held a Malaysian driving licence, a Malaysian identity card, was involved in the affairs of the Cathedral of St John in Kuala Lumpur and spent much of each year living overseas and in particular in accommodation in Kuala Lumpur belonging to a company owned by friends of his, not to overlook the fact that he was a Malaysian taxpayer and served on the boards of companies in Malaysia, that he did not file income tax returns in Australia and did not hold an Australian Medicare card. Mr. Mathai was the holder of a Malaysian passport but also of an Australian passport. Until he was served with the Creditor’s Petition he invariably departed Australia and returned to Australia using his Australian passport. He also had a bank account at the Australian & New Zealand Banking Group Limited in Melbourne. When Mr. Mathai was asked whether he read the Bankruptcy Notice "at the airport or at home" his spontaneous response was "at home". Whilst he proceeded to back off from a suggestion that 69 Wellington Street, Kew was "home", I am satisfied that that is how he viewed it. Leaving a wardrobe of clothing at that address is a strong indication, when taken with all the other matters referred to above, that it was a place at which he was ordinarily resident in Australia.
I am satisfied that the circumstances of Slater can be distinguished from those of Mr Mathai. Slater did not have access to any property or circumstances that could be compared to Mr Mathai’s access to 68A or 69 Wellington Street. In the previous eight years Slater, during his two visits to Sydney, stayed as a guest in the premises of a personal friend and there is no evidence that Slater has any other link to those premises, other than being a guest.
I now turn to the issue of whether Slater was carrying on business in Australia. In Re Mendonca; Ex Parte Commissioner of Taxation (1969) 15 FLR 256 Gibbs J found that “the debtor was carrying on business in Australia within the somewhat wide understanding of those words that has come to be established in bankruptcy law”: Re Mendonca; Ex Parte Commissioner of Taxation (supra) 260-261 per Gibbs J. The Federal Court of bankruptcy did not indicate what business the debtor was carrying on in Australia but in support of its findings referred to Theophile v Solicitor-General [1950] 1 All ER 405 and Re Bird; Ex Parte the Debtor v in Land Revenue Commission & Ors [1962] 2 All ER 406. Theophile (supra) and Re Bird (supra) are authorities for the proposition that the business must have been the debtor’s own, carried on by the debtor on the debtor’s own account.
In Napiat Pty Ltd v Salfinger (supra) Foster J, citing Re Mendonca, said that:
77. The Courts have taken a broad view of what constitutes “carrying on a business” but the business must be the debtor’s own business. He or she must be carrying on the relevant business on his or her own account (Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 260–261 per Gibbs J).
The Federal Court found that because the requirements under s.43(1)(a) and (b) of the Bankruptcy Act had been met, it had jurisdiction to make a sequestration order in circumstances where in relation to the business being carried on, there was evidence that:
a)The respondent conducted the business on his own account as the consultant;
b)He was working personally as a consultant working for an Australian company as well as being paid in Australia; and
c)He had an Australian business number in his own name (in effect), the income he had earned was subject to GST and he was an Australian taxpayer.
In respect to the matter before this Court, in the First Slater Affidavit indicates that the property in Ainslie, ACT was an investment property which was tenanted and managed by a Canberra real estate agent. Under cross-examination, Slater informed the Court that he filed Australian Income Tax returns with the Commissioner of Taxation and while being unable to confirm whether he had furnished a return for the period ending 30 June 2013, it was his clear intention to do so.
The issue, giving the findings above, is whether ownership of an investment property could be characterised as carrying on a business. The phrase “carrying on a business” denotes activities and undertakings as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purposes of profit on a continuous and repetitive basis: Hope v Bathurst City Council (1980) 144 CLR 1 which was cited with approval in Ell v Commissioner of Taxation [2006] ATC 4098 at [111]. In Ell (supra) his Honour Emmett J stated at [112]-[113]:
112. If there were no real expectation of a profit from engaging in a particular activity, there will be real doubt as to whether engaging in that activity can be said to be the carrying on of a business. Where the expenses and outgoings of an activity are disproportionate to any income that might reasonably have been expected from engaging in the activity that involved incurring those expenses and outgoings, it may be legitimate to draw an inference that the expenses and outgoings were not incurred in gaining or producing the relevant assessable income but were incurred for some other purpose.
113. Where expenses and outgoings claimed as deductions are disproportionate to the assessable income produced, subjective factors, including the direct and indirect objects of a taxpayer, may become determinative (see Fletcher v FCT (1991) 173 CLR 1 at 17–19). Where an expense or outgoing claimed as an expense or outgoing of a business is disproportionate to any assessable income that may be gained, it will not be as easy to conclude that the expense or outgoing was incurred in gaining or producing that income (see Spassked Pty Ltd v Commissioner of Taxation (2003) 136 FCR 441 at [64]).
In Evans v Federal Commissioner of Taxation (1989) 89 ATC 4540 his Honour Hill J at 4555 stated:
Did the activities of the applicant in gambling constitute a business?
The question of whether a particular activity constitutes a business is often a difficult one, involving as it does questions of fact and degree. Although both parties referred me to comments made in decided cases, each of the cases depends upon its own facts and in the ultimate is unhelpful in the resolution of some other and different fact situation.
There is no one factor that is decisive of whether a particular activity constitutes a business. As Jessel MR said in the famous dictum in Erichsen v Last (1881) 8 QBD 414 at 416:
There is not, I think, any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade.
Profit motive (but see cf IRC v Incorporated Council of Law Reporting (1888) 22 QBD 279), scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on (IRC v Livingston (1926) 11 TC 538), repetition and a permanent character, continuity (Hope v Bathurst City Council (1980) 144 CLR 1 at 9;; 12 ATR 231 at 236;; Ferguson v FCT (1979) 9 ATR 873 at 876;; 79 ATC 4261 at 4264), and system (Newton v Pyke (1908) 25 TLR 127), are all indicia to be considered as a whole, although the absence of any one will not necessarily result in the conclusion that no business is carried on.
