Premraj v Thirteenth Corporation Pty Ltd
[2006] FMCA 1555
•20 October 2006
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 007 380 449), Boman Irani and Homai Irani pay the costs of the trial in which Victoria Hall (Aust) Pty Ltd, my wife and I were the plaintiffs.
4.The counter-claim, set-off or cross-demand was not raised in the proceeding that resulted in the order in relation to which the Bankruptcy Notice was issued.
5.I am not qualified to depose whether I could have raised it in the taxation of the costs which are the basis for the Bankruptcy Notice. Similarly, I am not qualified to depose as to the amount of the counter-claim or cross-demand and the amount by which it exceeds the amount claimed in the Bankruptcy Notice. These are deposed to in the affidavit of Mark Madafferi sworn in this proceeding.”
A number of observations can be made in relation to the matters referred to in that first affidavit of the applicant. The first is that orders were apparently made in the Supreme Court proceedings number 4217 of 2005 (the Supreme Court proceedings) on 3 February 2006. A copy of the order made in the Supreme Court proceedings appears annexed to an affidavit of Mr Mark Madaferri sworn 20 June 2006.
The order made by Mandie J on 3 February 2006 records in the schedule of parties that the proceedings were between Carsten Pty Ltd, a corporation, and Mary Eugene Premraj, first plaintiff, Caralapati Premraj, second plaintiff, who is the Debtor in these proceedings, and Victoria Hall (Aust) Pty Ltd (ACN 062 272 968), third named plaintiff. In the Supreme Court proceedings, Boman Nosherwan Irani is first defendant and Homai Irani second defendant, with Thirteenth Corp Pty Ltd named as third defendant. Those three defendants I take to be the Creditors in these proceedings. The fourth defendant in the Supreme Court proceedings is Carsten Pty Ltd.
The order made by Mandie J on 3 February 2006, which is relevant for the present purposes, is order 5 as follows:
“5. The Defendants pay the Plaintiffs' costs of this proceeding (including reserved costs).”
Again certain observations can be made about the Supreme Court proceedings. The first observation is that the order made by His Honour Mandie J is an order that the defendants pay the plaintiffs' costs. That is what might be described as an order giving rise to a joint and several liability of the defendants to pay the plaintiffs' costs. It is noted from the order that senior and junior counsel appeared for all plaintiffs, whilst senior counsel appeared for the defendants. Nevertheless, it is further noted that the parties in the Supreme Court proceedings are not identical to the parties in the Federal Court proceedings. Whilst the Creditors and the Debtor are clearly named in both proceedings, it is evident that Mary Eugene Premraj, the first plaintiff, and Victoria Hall (Aust) Pty Ltd, the third plaintiff, and Carsten Pty Ltd, the fourth defendant in the Supreme Court proceedings, are not parties in the Federal Court proceedings.
The Bankruptcy Notice, relying upon the order made in the Federal Court proceedings, specifically refers only to the Debtor being liable pursuant to those orders. The order made in the Federal Court was that:
“The Defendant pay to the Plaintiffs the sum of $24,074.30.”
As indicated earlier, the defendant is the Debtor and the plaintiffs are the Creditors in these proceedings. In the affidavit of the Debtor sworn 14 June 2006, reliance was placed upon an affidavit of Mr Madafferi.
I have already referred to an affidavit of Mr Madafferi sworn 20 June 2006 which simply exhibits the order made by Mandie J in the Supreme Court proceedings, however in an earlier affidavit sworn 15 June 2006, Mr Madafferi recites the basic details of the Supreme Court proceedings. He otherwise refers to the fact that he is an Australian lawyer who has practiced for 25 years and during that time has been involved in the taxation of costs. He then deposes as follows:
“4.The counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the order in relation to which the Bankruptcy Notice was issued.
5.The counter-claim or cross demand for costs in the Supreme Court proceedings could not have been raised in the Federal Court proceeding that resulted in the order in relation to which the Bankruptcy Notice was issued.
6.Mr Premraj and his wife and Victoria Hall (Aust) Pty Ltd retained Russell Bergland of Her Majesty's Counsel and junior counsel in that proceeding. There were directions hearings before the Honourable Justice Mandie on 25 February 2005, 11 June 2005 and 22 July 2005. The trial was heard on 29, 30 and 31 August 2005, with cross-examination on the affidavit material. This was also an appearance to hear judgment on 3 February 2006.
