Premraj v Thirteenth Corporation Pty Ltd - [2006] FMCA 1555

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PREMRAJ v THIRTEENTH CORPORATION PTY LTD & ORS

[2006] FMCA 1555

BANKRUPTCY – Application to set aside bankruptcy notice – whether counterclaim a set-off in other proceedings in Supreme Court – whether mutuality of parties – s.40(1)(g) of Bankruptcy Act.

Bankruptcy Act 1966 (Cth), s.40(1)(g)

Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346
James v Abrahams (1981) 51 FLR 16
Slack v Bottoms English Solicitors [2002] FCA 1445 (20 November 2002)

Applicant:

CARALAPATI PREMRAJ

Respondents:

THIRTEENTH COPORATION PTY LTD, BOMAN IRANI AND HOMAI IRANI

File number:

MLG 771 of 2006

Judgment of:

McInnis FM

Hearing date:

10 July 2006

Delivered at:

Melbourne

Delivered on:

20 October 2006

REPRESENTATION

Counsel for the Applicant:

Mr M.P. Barrett

Solicitors for the Applicant:

Chiodo Madafferi

Counsel for the Respondents:

Mr P. Bravender-Coyle

Solicitors for the Respondents:

Comlaw

ORDERS

The Application to set aside the Bankruptcy Notice be dismissed.
The Applicant shall pay the Respondent’s costs in default of agreement to be taxed pursuant to the Federal Court Scale.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 771 of 2006

CARALAPATI PREMRAJ

Applicant

And

THIRTEENTH CORPORATION PTY LTD, BOMAN IRANI AND HOMAI IRANI

Respondents

REASONS FOR JUDGMENT

In these proceedings Caralapati Premraj (the Debtor) has made an application to set aside a Bankruptcy Notice issued by Thirteenth Corporation Pty Ltd, Boman Irani and Homai Irani (the Creditors).
The Bankruptcy Notice claims a total debt owing by the Debtor to the Creditors of $24,074.30. That debt is claimed to have arisen from an order made in the Federal Court of Australia on 15 May 2006 by a Registrar in proceedings number VID 3167 of 2003 (the Federal Court proceedings). In the Federal Court proceedings the Debtor was named as defendant and the Creditors the first, second and third plaintiffs. I assume that the order intended to refer to the parties as applicants and respondents, though no issue is taken in relation to that matter.
In the application to set aside the Bankruptcy Notice, the following grounds are relied upon:
“1.That bankruptcy notice No VN 873 of 2006 issued against the applicant by the respondents and dated 19 May 2006, which was served on the applicant on 25 May 2006, be set aside on the grounds that the applicant has a counter-claim, set-off or cross‑demand of the kind referred to in section 40(1)(g) of the Bankruptcy Act 1966 (Cth). …”
The application also seeks to refer to grounds set out in the supporting affidavit of the applicant. The applicant has relied upon a number of affidavits. The first is an affidavit sworn by the applicant on 14 June 2006. In that affidavit the applicant refers to service of the Bankruptcy Notice and then deposes as follows:
“3.I have the following counter-claim or cross-demand: an order made by the Supreme Court of Victoria constituted by the Honourable Justice Mandie on 3 February 2006 in proceeding No 4217 of 2005 that Thirteenth Corp Pty Ltd (ACN…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Premraj v Thirteenth Corporation Pty Ltd

Details

AGLC: Premraj v Thirteenth Corporation Pty Ltd [2006] FMCA 1555
Case: [2006] FMCA 1555
Decision Date: 20 October 2006

CaseChat Overview and Summary

In the case of Premraj v Thirteenth Corporation Pty Ltd, the applicant, Premraj, sought to set aside a bankruptcy notice issued by the respondent, Thirteenth Corporation Pty Ltd. The Federal Circuit and Family Court of Australia was asked to determine whether the bankruptcy notice should be set aside on the grounds that it was issued for an improper purpose or due to the lack of mutuality in Premraj's cross-claim, counter-claim, or set-off. The primary legal issues involved whether the bankruptcy notice was issued improperly and if there was a mutuality requirement for Premraj's cross-claim to set aside the notice.