(citations omitted)
In any given case, whether a business is being carried on involves questions of fact and degree, and will depend on the consideration of all of the circumstances surrounding the activity in question. In Martin v Federal Commissioner of Taxation (1953) 90 CLR 470, his Honour Webb J stated at [10]:
10. …The test is both subjective and objective; it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them…
Although it is obviously possible for a person to be carrying on a business as an investor, that would require some frequency of investments and regularity of systematic operations characteristic of a business. The mere fact that a person makes an investment or even a handful of investments does not mean that that person is carrying on a business of being an investor: Smith v Anderson (1880) 15 Ch D 257 at 261; National Bank of Australasia Limited v Federal Commissioner of Taxation (1968) 118 CLR 529; Federal Commissioner of Taxation v Radnor Pty Ltd (1991) 102 ALR 187. There is a wealth of authority, usually in the context of income tax legislation as to whether someone is carrying on a business: State Superannuation Board (NSW) v Federal Commissioner of Taxation (1988) 82 ALR 63 per Sheppard J at 73; Hungier v Grace (1972) 127 CLR 210; Martin v Federal Commissioner of Taxation (supra).
One of the requirements of s.43(1)(b) of the Bankruptcy Act is that Mr Slater was carrying on a business in Australia “at the time when the act of bankruptcy was committed”. The First Slater Affidavit indicates that in late 2005 he left Australia to work for MWP in Kazakhstan and relocated to London on 9 November 2010. That date precedes the earliest possible date for the act of bankruptcy. Otherwise there is no evidence which establishes, or from which it might be properly inferred, that Mr Slater was carrying business in Australia at the time when the act of bankruptcy was committed. The evidence simply does not establish that Mr Slater was or was arguably:
a)Carrying on a business in Australia at any time; or
b)Carrying on a business in Australia at the time of the act of bankruptcy.
Slater’s Notice Stating Ground of Opposition to the Creditor’s Petition contends that he is not connected with Australia in any of the ways mentioned in s.43(1)(b) of the Bankruptcy Act as a prerequisite for the conferral of the bankruptcy jurisdiction on this Court. On a review of the material before the Court, I am satisfied that the Court does not have jurisdiction under s.43(1) to make the sequestration order sought by MWP. Further, there is nothing before the Court to indicate Slater satisfied subsection 43(1)(b)(iv) nor was this contention advanced and, accordingly, I am not satisfied he does.
Issue 2 – Messrs Slater’s and Nicholls’ challenge to the validity or sufficiency of process
Respondent Debtors’ submissions
Mr McGrath indicated that he relied on his written submissions filed in both proceedings on 12 May 2014 where he stated at [24]-[27]:
Rules and principles, verification of bankruptcy petitions and affidavits of debt
24. Creditors Petition must be verified by affidavit and, similarly, there must be an updated affidavit of debt for the hearing of a petition. The persons before whom such an affidavit must be made are prescribed by the Federal Court of Australia Act 1976 (Cth), s 45 and the Evidence Act 1995 (Cth), s186.
25. There is nothing in the Rules that expands upon the categories of such persons prescribed by those Acts. See the notes to Federal Court Rules 2001, Rule 29.10, which confirms that the only persons before whom an affidavit may be made are those set out in the abovementioned sections.
Application in this case
26. Mr Slater and Mr Nicholls contend that:
a) All of the relevant affidavits in these proceedings were purportedly sworn before Mr Chechulin, a Kazakh advocate, in Almaty, Kazakhstan. See, by the way of sample, Part 2 of the Creditors Petition in proceedings numbered SYG 2427/2013 filed 9 October 2013. Part 2 of that document purports to be and (sic) Affidavit Verifying the Creditors Petition sworn by Mr Wilson on 8 October 2013 before Mr Chechulin, who describes himself as “Advocate”.
b) On the face of the record, Mr Chechulin is not permitted by either any of the provisions the above-mentioned Acts or Rules to witness the making of an oath or affirmation and the Petitions are fatally defective in form. Similarly, for the same reasons, the Court should not accept or admit into evidence the affidavits of debt purportedly made before him.
Conclusion
27. Without more, the proceedings are invalid or defective and the evidence is deficient. The petition should be dismissed with costs.
MWP’s submissions
Mr Johnson indicated that there is a suggestion at the very late stage of these proceedings, and first raised in the respondent’s written submissions which were filed out of time, that there is now a challenge to the affidavit verifying the creditor’s petition but that is a matter that the Court could dispense with under r.1.06 of the Federal Circuit Court Rules. Mr Johnson contends that there is no issue that had been raised with anything that Mr Wilson gave stated in the affidavits that he has filed and he has not been required for cross-examination. Mr Johnson argues that this late challenge belies some level of understanding of the principle of quick and effective administration of justice, not only in this Court, but in any Federal jurisdiction. The classic example is the operation of ss.37M and 37N of Federal Court of Australia Act which would apply in the absence of a specific provision in the Federal Circuit Court Act. The proceedings brought by MWP have, at all times, been relatively simple. There is a judgment, there is an act of bankruptcy and the Creditor’s Petition has been served. The affidavit of debt, which is a photocopy, has been verified in front of an English practitioner, which verifies the debt to the extent that that anyone who seeks to put into issue the debt.
This issue arose again, when Mr McGrath sought to read Mr Emmott’s original affidavit, but it had been verified in front of someone who was not recognised in taking oaths. However, Mr Johnson acknowledged that the Court dispensed with that requirement, having regard to the logistics in Kazakhstan and instead exercised its discretion under r.1.06 of the Federal Circuit Court Rules.
Consideration – Issue 2
Section 59(2) of Federal Circuit Court of Australia Act 1999 (Cth) addresses the issue of swearing of affidavits outside of Australia. The relevant sub-section states:
Swearing of affidavits etc.
…
(2) An affidavit to be used in a proceeding in the Federal Circuit Court of Australia may be sworn or affirmed at a place outside Australia before:
(a) a commissioner of the High Court who is authorised to administer oaths or affirmations in that place for the purposes of the High Court; or
(b) a commissioner of the Supreme Court of a State or Territory for taking affidavits who is empowered and authorised to act in that place; or
(c) an Australian Diplomatic Officer or an Australian Consular Officer, as defined by the Consular Fees Act 1955 , who is exercising his or her function in that place; or
(d) an employee of the Commonwealth who is:
(i) authorised under paragraph 3(c) of the Consular Fees Act 1955 ; and
(ii) exercising his or her function in that place; or
(e) an employee of the Australian Trade Commission who is:
(i) authorised under paragraph 3(d) of the Consular Fees Act 1955 ; and
(ii) exercising his or her function in that place; or
(f) a notary public who is exercising his or her function in that place; or
(g) a person who is:
(i) qualified to administer an oath or affirmation in that place; and
(ii) certified by the person mentioned in any of paragraphs (b), (c), (d), (e) and (f), or by the superior court of that place, to be so qualified.