7.I have sent the file to a costs consultant to prepare a bill of costs to enable the costs to be taxed by the Taxing Master of the Supreme Court of Victoria. Now produced and shown to me and marked ‘MM-1’ is a true copy of the fee slip of senior counsel. These fees amount to $28,600.00, which exceed the amount claimed in the Bankruptcy Notice by $4,525.70. This does not include the fees of junior counsel or my firm's fees of disbursements.
8.Although the Taxing Master has a discretion to disallow the costs of senior counsel, in my experience this would be unlikely where the other party also thought that the case was sufficiently important to merit the retention of senior counsel. In that proceeding, Thirteenth Corp, Boman Irani and Homai Irani retained P.G. Nash of Her Majesty's Counsel.
9.In the Federal Court proceedings, in addition to the affidavit material, there were only three appearances by junior counsel for Thirteenth Corp and Mr and Mrs Irani:
(1)24 July 2003, when Mr Premraj did not appear and the Honourable Justice Merkel adjourned it to 29 July 2009 because he noticed that the "24" looked like a "29";
(2)29 July 2009 (sic), when orders were made and Mr Premraj gave an undertaking to the court - which took only a short time;
(3)7 October 2003, when the Honourable Justice Merkel made an order by consent.”
It is appropriate at this point to note the assertion by Mr Madafferi that the costs order in the Supreme Court could not have been raised in the Federal Court proceeding which had resulted in the order in relation to which the Bankruptcy Notice was issued. I agree with that conclusion as I am not aware of any power a Registrar of the Federal Court has to set-off orders that may be made by a party in that court arising out of orders made in favour of that party in the Supreme Court when those orders are made, at least in part, in favour of other parties as well and indeed against additional parties and, further, have been made in another court. The position may be different if orders were made between the same parties in the Federal Court in other proceedings.
A further observation needs to be made that as at the date of the hearing in these proceedings, there has been no taxation of any bill of costs submitted on behalf of the Debtor in the Supreme Court proceedings and nor has any decision been made as to whether or not the costs of senior counsel would be allowed. Exhibit "MM-1" referred to by Mr Madafferi in his first affidavit is a tax invoice and there is no evidence that the fees have been paid.
As I understand it, the usual practice remains that for a disbursement of that kind to be considered by a Taxing Master there should be evidence that the fee has been paid, and in any event, a Taxing Master has a discretion which may be exercised in a manner taking into account some of the matters referred to by Mr Madafferi. I do not accept, however, that it is a foregone conclusion that, for the reasons asserted by Mr Madafferi, the costs of senior counsel would be automatically allowed by the Taxing Master. That will be a matter entirely for the Taxing Master to consider.
Mr Madafferi also filed and served a further affidavit sworn 7 July 2006, relied upon by the Debtor. In that third affidavit he again referred to his earlier affidavits and the Federal Court proceedings and the Supreme Court proceedings. He then deposed in general terms as follows:
“4.I also acted for the applicant in the Supreme Court referred to in paragraph 3 of the Affidavit of Caralapati Premraj sworn 14 June 2006 the costs in that proceeding will be substantially higher than the debt upon which the creditor relies in the Bankruptcy Notice for the following reasons.
5.The fees charged by counsel in the Supreme Court proceeding were in excess of $50,000.00, the Court fees for the Writ and Summons and the fees for filing subpoenas were about $1000.00. In addition there are transcript fees all of which will substantially increase the disbursements well beyond the amount claimed in the Bankruptcy Notice. Legal fees will be in excess of $50,000.00 to $60,000.00.”
Again it is appropriate to make a number of observations. The first is that the deponent makes an assertion in what can only be described as vague and general terms. It is not clear what is meant by the phrase "in excess of $50,000 to $60,000". Likewise, reference is only made to fees charged and there is of course no bill of costs provided, nor any evidence of taxation arranged, let alone the production of a taxed bill of costs and disbursements including counsel's fees.
In support of the application to set aside the Bankruptcy Notice and against the backdrop of those facts set out in the affidavit material, counsel for the applicant agreed that the discrete argument was that the costs in the Supreme Court proceedings of counsel's fees alone exceed the amount of the debt claimed in the Bankruptcy Notice. The difference in the parties in the Supreme Court proceedings and the Federal Court proceedings, according to the applicant's counsel, did not alter the position that the judgments are joint and several and that there is sufficient mutuality between the two orders for the court to be satisfied prima facie that the Debtor has a counterclaim, set-off or cross‑demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act 1966 (Cth). That section 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;”
It is further argued that that costs orders obtained in the Supreme Court proceedings could not have been raised in the Federal Court proceedings which, as I have indicated earlier, I accept for present purposes.