The court examined the first issue concerning the improper purpose of the bankruptcy notice. Spender J found no basis for setting aside the notice on this ground. The second issue, regarding mutuality in Premraj's cross-claim, was assessed in light of the Full Court's decision in Stec v Orfanos, which clarified that a debtor can only raise a cross-demand against joint creditors jointly. Spender J disagreed with a part of the Full Court's analysis and agreed with von Doussa J that James v Federal Commissioner of Taxation provided authority for the debtor to raise a cross-demand against joint creditors jointly. The court concluded that there was a lack of mutuality in Premraj's cross-claim, and hence, there was no basis to set aside the bankruptcy notice.

The court dismissed the application to set aside the bankruptcy notice and ordered Premraj to pay the respondent's costs in default of agreement to be taxed pursuant to the Federal Court Scale. This decision reaffirmed the principles of mutuality in cross-claims and the stringent requirements for setting aside a bankruptcy notice.

Orders

Orders of the court

The Application to set aside the Bankruptcy Notice be dismissed.

The Applicant shall pay the Respondent’s costs in default of agreement to be taxed pursuant to the Federal Court Scale.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

When dealing with the issues raised on appeal, Spender J then states, relevantly, the following:“10 Essentially, Mr Wrenn of counsel for the applicant relies on two broad complaints as grounds for the proposed appeal. The first is that the judgment below was wrong because it should have been held that the issuing of the bankruptcy notice was for an improper purpose and should therefore have been set aside. Secondly, it is said that the Federal Magistrate was wrong in his conclusion that the principle of mutuality meant that the applicant had not demonstrated that he had a requisite cross-claim, counter-claim or set-off. 11 So far as the second broad ground of appeal is concerned, it is quite unarguable in my opinion that the Federal Magistrate was wrong in his conclusion that there was not the requisite cross-claim, counter-claim or set-off, in that there was a want of mutuality. 12 In Stec v Orfanos [1999] FCA 457 the Full Court (Beaumont, Branson and Sundberg JJ) said at pars [24] - [25]:"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 [This is a reference to James v Federal Commissioner of Taxation (1995) 93 CLR 631]. 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) 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. We agree with the primary judge's observations in Emanuele and in the present case that a debtor may only raise as an answer to a bankruptcy notice issued by several joint creditors a cross demand against those creditors jointly. However, we do not think that James provides any authority for this proposition."13 I respectfully disagree with the final sentence of the Full Court's analysis. I share the view of von Doussa J (which he expressed in Emanuele v Grey [1997] 1545 FCA) that James v Federal Commissioner of Taxation (1995) 93 CLR 631 is authority for the proposition that a debtor can raise, as an answer to a bankruptcy notice issued by a number of joint creditors, only a cross-demand against those creditors jointly. The passage in James which I think justifies that proposition appears at 643 where the High Court (Williams, Kitto and Taylor JJ) says:"Here, the order is an order that the plaintiff pay the costs of the action to the defendants. In order that a bankruptcy notice should be in accordance with this judgment it should direct the plaintiff to pay the three defendants named in the action. In the same way it should notify the debtor that he may secure or compound the debt to their satisfaction. In the same way it should notify the debtor that he may apply to the court to set aside the notice if he has a counter-claim etc. against the three creditors which equals or exceeds the amount claimed by them." (Emphasis added)14 It seems to me unarguable that there was a want of mutuality in the cross-claim on which the applicant relied before the Federal Magistrate. There is therefore no basis for setting aside the bankruptcy notice on the ground that the applicant has a counter-claim etc. which equals or exceeds the amount claimed by him.”

Ratio Decidendi

Legal Principle Established

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