(3) An affidavit sworn or affirmed outside Australia otherwise than before a person referred to in subsection (2) may be used in a proceeding in the Federal Circuit Court of Australia in circumstances provided by the Rules of Court.
Note: See also paragraph 90(1)(d).
The Evidence Act 1995 (Cth) at s.186 addresses the issue of the swearing of affidavits. Section 186 provides:
Swearing of affidavits before justices of the peace, notaries public and lawyers
(1) Affidavits for use in:
(a) an Australian court (other than a court of a Territory) in proceedings involving the exercise of federal jurisdiction; or
(b) a court of a Territory in proceedings involving the exercise of jurisdiction conferred by an Act of the Parliament;
may be sworn before any justice of the peace, notary public or Australian lawyer without the issue of any commission for taking affidavits.
Rule 1.06 of Federal Circuit Court Rules 2001 (Cth) states:
Court may dispense with rules
(1) The Court may in the interests of justice dispense with compliance, or full compliance, with any of these Rules at any time.
(2) If, in a proceeding, the Court gives a direction or makes an order that is inconsistent with any of these Rules, the direction or order of the Court prevails in that proceeding.
A detailed examination of the power to dispense with compliance under r.1.06 of the Federal Circuit Court Rules 2001 (Cth) was carried out in the decision of his Honour Judge Manousaridis in Burrell v Reavill Farm Pty Ltd & Ors (2014) 286 FLR 310 at [39]-[47] where he stated:
39. One implication that may be drawn from this is that, as with all rules and forms of procedure, the Bankruptcy Rules are “not ends in themselves, but means to an end, which is the attainment of justice”. Although this observation was made just over one hundred years ago in relation to rules of court in general, it has modern relevance, particularly to the practice and procedure of this Court, given that the objects of the FCCA Act include enabling this Court to operate as informally as possible in the exercise of judicial power, and to enable the Court to use streamlined procedures. This, by itself, suggests that the Court has power to apply the Bankruptcy Rules, as with all other rules of court, with a degree of flexibility.
40. The Court’s ability to apply the Bankruptcy Rules with a degree of flexibility is not, however, left to implication. Rule 1.03(2) of the Bankruptcy Rules provides that the “other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies”. The “other rules of the Court” include the FCCR. Those rules include r.1.06(1) of the FCCR which provides that the Court “may in the interests of justice dispense with compliance, or full compliance, with any of these Rules at any time”. They also include r.3.05 of the FCCR which empowers the Court to “extend or shorten a time fixed by these Rules” even if “the time fixed has passed”.
41. Rule 1.06(1) and r.3.05 of the FCCR apply to “these Rules”, namely, the FCCR. On a literal reading, they do not apply to the Bankruptcy Rules. In my opinion, however, to read r.1.06(1) and r.3.05 of the FCCR literally would not be warranted, given the existence of s.33(1) of the Act. As I note above, that subsection empowers the Court to extend time limited by the Act. The Act, however, “does not purport to apply to the Rules of Court”. It would be odd if the Court had power to extend times limited by the Act, but no power to extend time limited by the rules of procedure contained in the Bankruptcy Rules. In my opinion, therefore, both r.1.06(1) and r.3.05 of the FCCR apply to the Bankruptcy Rules.
42. And it is at this point that I turn to the authorities on which counsel for Mr Burrell relies; because those authorities have held that rules equivalent to r.1.03(2) of the FCCR authorise a court to dispense with compliance with a court’s bankruptcy rules. First, there is the decision of Gyles J in Hussain and Another v King Investment Solutions Pty Ltd.
43. In Hussain, a person who applied to set aside a bankruptcy notice failed to serve the application within the three days required by r.30.02(4) of the Federal Magistrates Court Rules 2001 (which in substance is the same as r.3.02(3) of the Bankruptcy Rules). Gyles J rejected the submission that this rendered the application a nullity. His Honour did so because of r.1.06 of the FCCR. His Honour said:
“There is a critical difference between rules of court, on one hand, and statutory obligations on the other. As shown by the decision in Crimmins there is always an overriding power in the court to dispense with the effect of rules of court. The applicable provision here was r 1.06 of the Federal Magistrates Court Rules 2001. . . . In my opinion, the proceeding was not a nullity, as the failure to abide by the rules as to service could have been excused.”
44. Second, there is the decision of Dowsett J in Colin Richard Hubner v ANZ Banking Group Ltd. In that case, the creditor contended that the application for setting aside the bankruptcy notice was a nullity because no affidavit was filed with the application, as was required by a similar rule to r.3.02 of the Bankruptcy Rules. His Honour held that Order 1 rule 8 of the Federal Court Rules, being similar to r.1.06(1) of the FCCR, was available to dispense with the requirement that the applicant file an affidavit with the application to set aside the bankruptcy notice.
45. And third, there is the decision of Branson J in Crimmins v Glenview Home Units, a decision to which Gyles J referred in Hussain. In Crimmins, the applicant applied to set aside a bankruptcy notice on the ground that the applicant had a counter-claim against the creditor. Her Honour held that “[a]lthough no application was made to the Court for the Court to dispense with strict compliance [with] the requirements of O77 r 13(3)(c), it seems to me that this is an appropriate case, so far as the applicant’s personal injuries claim is concerned, for the Court to give such a dispensation”.
46. It is against the background of these authorities that I consider the decision of Edmonds J in O’Meara v Deputy Commissioner of Taxation. In that case, an application to set aside a bankruptcy notice and to extend time for complying with the bankruptcy notice was filed without an accompanying affidavit as required by r.3.02 of the Federal Court (Bankruptcy) Rules2005 (which is the same as r.3.02 of the Bankruptcy Rules). His Honour held that r.3.02 “mandates what is required for an application to set aside a bankruptcy notice” so that where, as was the case before his Honour, an application to set aside a bankruptcy notice did not comply with the requirements of r.3.02, such application “is as if no application to set aside the Bankruptcy Notice was ever filed”.
