Mueller v Smartcard Financial Services Pty Ltd
[2017] FCCA 518
•17 March 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MUELLER v SMARTCARD FINANCIAL SERVICES PTY LTD | [2017] FCCA 518 |
| Catchwords: BANKRUPTCY – Originating application to set aside Bankruptcy Notice – application for review of order of Registrar refusing adjournment –consideration of application for review as if it were application to review subsequent order of Registrar dismissing originating application. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40(1)(g), 52(2) |
| Cases cited: Lahdo v Spearwood Holdings (WA) Pty Ltd [2014] FCCA 2285 Mueller v Smartcard Financial Services Pty Ltd & Anor [2017] HCASL 5 |
| Applicant: | KARL PAUL MUELLER |
| Respondent: | SMARTCARD FINANCIAL SERVICES PTY LTD |
| File Number: | PEG 607 of 2016 |
| Judgment of: | Judge Lucev |
| Hearing date: | 17 March 2017 |
| Date of Last Submission: | 17 March 2017 |
| Delivered at: | Perth |
| Delivered on: | 17 March 2017 |
REPRESENTATION
| For the Applicant: | In person |
| Counsel for the Respondent: | Mr J Burke |
| Solicitors for the Respondent: | MDS Legal |
ORDERS
The applicant’s application for review filed 22 December 2016 be dismissed.
The applicant pay the respondent’s costs in the sum of $900.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 607 of 2016
| KARL PAUL MUELLER |
Applicant
And
| SMARTCARD FINANCIAL SERVICES PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Delivered orally and revised)
Introduction
On 1 December 2016 the originating application in these proceedings was filed seeking to set aside a bankruptcy notice. There were a variety of grounds put forward in the originating application and it was supported by two affidavits, one of which set out a new address for the applicant, Karl Paul Mueller (“Mr Mueller”), and another which repeated the grounds of the application and annexed various court documents, including a judgment of the District Court of Western Australia (“District Court”) against Mr Mueller in a sum slightly exceeding $500,000.
On 19 December 2016, the originating application came before a Registrar of this Court and orders were made for time for compliance with the bankruptcy notice to be extended to 4 pm on 20 February 2017 and for the application otherwise to be adjourned to 20 February 2017 at 2.30 pm. On 22 December 2016 Mr Mueller filed an application for review of the Registrar’s order of 19 December 2016. The application was for review of the decision to extend time for compliance and to adjourn the hearing of the originating application.
On 20 February 2017, the matter came back before a Registrar of this Court and it is common ground that for reasons which the Court does not need to go into, Mr Mueller did not attend before the Registrar. Before the Registrar, there was an affidavit of the lawyer for the respondent, Joseph Michael Burke (“Mr Burke”), either tendered or before the Court, and it is appropriate to read some of the relevant factual legal context from paragraphs 4 through to 7 of that affidavit:
4. On 29 January 2015, the District Court of Western Australia entered judgment in CIV 3634/2010 against the applicant in favour of the respondent (judgment).
5. On 10 November 2016, the official receiver issued a bankruptcy notice to the applicant pursuant to which the applicant was notified that the respondent claimed the amount owing under the judgment.
6. On 7 December 2016, the Supreme Court of Western Australia, Court of Appeal, ordered a stay of the judgment and any enforcement processes otherwise arising out of the judgment. The Court of Appeal also ordered that in the event, the applicant’s application for special leave to appeal to the High Court of Australia dated 21 September 2016 was dismissed, the stay would be automatically discharged. Attached and marked JMB-1 is a copy of the Court of Appeal’s order.
7. On 2 February 2017, the High Court of Australia dismissed the applicant’s application for special leave. Attached and marked “ JMB-2” is a copy of the High Court’s order.
On 20 February 2017, the Registrar ordered that the originating application, that is, the application to set aside the bankruptcy notice, be dismissed with costs.
On 3 March 2017, the review application having been filed in this Court, there was a directions hearing. On that directions hearing, Mr Mueller sought and the Court granted, an adjournment to allow him to seek legal advice which he tells the Court today that he has sought in the meantime.
The purpose of the adjournment was to allow Mr Mueller time to see whether or not an amended review application, a new review application or some other necessary or available step might be taken in relation to these proceedings. It is pertinent to note that nothing has been done or filed in that regard and Mr Mueller remains self-represented.
