Pekar v Jess (Trustee)

Case [2022] FCA 1367

FEDERAL COURT OF AUSTRALIA

Pekar v Jess (Trustee) [2022] FCA 1367

File number(s): VID 652 of 2021
Judgment of: HESPE J
Date of judgment: 18 November 2022
Catchwords: BANKRUPTCY AND INSOLVENCY – application for extension of time within which bankrupt to file application under s 104 of the Bankruptcy Act 1966 (Cth) (the Act) seeking review of Respondents’ decision to admit proofs of debt under s 102 of the Act – where application brought more than 90 days after decision of the Respondents
Legislation:

Bankruptcy Act 1966 (Cth) ss 82, 83, 84, 102, 104, 129AA, Schedule 2

Corporations Act 2001 (Cth) s 1321

Cases cited:

A.F.G. Insurances Ltd v City of Brighton (1972) 126 CLR 655

Coshott v Burke [2012] FCA 517

Coventry (as trustees of the Mike and Lyn Coventry Family Trust) v Charter Pacific Corporation Ltd (2005) 227 CLR 234; [2005] HCA 67

Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178

Daevys v Official Trustee in Bankruptcy [2011] FCA 398

Derwinto Pty Ltd (in liq) v Lewis (2002) 42 ACSR 645; [2002] NSWSC 731

Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56

Frigger v Trenfield (No 11) [2022] FCA 326

Jackamarra v Krakouer (1998) 195 CLR 516

Official Receiver in Bankruptcy v Todd (1986) 14 FCR 177

Pekar v Holden [2021] FCA 141

Pekar v Holden (Trustee) (No 3) [2019] FCA 1928

Pekar v Jess (Trustee) [2020] FCA 1250

Pekar v Jess (Trustee) [2021] FCA 1519

Polis v Zombar (2019) 134 ACSR 486; [2019] FCA 69

Re Hide; Ex parte Llynvi Coal & Iron Co (1871) 7 LR Ch App 28

Re Masters; Ex parte Gerovich (unreported, Toohey J, 30 July 1985)

Re McMaster; Ex parte McMaster (1991) 33 FCR 70

RePan Pharmaceuticals Ltd (in liq); Brennan v McGrath [2011] NSWSC 561

Rocom International Pty Ltd v Prentice [2002] FCA 604

Shaw v Official Trustee in Bankruptcy (No 2) [2019] FCA 1574

Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138

Williamson v Michell (Trustee) [2019] FCA 481

Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 62
Date of hearing: 30 September 2022
Counsel for the Applicant: The Applicant appeared in person
Solicitor for the First and Second Respondents: Mr J Blaskovic of Rothwell Lawyers Pty Ltd

ORDERS

VID 652 of 2021
BETWEEN:

FIMA PEKAR

Applicant
AND:

MATTHEW JAMES JESS

First Respondent

MATTHEW KUCIANSKI

Second Respondent

ORDER MADE BY:

HESPE J

DATE OF ORDER:

18 NOVEMBER 2022

THE COURT ORDERS THAT:

1.The Applicant’s interlocutory application for an extension of time dated 8 November 2021 be dismissed.

2.The Applicant pay the Respondents’ costs of the proceeding to be taxed, if not agreed.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

HESPE J:

THE APPLICATION

  1. This is an application by Mr Pekar seeking…

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Pekar v Jess (Trustee) [2022] FCA 1367
Case
[2022] FCA 1367
Decision Date

CaseChat Overview and Summary

Pekar v Jess (Trustee) involved a dispute over the application for an extension of time within which the bankrupt, Mr Pekar, could file an application under Section 104 of the Bankruptcy Act 1966 (Cth) to review the decision of the Respondents to admit proofs of debt under Section 102 of the Act. The application was brought more than 90 days after the decision of the Respondents. The court had to decide whether to grant the extension of time for Mr Pekar to file his application and review the decision of the Respondents.

The court considered the relevant legal issues, including the power to extend time, the factors relevant to an application for an extension of time, and the definition of provable debt in bankruptcy. The court concluded that the submission of Mr Pekar that the Act clearly declares that the bankruptcy arising from personal insolvency is in force for three years and that no debts can be admitted after the bankruptcy is discharged and at the end of the administration of the estate was misconceived. The court found that the definition of provable debt in bankruptcy is broad and aimed at ensuring that the assets of the bankrupt are distributed rateably among creditors. The court held that the discharge of bankruptcy did not alter the fact that the debts were to which Mr Pekar was subject at the date of his bankruptcy.

The court found that the application for an extension of time should not be granted. The court held that the proposed claims were not for unliquidated damages and were therefore provable in bankruptcy. The court dismissed the interlocutory application for an extension of time and ordered that Mr Pekar pay the Respondents' costs of the proceeding.