47. In my opinion, O’Meara cannot be regarded as authority for the proposition that the Court has no power under r.1.06(1) of the FCCR to dispense with compliance with r.3.02 or any other rule of the Bankruptcy Rules. No application was made in O’Meara for an order dispensing the applicant’s non-compliance with r.3.02. Nor was Edmonds J referred to in the three cases to which I have referred above.
(footnotes omitted)
MWP’s position in these proceedings, as summarised by Robertson J at [41] of Xu v Wan Ze Property Development (supra) above, is that there is an issue of estoppel against Slater and Nicholls that arises out of the judgment of the Court of Appeal, under which the orders establish the debt outstanding in these proceedings. Mr Johnson argues that the above decision establishes that the satisfaction argument cannot be maintained.
Consideration – Issue 3
In the Second Slater Affidavit at [29]-[31], Slater sets out his claim in respect of satisfaction. However, at [29] he indicates that he seeks to refer to the affidavit of John Foster Emmott, sworn 3 February 2014, but that affidavit was not accepted into evidence. Mr Emmott was required for cross-examination and this was signalled to the legal representatives of both Slater and Nicholls, prior to the original scheduling of this hearing on 25 February 2014. That scheduled hearing was adjourned because neither Slater nor Mr Emmott were in Australia at that time. The adjournment application was made on the bases that both individuals would be available to appear at the hearing on 14 May 2014. At the adjourned hearing no evidence was provided that would substantiate or explain Mr Emmott’s absence.
In the circumstances I have decided to set out part of the Second Slater Affidavit to put into context the claim of satisfaction. The relevant paragraphs, being [29]-[31] state:
29. I seek leave to refer to paragraphs 30 to 34 of the First Emmott Affidavit and, unless otherwise stated, I adopt the same definitions as are used by Mr Emmott in that affidavit.
30. I believe and contend that:
a) the Compensation Amount that MWP received under the SIA on 6 April 2010 satisfies in full the NSW Court of Appeal’s Second Judgment and any, if any, interest thereon, in that the damages awarded to MWP in the NSW’s Court of Appeal’s Second Judgment are: a) directly or indirectly attributable to Mr Emmott’s failure to given six months written notice as required under the Emmott Agreement; and b) MWP has already been compensated by the arbitral award for the same loss of clients and same loss of work as that which is the subject of the NSW Court of Appeal’s Second Judgment; and
b) the Compensation Amount also satisfied in full the MWP HCA Costs including any interest thereon, as those costs were only incurred by MWP after the SIA of 6 April 2010;
b) enforcement of the NSW Court of Appeal’s Second Judgment may, upon the making of the pending quantum award in the Arbitration, constitute an attempt to obtain double recovery by MWP for its claim for damages or compensation for the loss of existing clientele.
31. I believe and contend that the Arbitral award due under the quantum phase of the Arbitration may also satisfy in full the NSW Court of Appeal’s Second Judgment and any, if any, interest thereon and the MWP HCA Costs including any interest thereon, as those costs were only incurred by MWP after the SIA of 6 April 2010 but until such award is handed down I cannot be certain of my belief and contentions.
The argument being advanced is that the orders in the London Arbitration constitute a satisfaction already of the debt, and the sequestration order sought by MWP seeks a double recovery by reason of the fact that the arbiters have already made an order of set-off against Mr Emmott for one-third of the business of MWP. The submission is that it does not matter what the quantity of that order is for the purposes of satisfaction as it can be entirely different from the judgment which founds the Creditor’s Petition. If the arbitration order has been satisfied, it satisfies the underlying debt that founds the petition. The arbiters have already said it overcompensates MWP for the loss of its clients. That is the effect and operation of the order. That is the purpose that the respondent debtors are relying upon, to show the effect and operation of the order made already is to satisfy or to act as a bar to double recovery in these proceedings in relation to that debt. Whatever was found in the London Arbitration as findings of fact is relevant to show the extent and operation of that order, but not relevant to prove any facts in issue in these proceedings. The arbitral decisions are relevant to prove what those orders cover and how that order operates. Mr McGrath contends that if the arbitrators found that there were clients that were lost to MWP for which the order gives the set-off in the UK, those findings of fact are relevant and admissible here to indicate to this Court the extent and operation of the orders in the London Arbitration. Mr McGrath acknowledges that it does not prove in this Court the amount that is owing. In support of these contentions, Mr McGrath referred the Court to the decision in Shaw v Yarranova Pty Ltd & Anor [2013] FCCA 1627 per Judge Burchardt at [20]-[22] and also to the decision in National Mutual Life Association of Australasia Ltd v Grosvenor Hill (Queensland) (Formerly Hillier, Parker (Queensland) Pty Ltd) (2001) 183 ALR 700 per Cooper, Whitlam and Tamberlin JJ at [50].