It was argued the test is only a prima facie test and counsel referred the court to the decision of the High Court in Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 and in particular the following passage at page 350 from the joint judgment of Dixon CJ, McTiernan and Windeyer JJ where the court states -
“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.”
Counsel further relied upon the Federal Court decision in James v Abrahams [1981] 51 FLR 16 and for convenience referred to paragraph 2 in the headnote which provides:
“(a) Any counterclaim, set-offs or cross demand within s.40(1)(g) of the Act must be a claim for a money sum, whether liquidated or unliquidated, or for the immediate delivery of a specific chattel of ascertainable value. …”
Specific reference was made to the joint decision of Deane and Lockhart JJ at page 21 where the court states:
“The filing, within the time specified in s.41(7), of an affidavit to the effect that a debtor has a counterclaim, set-off or cross demand of the type mentioned in s.40(1)(g), does not constitute an application to set the bankruptcy notice aside. It operates as an automatic extension of time for compliance with the bankruptcy notice until the court can determine whether it is satisfied by the debtor that the debtor has a counterclaim, set-off or cross demand of the type referred to in s.40(1)(g). …”
Counsel for the applicant referred the court to a Federal Court decision of Slack v Bottoms English Solicitors [2002] FCA 1445 (20 November 2002). That was an application to extend time within which to appeal from a judgment of a Federal Magistrate where application had been made to set aside a Bankruptcy Notice issued jointly by three respondents. The federal magistrate had found there was no mutuality between the creditor's claim against the Debtor and the claims on which the applicant relied. It is relevant to set out the following extracts from the decision of Spender J:
“2 The Federal Magistrate found that there was no mutuality between the creditor's claim against the debtor, and the claims on which the applicant relied. Those claims include proceedings 180 of 2001 in the Supreme Court of Queensland, but there are, it seems, other proceedings as well. The effect of those other proceedings, it seems to be conceded, is that they involve some or all of the issues in the proceedings on which the bankruptcy notice was founded (namely, proceedings 50 of 2001 in the Supreme Court of Queensland.)
3 It also seems to be conceded that those proceedings lack mutuality in the sense that the respondents to the various other Supreme Court proceedings are not identical to the three respondents to the present application. The Federal Magistrate found that there was no mutuality between the creditor's claim against the debtor and his claim in the other proceedings, and consequently dismissed the application in so far as it relied on that ground.
4 Further, it was submitted before Federal Magistrate Coker that proceedings had been brought in circumstances from which one could infer that the purpose was to require payment of the debt.”
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.”
Counsel for the respondent also referred to the judgment of Spender J in Slack v Bottoms English Solicitors. He drew the court's attention to the difference in the parties set out earlier in this judgment and this case - as in the case dealt with by Spender J - was one where, it was submitted, there is not the requisite mutuality between the parties on the claim that were to be set off against the claim that formed the Bankruptcy Notice. The plaintiffs in the Supreme Court proceedings taken together and the defendants taken together are a different group to those which are referred to in the judgment in the Federal Court proceedings.
Reasoning
In my view, the respondent's submissions in relation to the mutuality issue are correct. It is evident from the description of the parties in the Supreme Court and Federal Court proceedings that there are two different groups of parties. The joint and several liability of the defendants in the Supreme Court proceedings, which in turn provide a benefit at least to the Debtor amongst other plaintiffs in those proceedings including a corporation, is not sufficient to establish, in my view, mutuality of the kind referred to in the authorities set out above.
That is not to say that upon the hearing of a creditor's petition, if any, arguments may not be advanced based upon more precise information as to the indebtedness of the Creditors to the Debtor.
In my view, the vague and uncertain nature of the debt claimed by the Debtor against the Creditors arising out of the Supreme Court proceedings order is at this stage untested as there has not been a bill of costs in taxable form presented and taxed by the Taxing Master. The mere assertion that counsel's disbursements exceed the current debt is not sufficient in my view to justify the setting aside of the Bankruptcy Notice, particularly where I have found that there is insufficient mutuality between the parties.
It follows for those reasons that the application to set aside the Bankruptcy Notice should be dismissed with costs.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 20 October 2006
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