Orders

Orders of the court

1. The Applicant’s interlocutory application for an extension of time dated 8 November 2021 be dismissed.

2. The Applicant pay the Respondents’ costs of the proceeding to be taxed, if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons set out below, I have determined that an extension of time should not be granted.BACKGROUND As Mortimer J noted in Pekar [2021] FCA 1519, Mr Pekar has been contesting various proceedings about his bankruptcy for a considerable period of time. The history of the proceedings can be found in Pekar [2021] FCA 1519, Moshinsky J’s decision in Pekar v Jess (Trustee) [2020] FCA 1250 and Snaden J’s decision in Pekar v Holden [2021] FCA 141. As at 8 September 2017, the date for lodgement of proofs of debt, the following proofs of debt had been lodged with Mr Pekar’s former trustee in bankruptcy (Former Trustee), totalling approximately $98,000:(1)on 11 February 2015, AIG Australia Limited (AIG) lodged a proof of debt for $60,254.79, relating to various costs orders dated 12 July 2010, 15 July 2010, 22 December 2011 and 17 August 2012 made in favour of Gough Partners;(2)on 31 August 2017, Karen Katz lodged a proof of debt for $5,318.18, relating to a costs order in her favour made on 18 June 2013 plus penalty interest; and(3)on 6 September 2017, Michael Rickards lodged a proof of debt for $32,202.29, relating to costs orders in his favour plus interest. On 7 November 2017, Mr Pekar was discharged from bankruptcy. As at 7 November 2018, the Former Trustee had not yet admitted any proofs of debt. Following orders made by Justice Moshinsky on 18 November 2019 in Pekar v Holden (Trustee) (No 3) [2019] FCA 1928, the Official Trustee became the trustee of the bankrupt estate of Mr Pekar. On 13 March 2020, the Respondents were appointed as joint trustees of the bankrupt estate of Mr Pekar. As at 9 July 2020, the Respondents had not formally adjudicated the proofs of debt. The Respondents gave evidence in Pekar [2020] FCA 1250 that it is “usual practice for a trustee of a bankrupt estate to only formally adjudicate proofs of debt submitted by creditors where there are assets which can be readily realised and distributed to creditors, owing to the costs and expenses associated with and incurred by the adjudication process and any subsequent challenge to the admission or rejection of proofs of debt” (at [47]). As at 9 July 2020, the Respondents as trustees were without funds to conduct this process or to otherwise further the administration of the estate. In July 2020, in addition to the debts referred to at para [6] above, the liabilities of Mr Pekar’s bankrupt estate potentially included:(1)legal expenses in proceedings before Judge Burchardt and Tracey J totalling about $135,000;(2)the Former Trustee’s unpaid remuneration and expenses totalling about $136,000;(3)the Official Trustee’s outstanding remuneration of $2,500;(4)the Respondents’ remuneration of about $21,500; and(5)further remuneration and costs to finalise the proceedings in Pekar [2020] FCA 1250 in and the administration. By affidavit dated 21 July 2020, filed and read in Pekar [2020] FCA 1250, one of the trustees, Mr Kucianski, relevantly stated that:(a)while it was likely that AIG had a provable debt in the bankrupt estate, in the absence of certificates of taxation he did not intend to admit its claim; (b)Ms Katz’s claims in the bankrupt estate appeared to be admissible for $4,244.91; and(c)he was seeking further advice regarding aspects of Rickards Legal’s claim.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Section 104 of the Act provides:Appeal against decision of trustee in respect of proof(1)A creditor, or the bankrupt, may apply to the Court for review of a decision of the trustee under subsection 102(1), (3) or (4) in respect of a proof of debt.(2)The Court may, upon the application, confirm, reverse or vary the decision of the trustee.(3)Subject to the power of the Court to extend the time, an application under this section to review a decision shall not be heard by the Court unless it was made within 21 days from the date on which the decision was made. Section 102 relevantly provides:Admission or rejection of proofs(1)The trustee shall examine each proof of debt and the grounds of the debt sought to be proved and, subject to the power of the Court to extend the time, shall, not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend as the period within which creditors may lodge their proofs of debt, either:(a)admit the proof of debt in whole;(b)admit it in part and reject it in part;(c)reject it in whole; or(d)require further evidence in support of it. Section 82 relevantly provides:Debts provable in bankruptcy(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.…(2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.EXTENSION OF TIME Having filed his application for review after the end of the 21 day period provided for in s 104, in order to make his application, Mr Pekar requires the Court to exercise its power to extend time. The power to extend time is to enable the Court to do justice between the parties. The power is “broad and flexible”, to be exercised where it is “just in all the circumstances”: Rocom International Pty Ltd v Prentice [2002] FCA 604 at [4] (Tamberlin J), citing Jackamarra v Krakouer (1998) 195 CLR 516 at 539–43 (Kirby J). In Rocom [2002] FCA 604, Tamberlin J referred (at [4]) to the judgment of Kirby J in Jackamarra 195 CLR at 539–43 and said that factors relevant to an application for an extension of time include:•whether it is just in all the circumstances to grant an extension;•whether the time limits are of a substantive or procedural nature;•whether the case is arguable;•respective prejudice to the parties;•length of delay;•responsibility and reasons for the delay;•whether the delay was intentional or the result of a bona fide mistake;•whether the delay was caused by the litigant or legal advisers. This approach has been adopted in the context of an extension of time for an appeal against a liquidator’s decision relating to a proof of debt in the context of former s 1321 of the Corporations Act 2001 (Cth): RePan Pharmaceuticals Ltd (in liq); Brennan v McGrath [2011] NSWSC 561 at [5] (Ward J).