An applicant may not recover from one or more respondents an amount that is in excess of his or her loss: Baxter v Obacelo Pty Ltd & Anor (2001) 205 CLR 635. It does not matter that the claims against the various respondents arise under difference causes of action. Where relief is sought in respect of the same loss, recovery will be limited to the extent of the applicant’s loss. This is the principle frequently applied in relation to the statutory schemes for the payment of damage or compensation: SAS Trustee Corporation v Budd [2005] NSWCA 366 at [32] per Mason P (with Hadley and McColl JJA agreeing). The principle is often referred to as the rule against double recovery. There is a line of authority which suggests that once a respondent shows that a payment has been made to a claimant in circumstances capable of attracting the rule against double recovery, it is for the claimant to show that the payment was not received in compensation for the same loss: Boncristiano v Lohmann [1998] 4 VR 82 per Winneke P with Charles and Batt JJA agreeing, where his Honour stated at 89-90:
The General Rules of Procedure in Civil Proceedings 1986 entitle a plaintiff to sue several defendants upon different causes of action. However in cases where the plaintiff seeks to recover from the several defendants compensation in respect of the same damage it is fundamental that the plaintiff cannot recover more than the total damage which he or she has sustained. Where the claims for damages are concurrent, in the sense that the claims "overlap", recovery by the plaintiff of the whole or part of the loss claimed from one defendant will necessarily be taken into account in assessing the damages to be recovered from the other. The principle was discussed in the judgments of Oliver, L.J. and Purchas, L.J. in the case of Townsend and Anor. v. Stone Toms and Partners (1984) 27 Build.L.R. 32, a case not dissimilar to this case. In Townsend's case a building owner, as plaintiff, had sought to recover damages from a builder for defective workmanship and over-payment; and from the building architect for, inter alia, breach of duty to properly supervise the works and wrongful certification. In these respects the claims for damages were “concurrent” or “over-lapping.” The building owner “settled” his claim against the builder by accepting a payment into court of oe30,000 and proceeded with his claim against the architect. In upholding the judge's decision that the owner should be required to give credit for the sum received from the builder, the Court of Appeal considered a submission made on behalf of the building owner that the proper course was for the trial judge to have ignored altogether the monies accepted from the builder and to enter judgment against the architects for the full amount of any damages for which they were liable even though there may have been a concurrent liability in the builder which had already been satisfied. Such satisfaction, it was submitted, should only be taken into account at the time when the plaintiff came to execute judgment against the defendant.
The Court of Appeal rejected these submissions. Oliver, L.J. (at p.38) said:
“The starting point, and one on which there is a good deal of clear authority, is that where a plaintiff with concurrent claims against two persons has actually recovered all or part of his loss from another, that recovery goes in diminution of the damages which will be awarded against the defendant.
A plaintiff can never, as I understand the law, merely because his claim may lie against more than one person, recover more than the total sum due."
Purchas, L.J. (48) stated the principle in similar terms. The principle so stated is sometimes called the “rule against double compensation". The law, which now embraces equity, will not permit a plaintiff, whatever procedural device is used, to recover more than the damages which have been suffered, no matter what the cause of action upon which he proceeds against the various defendants (see per Purchas, L.J. in Townsend's case at 49). This principle was accepted by Steyn, J. (as he then was) in Banque Keyser Ullman SA v. Skandia (UK) Insurance Co. Ltd. & Ors (No.2) [1988] 2 All.E.R. 880 at 881-2.
Further, in SAS Trustee Corporation v Budd (supra) at [49], Mason P stated:
49. This strikes me as a highly unlikely scenario, but that in itself may not be enough to answer the point. There is, however, an answer in principle, in my opinion. There is a line of cases dealing with the rule against double compensation, holding that where the person invoking the rule (usually the defendant) establishes that money was paid to the other party in circumstances capable of attracting the rule (eg with respect to a concurrent claim), it is for the recipient to show that the money was not received by way of compensation for the loss (Townsend v Stone Toms & Partners (1984) 27 BLR 26 at 41 , 51 , 56 (Eng CA), Boncristiano at 89–90).
The rule against double recovery is one of a number of rules that give effect to a deeply entrenched policy of the law that a person who suffers loss or damage because of a wrong committed by another is entitled to a remedy that achieves no more than is necessary to compensate the person for that loss or damage. That policy is given effect by the rules that must be applied when assessing the damages or compensation, or other amounts that should be paid by a wrong-doer. Additional rules are required because there are circumstances in which the law makes available to persons who have suffered damage from more than one cause of action against the person who has caused the damage. The potential for over-compensation in these circumstances arises where the cause of action by a person who has suffered injury, expresses inconsistent rights or gives rise to inconsistent remedies.
In Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 522 the Privy Council, led by the judgment of Lord Nicholls of Birkenhead, stated:
A plaintiff cannot recover in the aggregate from one or more defendants an amount in excessive of his loss. Part satisfaction of the judgment against one person does not operate as a bar to the plaintiff thereafter to bring an action against another who is also liable, but it does not operate to reduce the amount recoverable in the second action. However, once a plaintiff has fully recouped his loss, of necessity he cannot thereafter pursue any other remedy he might have and which he might have pursued earlier. Having recouped the whole of his loss, any further proceedings would lack a subject matter. This principle of full satisfaction prevents double recovery.
In Baxter v Obacelo (supra) per Gleeson CJ and Callinan JJ at [45]-[47],their Honours stated at [45]-[47]:
45. In most cases in which this problem arises, as in the present case, the second tortfeasor will not be a party to the settlement agreement. The agreement will not have contractual effect as between the plaintiff and the second tortfeasor. A defence of accord and satisfaction is not available to the second tortfeasor.
46. Nevertheless, the significance of the contractual basis upon which a plaintiff settles with one tortfeasor, and its consequences as between the plaintiff and another tortfeasor, may be found both in the equitable principle which prevents double satisfaction, and in the common law principle that a plaintiff who has fully recouped the loss cannot obtain a further award of damages. If a plaintiff has agreed with one tortfeasor to accept a sum upon the basis that it will be received in full discharge of all claims for compensation for the loss or damage incurred by the plaintiff, it would ordinarily be unconscientious to pursue a further claim in relation to the same damage against another tortfeasor. And if a single loss has been fully recouped, there is no further remedy for a plaintiff to pursue.
47. If there has been a judicial assessment of the whole of the plaintiff's loss or damage, resulting in an award of damages by way of judgment in that amount against one tortfeasor, satisfaction of the judgment by that tortfeasor will put an end to any claim, or possible claim, against another tortfeasor, whether a joint tortfeasor or one of several concurrent tortfeasors, for two reasons. First, the damage, as assessed by judicial decision, has been fully recouped and the claim against another tortfeasor lacks a subject matter. Where, as here, damage is an essential element of the cause of action, that element will have gone. Secondly, it would be inequitable to permit additional recovery.
The argument advanced on behalf of Slater and Nicholls is that the second interim award in the London Arbitration fully satisfies the judgment debt in the Australian proceedings, which is the basis on which the Bankruptcy Notices are founded. It does not appear to be in dispute between the parties that the London Arbitration concerns a justiciable issue, able to be tried civilly and able to be enforced as if it were a proceeding in a court of law in England and Wales.