What is sought today by way of review is, in essence, the review of an interlocutory order whose time has now passed by reason of the subsequent dismissal of the originating application. The Registrar in that interlocutory order sought to be reviewed extended time for compliance with the bankruptcy notice, an order favourable to Mr Mueller and also adjourned the matter to a later date which is, in essence, a procedural order in the exercise of the very broad discretion afforded to a Court to adjourn proceedings: Myers v Myers [1969] WAR 19.
Plainly, what the application for review seeks to do is to have that order of 19 December 2016 set aside, but as Mr Burke for the respondent points out, to do so would now serve no purpose in circumstances where the originating application has subsequently been dismissed. The factual position as it appears to the Court, and there does not appear to be any dispute about this from either side, is that a bankruptcy notice founded on a valid judgment of the District Court against Mr Mueller in a sum slightly in excess of $500,000 exists and that a stay issued by the Supreme Court of Western Australia Court of Appeal (“Court of Appeal”) against the enforcement of that judgment was lifted automatically by reason of the dismissal of the High Court special leave application made by Mr Mueller: Mueller v Smartcard Financial Services Pty Ltd & Anor [2017] HCASL 5.
The factual position is, therefore, that there is an unsatisfied judgment which is the subject of the bankruptcy notice having been the subject of the proceedings in the District Court giving rise to the judgment debt and that subsequent proceedings in the Court of Appeal and the High Court have not disturbed that judgment debt. Even if one were to treat this as now an application to set aside the bankruptcy notice, the application for review simply could not succeed. The law in respect of setting aside a bankruptcy notice as set out in Lahdo v Spearwood Holdings (WA) Pty Ltd [2014] FCCA 2285 at [19]-[25] and [35] per Judge Lucev is as follows:
19. Section 40(1)(g) of the Bankruptcy Act provides as follows:
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
20. Rule 3.02 of the FCC (Bankruptcy) Rules provides as follows:
(1) An application to set aside a bankruptcy notice must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b) an affidavit stating:
(i) the grounds in support of the application; and
(ii) the date when the bankruptcy notice was served on the applicant; and
(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(2) If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand mentioned in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter-claim, set-off or cross demand; and
(b) the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(3) The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed.
21. Before the Court can set aside the Bankruptcy Notice there are three elements required to be established, as follows:
a) the Court must be satisfied that there is a set-off available to … [the applicant];
b) the Court must be satisfied that the amount of the set-off is equal to, or in excess of, the sum of the judgment debt; and
c) the Court must be satisfied that the set-off could not have been set up in the … [action giving rise to the judgment debt]..
22. The nature of the exercise in which the Court is involved is set out in Guss v Johnstone [(2000) 171 ALR 598; [2000] HCA 26 (“Guss”)] where the High Court said:
39 In Vogwell v Vogwell, Latham CJ said, in relation to a corresponding provision:
[T]he authorities show that the matter to which the court looks is this, – whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate.
40 The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.[ Guss ALR at 606 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ; HCA at paras.39-40 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ. at 607 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ].
23. In Ebert v The Union Trustee Company of Australia Limited [(1960) 104 CLR 346 (“Ebert”)] the High Court said:
Section 52 (j) makes it necessary that a debtor served with a bankruptcy notice, if he does not comply with its requirements, should satisfy the Court of Bankruptcy that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt. The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. " Cross demand" is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out … Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand. [Ebert CLR at 350 per Dixon CJ, McTiernan and Windeyer JJ].
24. The counterclaim, set-off or cross-demand against the creditor must also be mutual with the debt claimed in a bankruptcy notice. In Stec v Orfanos [[1999] FCA 457 (“Stec”)] the Full Court of the Federal Court said as follows:
24 The primary judge then said that there was a more general answer to all the alleged cross demands. This was that in answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed by one or some of them individually. Mr Stec's claims were not against all those described in the notice as " the creditor". His Honour relied on James at 643 and on an earlier decision of his own, Emanuele v Grey (unreported 17 December 1997), which also relied on the passage in James. Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right: Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27. The requirement that the two claims be " in the same right" is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee. See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J 653; Vogwell v Vogwell (1939) 11 ABC 83 at 89. But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature. Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518. Here three of Mr Stec's claims were against ERI alone. There is thus no mutuality in relation to these claims. His other claim was against Messrs Conroy, Rybak and Georgopolos. Again there is no mutuality because one of the joint creditors, ERI, is not the subject of the cross claim. [Stec at para.24 per Beaumont, Branson and Sundberg JJ.]