Ratio Decidendi

Legal Principle Established

Mr Pekar submitted that the Act clearly declares that the bankruptcy arising from personal insolvency is in force for three years and that no debts can be admitted after the bankruptcy is discharged and at the end of the administration of the estate. This submission is misconceived for the following reasons:(1)Nothing in the terms of s 82 prevents the trustee in bankruptcy from admitting, after the discharge of bankruptcy, a proof of a debt to which a bankrupt was subject at the date of bankruptcy.(2)The expression “end of an administration of an estate” is relevantly defined in s 5–5 of Schedule 2 (“the Insolvency Practice Schedule (Bankruptcy)”) in the following terms:In this Schedule:…“end of an administration” of a regulated debtor’s estate means: (a)in the case of a bankruptcy—the day on which the bankrupt is discharged or the bankruptcy is annulled, whichever happens first…The definition applies only for the purposes of Schedule 2. It is relevant to the requirements imposed by that Schedule on trustees to maintain records. Section 70-35 of Schedule 2 requires a trustee to retain all books relating to the administration of the estate for a period of “7 years from the end of the administration”. The definition has no application outside of Schedule 2.(3)As Moshinsky J held in Pekar [2019] FCA 442 at [70], property vested in a trustee in bankruptcy continues to be so vested after the discharge of the bankrupt and remains subject to creditors’ provable and proven debts. The discharge relates to the bankrupt personally and not to his estate: Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178 at 182 (Kirby P, Clarke and Meagher JJA).(4)Section 129AA provides for the revesting of property in the bankrupt on the sixth anniversary of the date on which the bankrupt is discharged, unless a valid extension notice is given pursuant to s 129AA(4). There is no suggestion that the six year anniversary has been reached. Each of the debts, proof of which was admitted by the Respondents, arose as a result of costs orders made prior to the date of Mr Pekar’s bankruptcy. They were debts to which Mr Pekar was subject at the date of his bankruptcy. His discharge from bankruptcy did not alter that fact. The effect of discharge was to liberate Mr Pekar personally from the claims of creditors which related to debts and liabilities present or future, certain or contingent, to which he was subject at the date of his bankruptcy. The discharge of his bankruptcy did not liberate the assets which had vested in the trustee in bankruptcy or have the effect of making creditor claims not provable.Third Contention Pursuant to s 82(2), subject to certain exceptions, demands in the nature of unliquidated damages are not provable in bankruptcy. As Murphy J explained in Polis v Zombar (2019) 134 ACSR 486 at 496–7; [2019] FCA 69:[32]Section 82(1) of the [Act] provides a wide definition of debts provable in bankruptcy, subject to some carve-outs in following subsections. In Re Hide; Ex parte Llynvi Coal & Iron Co (1871) 7 LR Ch App 28 at 31, cited with approval in relation to s 82 in Coventry (as trustees of the Mike and Lyn Coventry Family Trust) v Charter Pacific Corporation Ltd (2005) 227 CLR 234; [[2005] HCA 67 at [37] (Gleeson CJ, Gummow, Hayne and Callinan JJ)], James LJ said in relation to an equivalent provision:Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be … freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom [the bankrupt] is so freed are to come in with the other creditors and share in the distribution of the assets.[33]The purpose of s 82 is to capture and have proved in the bankruptcy a broad range of debts and liabilities. It is aimed at ensuring that the assets of the bankrupt are distributed rateably among creditors, that one creditor does not obtain an undue advantage over other creditors, and at bringing about the discharge of the debtor from future liability for his or her existing debts, so that the debtor may start afresh without lingering disabilities and with the immunities achieved through bankruptcy remaining in place: [Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72–3 (Hill J)]; Official Receiver in Bankruptcy v Todd (1986) 14 FCR 177 at 188 … (Spender J).[34]Section 82(2) provides a carve-out from the definition of provable debt. Understood in conjunction with s 82(1) it means that an unliquidated claim for damages that arises by reason of a contract, promise or breach of trust is a provable debt, and an unliquidated claim that is not by reason of a contract, promise or breach of trust is not provable. Liquidated claims for damages are provable unless such claim falls within one of the other carve-outs.Whether the proposed claims are for unliquidated damages[35]The distinction between liquidated and unliquidated claims was classically described by Odgers in Pleading and Practice, 12th ed, 1939, p 47–8 in the following terms, approved in Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138 at 142 … (Knox CJ and Starke J):…whenever the amount to which the plaintiff is entitled (if he is entitled to anything) can be ascertained by calculation or fixed by any scale of charges, or other positive data, it is said to be liquidated or “made clear”. But an action in which the amount to be recovered depends upon all the circumstances of the case, and no one can say positively beforehand whether the plaintiff will recover a farthing, or 40 shillings, or £100, is an action for unliquidated damages.