The whole issue of double recovery centres on the London Arbitration, but little effort has been made to inform the Court of the status, and particularly, realistic outcome of those proceedings.
In support of the Slater Notice of Opposition to the Creditor’s Petition, an affidavit of John Forster Emmott was filed, but not read because Mr Emmott was unavailable for cross-examination, as discussed earlier in these reasons. However, five exhibits to Mr Emmott’s Affidavit were read as arbitral awards for the purposes of s.91 of the Evidence Act1995 (Cth). To place those five exhibits in context, the Court notes that in respect of the London Arbitration the Arbitral Tribunal was fully constituted on 31 January 2007 and MWP served its Initial Points of Claim in the London Arbitration on 13 July 2007, but these were subsequently withdrawn following the first interlocutory hearing in October 2007. An Amended Points of Claim was subsequently served, a copy of which were read and identified as “JE1” at Tab A of the five exhibits to Mr Emmott’s Affidavit. The Tribunal ordered separate hearings for the liability and quantum phases of the London Arbitration.
The liability hearing of the London Arbitration took place on 10-28 November 2008, 13-16 January 2009 and 23-24 February 2009. Much of the evidence which MWP led at the liability phase of the London Arbitration was of a similar nature to that decided in the NSW Court of Appeal (the proceedings founding the Bankruptcy Notices). The Tribunal prepared its award on liability, the Second Interim Award, on 22 February 2010 and issued it on 6 April 2010; “JE-1” at Tab D. On 6 April 2010 the Tribunal issued a Clarification of the Second Interim Award, following an application by MWP under s.57 of the Arbitration Act 1996 (UK); “JE-1” at Tab E. On 24 March 2010 the Tribunal issued its “Seventeenth Procedural Order” which sets out the orders consequential to the findings of the Tribunal made in the Second Interim Award; “JE-1” at Tab F.
It is the submission of Mr McGrath that the Second Interim Award established that:
a)Mr Emmott was not the beneficial owner of 14,750,000 shares in Max Petroleum PLC; and
b)Mr Emmott was one third shareholder in MWP and, in lieu of declaring that Mr Emmott was a shareholder in MWP, the Tribunal ordered that MWP be valued as at 31 December 2005 and that MWP pay Mr Emmott by way of damages the value of his one third share, after taking into account certain matters which he was required to account to MWP in respect of its claim against him.
On 23 March 2010 MWP commenced an appeal against the Second Interim Award to the High Court of England, asserting 14 allegations of serious irregularity and sixteen alleged errors of law under ss.68 and 69 of Arbitration Act. The appeal was heard by his Honour A. Smith J on 14-16 February 2011. Judgment was handed down on 8 June 2011 dismissing all of MWP’s grounds of appeal and ordering them to pay Mr Emmott’s costs on an indemnity basis. The judgment is reported at [2011] EWHC 1441 (Comm) (8 June 2011); see “JE-1” at Tab G.
The pertinent aspect in respect of this material is that the London Arbitration is between MWP and Mr Emmott. In the proceedings before this Court, there have been numerous and constant references to the outcome of the London Arbitration and its direct impact on these proceedings, but no effort has been made to fully explain the significance or specific effect of that impact.
I find some assistance in the opening paragraphs of the High Court’s decision in Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 per Gummow ACJ, Hayne, Crennan and Bell JJ where their Honours stated at [6]-[11]:
The parties
6. The appellant, Michael Wilson & Partners Ltd (MWP), was incorporated in the British Virgin Islands. MWP was controlled by Michael Earl Wilson, who described himself as a “corporate transaction lawyer”. At the times relevant to this matter, MWP practised as a law firm and a business consultancy in the Commonwealth of Independent States1 from offices in Kazakhstan.
7. In December 2001, MWP made an agreement with John Forster Emmott, an English and Australian solicitor, that Mr Emmott would join MWP as a director and shareholder with effect from January 2002. They agreed that “in effect” MWP would “operate as a quasi-[p]artnership between them”. The agreement provided that each party should have and would observe “the usual partnership obligations and duties to each other”.
8. From 24 April 2004 until 1 March 2006, the first respondent (Mr Nicholls, an Australian barrister) was employed by MWP as a senior associate or, as he described himself, a “senior expatriate lawyer”. From 1 September 2005 to 9 January 2006, the second respondent (Mr Slater, an Australian solicitor) was employed by MWP as an associate.
9. By the end of June 2006, Messrs Nicholls, Slater and Emmott had all left MWP. Mr Slater did not return to work from annual leave he took from 21 December 2005; Mr Nicholls left employment on 1 March 2006; by letter dated 30 June 2006, Mr Emmott gave notice terminating his agreement with MWP with immediate effect.
10. The third, fourth and fifth respondents (the Temujin companies) are companies that, at the relevant times, were associated directly or indirectly with some or all of Messrs Nicholls, Slater and Emmott. The exact nature of that association need not be explored. The fourth respondent (Temujin International Ltd — “TIL”) operated as a business adviser, agent and arranger, and provided legal services. Two of the Temujin companies (TIL and the third respondent — Temujin Services Ltd) were incorporated in the British Virgin Islands; the third (Temujin International FZE — the fifth respondent) was incorporated in a Free Trade Zone in the United Arab Emirates. Another Temujin company (Temujin Holdings Ltd) and a Kazakhstani limited liability company called Shaikenov & Partners LLP were named as defendants in the New South Wales proceedings, but neither took any active part at first instance, and neither was a party to the subsequent proceedings in the Court of Appeal or this court.
11. MWP alleged that each of Messrs Nicholls, Slater and Emmott, separately and together, furthered his or their own interests at the expense of MWP. A central allegation was that Messrs Nicholls, Slater and Emmott had conspired together to divert, and had in fact diverted, clients and business opportunities away from MWP to their own benefit by having one or more of the Temujin companies act for the clients in question or by taking advantage of business opportunities that would otherwise have gone to MWP.
Their Honours continued at [12]-[17] therein:
Arbitration and action
12. MWP sought relief in several different jurisdictions. The persons and entities MWP sued were located in different places. The principal proceedings brought by MWP were an arbitration in London against Mr Emmott and the proceedings in the Supreme Court of New South Wales against Messrs Nicholls and Slater, the Temujin companies and the other defendants mentioned earlier in these reasons. Other litigation in other jurisdictions can conveniently be described as satellite litigation and, although some reference must be made to some of those satellite proceedings, chief focus must fall upon the London arbitration and the New South Wales proceedings.