25. In James the majority of the Full Court of the Federal Court observed that a set-off “if ultimately established, will result in an order for the payment of a sum of money by the judgment creditor to the judgment debtor.” [James at 24 per Deanne and Lockhart JJ. See also the extensive discussion of the relevant authorities concerning the necessity for a counterclaim, set-off or cross-demand to be in the same right at James at 27-29 per Fisher J] There can be no doubt that a set-off must be mutual, and a lack of mutuality is fatal to the establishment of a set-off. [James at 24 per Deanne and Lockhart JJ and 27-29 per Fisher J; Clyne v Deputy Commissioner of Taxation (No. 5) (1982) 69 FLR 345 at 350 per McGreggor J; Swarbrick v Burge & Ors (2009) 236 FLR 311 at 327 per Lucev FM; [2009] FMCA 985 at para.68 per Lucev FM]
35. In order for the Court to be satisfied that there is a set-off equal to or exceeding the judgment debt there must be some evidentiary basis for arriving at that state of satisfaction, and that requires that the Court be able to quantify the amount of the alleged set-off. [Patane v Asteron Life Ltd (formerly Royal & Sun Alliance Financial Services Ltd) (ACN 00 69 228) (2004) 2 ABC(NS) 85 at 96 per Lander J; [2004] FCA 232 at paras.72-75 per Lander J] Further, r.3.02 of the FCC (Bankruptcy) Rules mandates that where a debtor alleges a set-off the mandatory affidavit in support of the application to set aside the bankruptcy notice [FCC (Bankruptcy) Rules, r.3.02(1)(b)] “must also state … the amount of the … set-off … and the amount by which it exceeds the amount claimed in the bankruptcy notice”. [FCC (Bankruptcy) Rules, r.3.02(2)(b)] Mr Lahdo’s Affidavit does not quantify either the amount of the alleged set-off or the amount by which the set-off is said to exceed the amount claimed in the Bankruptcy Notice. Mr Lahdo has therefore failed to make out a mandatory and essential requirement of the necessary second element for setting aside a bankruptcy notice, namely, satisfying the Court that he has a set-off equal to or exceeding the amount of the judgment debt. In those circumstances, this Court could not set aside the Bankruptcy Notice, even if satisfied that there is a set-off, which it is not.
It suffices to observe that, before a Court can set aside a bankruptcy notice, there are three elements required to be established, that is, the Court must be satisfied that there is a set-off available, the Court must be satisfied that the amount of the set-off is equal to or in excess of the sum of the judgment debt, and the Court must be satisfied that the set-off could not have been established in the proceedings below.
None of those factors are operative here and there is, indeed, no suggestion that Mr Mueller has a valid counter-claim set-off or demand for the purposes of s.40(1)(g) of the Bankruptcy Act1966 (Cth) (“Bankruptcy Act”). There is no basis to set aside the bankruptcy notice even if the review application is treated as an application to review the failure of the Registrar to set aside a bankruptcy notice on 19 December 2016, when what are essentially interlocutory orders were made, or as an application to review the order of 20 February 2017 dismissing the originating application.
As the Court noted in an exchange with Mr Mueller, the issuance of a bankruptcy notice is but one step, albeit, a necessary one in the bankruptcy process. There will be a further opportunity for Mr Mueller to challenge the issuance of any sequestration order if he is able to satisfy the Court or a Registrar of the Court that he is able to pay the debt or if there is some other sufficient cause for a sequestration order not to be made: Bankruptcy Act, s.52(2).
It follows for today’s purposes that the application for review filed by Mr Mueller on 22 December 2016 must be dismissed and there will be an order accordingly. It also follows that it should be dismissed with costs. Costs are sought and ordered in the amount of $900.
I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Judge Lucev
Date: 22 March 2017
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