13. MWP served a notice of arbitration on Mr Emmott in August 2006; it commenced the New South Wales proceedings against Messrs Nicholls and Slater and others in October 2006. It will be necessary to describe the course of events in both proceedings. But before doing that it is desirable to say a little more about why there was both an arbitration and an action and the nature of the claims that were made in each.
14. The London arbitration between MWP and Mr Emmott was instituted in accordance with an arbitration clause contained in the agreement those parties had made. Because Messrs Nicholls and Slater and the other defendants in the New South Wales proceedings were not parties to that (or any other) arbitration agreement with MWP they could not be added as parties to the arbitration between MWP and Mr Emmott.
15. After MWP had commenced its action in New South Wales against Messrs Nicholls and Slater and others, it invited Mr Emmott to consent to being joined as a party to the New South Wales action. Mr Emmott declined that invitation and threatened to seek an anti-suit injunction if MWP took any step to have him joined in the New South Wales proceedings. Thereafter, the London arbitration and the New South Wales proceedings took their separate courses.
16. Because MWP had made the agreement it had with Mr Emmott, the controversy between MWP and those who it alleged had acted together to harm MWP was to be resolved as to part in one venue (the London arbitration) and as to part in another (the Supreme Court of New South Wales). Although MWP alleged that Mr Emmott had breached fiduciary duties he had owed it, and that Messrs Nicholls and Slater and the corporate defendants in the New South Wales proceedings were liable to MWP because, among other things, they had knowingly assisted Mr Emmott in those breaches, MWP could not have those complaints heard and determined by the one process, whether arbitral or curial.
17. Of the satellite litigation it is enough to notice that, in the Eastern Caribbean Supreme Court, MWP sought and obtained freezing orders against the two Temujin companies that were incorporated in the British Virgin Islands and the appointment of a receiver to several other entities said to be associated with some or other of Messrs Nicholls, Slater and Emmott. In the High Court of Justice in England, MWP obtained freezing orders against Mr Emmott, his wife and others said to be associated with him.
The argument advanced by Mr McGrath is that the single issue of satisfaction, actual satisfaction or potential satisfaction, double recovery, and the issue of abuse of process are limited to the same issues. These raise the question of what is the point of having trustees appointed at this stage when, in any event, there are issues of contribution between Mr Emmott, Nicholls and Slater before whatever judgments that are ultimately awarded are carried out. There will be no recovery until that is done. It is argued that there is no real utility in proceeding at this stage because, if a trustee is appointed, that person will be required to address these issues before anything else is to go forward. Mr McGrath referred the Court to [101]-[103] in the High Court’s judgment in Michael Wilson & Partners Ltd v Nicholls (supra), which states:
101. First, to the extent to which the submissions about abuse depended upon the proposition that prosecution of the New South Wales proceedings to judgment, or the subsequent execution of that judgment, might lead to MWP recovering compensation for more than it had lost, the submissions ignored the equity which the respondents (and Mr Emmott) would have to prevent enforcement of an award or judgment against them where to do so would lead to double recovery.70 The respondents (and Mr Emmott) would have an equity to prevent enforcement of a judgment (or an award) to the extent to which the claim or claims for compensation for which judgment (or the award) was obtained had been satisfied. And as between Mr Emmott and the respondents the doctrine of contribution71 would regulate the ultimate allocation of the burden of satisfying the particular claims. The spectre of double recovery and unjust allocation of responsibility for satisfaction of liabilities to compensate MWP for loss it suffered must therefore be put aside from consideration in connection with the allegation of an abuse of process.
102. The second point is related to the first. The respondents stressed that MWP obtained in the London arbitration an award which required, in effect, a general accounting between MWP and Mr Emmott. Amounts which the arbitrators found Mr Emmott liable to pay MWP would be an important element in that accounting. But it is also clear that for the purposes of that accounting MWP would be obliged to allow amounts which it owed to Mr Emmott in the taking of accounts as on the dissolution of a partnership. The accounts have not yet been taken. Until those accounts are struck, and amounts due between the parties are set off, it is not clear which of MWP or Mr Emmott would owe a net balance to the other.
103. Upon the accounts being struck, MWP may obtain satisfaction of some or all of what the arbitrators find to be owed to MWP by Mr Emmott. If, for example, the amount which Mr Emmott owes MWP were to be less than the total of the amounts due to him from MWP on a final accounting as between partners, the reduction in the amount which MWP would otherwise have owed Mr Emmott would constitute satisfaction of Mr Emmott’s liability to MWP. But, contrary to the respondents’ submissions, the bare fact that there has been an award which requires the taking of accounts does not constitute satisfaction of Mr Emmott’s liability to MWP. It does not entail that MWP is to be barred from pursuing to judgment its claims against persons who it alleges knowingly assisted Mr Emmott in the breach of his fiduciary duties. Nor does it entail that MWP could not enforce the judgment it obtained against persons proved to have knowingly assisted a breach of fiduciary duty by Mr Emmott. Whether the respondents would have an equity to prevent enforcement of the judgment against them would depend upon whether MWP’s claims for compensation had been satisfied.
In those proceedings an abuse of process argument was run, namely that it was an abuse by Mr Wilson and MWP to pursue the proceedings in NSW while the London Arbitration was on foot and in light of the arbitral award for a taking of accounts.
Mr McGrath suggests that it is clear from those paragraphs that the issue was not argued in the High Court or the Court of Appeal. Rather, it was the making of the Seventeenth Procedural Order in the London Arbitration for the set-off and cross-claim that constitutes a satisfaction without law providing that it is valuable. The argument being that, if it is of some value, it does not matter what that value is as it is sufficient to constitute satisfaction. Mr McGrath acknowledges that it is clear that the making of an order for the taking of accounts was not sufficient to constitute satisfaction and no one has addressed whether the making of an order for a set-off of value constitutes satisfaction. The High Court at [101] in Michael Wilson & Partners Ltd v Nicholls (supra) makes it clear that it was not an abuse of process for MWP to proceed to judgment in NSW or to proceed to an award in the London Arbitration, whereas, at the time of enforcement of the judgment, equities arise, being either an equity of satisfaction and/or an equity to prevent double recovery and/or a common law right against double recovery.
In respect of my discretion I was referred to following material in McDonald, Henry & Meek Australian Bankruptcy Law & Practice at [52.1.35], s.52(1); Adjournment to allow appeals, etc. – disputed debts – other proceedings pending at p.8-1223, where the authors state:
Disputed debt – other proceedings pending
While the petitioning creditor will usually be a judgment creditor (among other things because a judgment debt will be required to create acts of bankruptcy under provisions like s 40(1)(g) of the Act), in at least some circumstances the creditor will not have obtained a judgment. Perhaps because it relies on an act of bankruptcy that does not require one, relies on an act of bankruptcy created by another creditor or is a substituted creditor under s 49 of the Act. Where the petitioning creditor’s debt is genuinely disputed by the debtor in the sense if having an “arguable case” or a “serious question to be tried”, especially if there are contested proceedings on foot in another court, it will usually be inappropriate for the bankruptcy court to seek to determine the dispute itself and make a sequestration order under s 52(1), but rather to adjourn the petition to enable the dispute to be resolved: Menzies v Paccar Financial Pty Ltd [2011] FCA 460 at [35]-[58] (Bromberg J); Re Faint; Ex parte The Shell Company of Australia Ltd [1994] FCA 1363 at [10]-[11] (Cooper J).
In respect of whether an estoppel arises out of the claim advanced on behalf of the respondents, addressing the issue of satisfaction or double recovery, I refer to the decision in Armacel Pty Ltd (ACN 070 642 901) v Smurfit Stone Container Corporation (2008) 247 ALR 573 per Jacobson J at [56]-[63], where his Honour addressed the issue of estoppel at [56]-[63] and stated:
Issue Estoppel
56. The High Court has adopted the formulation of Lord Guest in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853 at 935, of three requirements for the creation of an issue estoppel: Kuligowski v Metrobus (2004) 220 CLR 363 at [21]. The requirements are: first, that the same question has been decided; second, that the decision was final; and third, that it was in proceedings between the same parties or their privies.
57. Here, the third requirement is satisfied but there is a dispute as to whether the decision of the US District Court refusing to grant a stay (because of its finding that cl 21.3.1 was non-exclusive) satisfies the first and second conditions.
58. The first requirement draws attention to the need to identify with precision the issue which was necessarily decided in the earlier proceeding to see whether it is identical with an issue sought to be raised in the later proceeding: Blair v Curran (1939) 62 CLR 464 at 531; Makhoul v Barnes (1995) 60 FCR 572 at 579.
59. The observations of Dixon J in Blair v Curran at 531 make it plain that the question which is the subject of the first requirement may be one of fact or law.
60. The second requirement may be satisfied even if the earlier judgment is interlocutory: Castillon v P&O Ports Ltd [2007] QCA 364 at [49]ff. The requirement of finality has been broken down into two separate conditions, namely that the decision must be “final and conclusive” and “on the merits”: The Sennar (No 2) [1985] 1 WLR 490 (HL) at 499.
61. Lord Brandon explained the meaning of “on the merits” in The Sennar (No 2) at 499 as follows:
… a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned.
62. This passage from Lord Brandon’s speech was referred to with apparent approval in Schnabel v Lui [2002] NSWSC 15 at [112]; Castillon v P&O Ports Ltd at [54]; and Prestige Property Services Pty Ltd v Madzoski [2008] WASCA 58 at [66].
63. The need for caution in the application of the doctrine of issue estoppel is well established, especially where the estoppel is said to arise from a judgment of a foreign court, and in an interlocutory context: The Sennar (HL) at 500; Castillon v P&O Ports at [55]; Desert Sun Loan Corp v Hill [1996] 2 All ER 847 at 858.
There is no doubt that the common theme to the arbitral proceedings and the NSW Supreme Court proceedings that MWP allege that Messrs Nicholls, Slater and Emmott separately and together further his or their own interests at the expense of MWP by conspiring together to divert clients and business opportunities away from MWP to their own benefit. Despite this common thread, it is pointed out elsewhere in this decision that a single proceeding ought not be pursued incorporating all parties. The High Court, in its decision Michael Wilson & Partners Ltd v Nicholls (supra), at [12]-[17] (reproduced at [88] above) examines these different proceedings in the various jurisdictions. Caution was also expressed by his Honour Jacobson J in Armacel Pty Ltd v Smurfit Stone Container Corporation (supra) at [63] (reproduced above) which concerns the application of the doctrine of estoppel arising from a judgment of a foreign court.
Significantly neither the London Arbitration nor the proceedings in the NSW Court of Appeal or High Court were being heard under the provisions of the Bankruptcy Act which distinguishes them from the matter in Re Neal; Ex Parte Neal v Duncan Properties Pty Ltd (1994) 123 ALR 614. Consequently, following the decision in Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) (supra) it is established that estoppel has not been successfully established in this matter as pleaded in the Notice of Opposition.
In the Slater and Nicholls Notices of Opposition the ground is raised that “the Petition has been satisfied at law and in equity and the Petition is an abuse of process”. For the reasons stated above in respect of “Issue 1” at [21]-[55], it is not necessary to make a finding in respect of Slater. However, had an alternate finding been made, the current ground of opposition would have failed.
In Nicholls’ case it was his sole ground of opposition. In respect of Nicholls, for the reasons stated above, this ground cannot succeed and must be dismissed.
Conclusion
In respect of Slater, for the reasons above, the Slater Petition should be dismissed with costs as he did not satisfy s.43(1)(b) of the Bankruptcy Act and no sequestration order can be made against his estate.
As none of the grounds in the Nicholls Notice of Opposition can be sustained, it should be dismissed and the Nicholls Petition should proceed to be heard and, on satisfaction of the provisions of s.52 of the Bankruptcy Act, a sequestration order should be made against his estate. Further, Nicholls should be ordered to pay MWP’s costs in respect of the Nicholls Notice of Opposition.
I certify that the preceding one hundred (100) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 19 December 2014
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