Quek v Pro Trader Pty Ltd
[2018] FCCA 1521
•11 October 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| QUEK v PRO TRADER PTY LTD | [2018] FCCA 1521 |
| Catchwords: PRACTICE AND PROCEDURE – Requirement for affidavit setting out full details of counter-claim, set-off or cross demand and amount by which the counter-claim, set-off or cross demand exceeds the judgment debt – whether failure to set out details a formal defect or irregularity which might be excused. WORDS AND PHRASES – “counter-claim, set-off or cross demand”. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40, 41 Fair Work Act 2009 (Cth), ss.323, 544 |
| Cases cited: Beaman v Bond & Anor [2015] FCCA 2311; (2015) 301 FLR 427; (2015) 14 ABC(NS) 1 Cao v Goldsmith [2015] FCCA 1700 Cavoli v Etl [2007] FCA 1191; (2007) 5 ABC(NS) 363 Chesson v Smith (1992) 35 FCR 594 Deputy Commissioner of Taxation [2011] FCA 865; (2011) 84 ATR 501; (2011) 282 ALR 80; (2011) 9 ABC(NS) 195 Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346; (1960) 34 ALJR 182; (1960) 19 ABC 236; (1960) ALR 691 |
| Applicant: | JULIE QUEK |
| Respondent: | PRO TRADER PTY LTD |
| File Number: | PEG 597 of 2015 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 12 December 2016 |
| Date of Last Submission: | 12 December 2016 |
| Delivered at: | Perth |
| Delivered on: | 11 October 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Galic |
| Solicitors for the Applicant: | TGC Lawyers |
| Counsel for the Respondent: | Mr J R Marzec |
| Solicitors for the Respondent: | Zafra Legal |
ORDERS
The application filed 29 December 2015 to set aside Bankruptcy Notice BN 186638 issued 30 November 2015 be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 597 of 2015
| JULIE QUEK |
Applicant
And
| PRO TRADER PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
This is an application filed by the applicant, Julie Quek (“Ms Quek”) on 29 December 2015 under the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). Ms Quek seeks to set aside Bankruptcy Notice BN 186638 issued 30 November 2015 (“Bankruptcy Notice”), served on her on or about 9 December 2015 by the respondent, Pro Trader Pty Ltd (“Pro Trader”).
Bankruptcy Notice
The Bankruptcy Notice states a total debt owing by Ms Quek of $7,654.80 (“Judgment Debt”), calculated as being $7,321.42 in taxed costs pursuant to a Certificate of Taxation dated 11 November 2015 (“Taxed Costs” and “Certificate of Taxation” respectively) in Supreme Court of Western Australia proceedings COR 75 of 2014 (“Supreme Court Proceedings”), plus interest from 24 February 2015 to 27 November 2015 of $333.38.
Orders sought by Ms Quek
The final and interim orders sought by Ms Quek in her application are as follows:
1. The Bankruptcy Notice BN 1186638, dated 30 November 2015, which was served on the Applicant on 9 December 2015, be set aside as being an abuse of process, and/or alternatively on any of the other grounds set out in the accompanying affidavit of the Applicant. A copy of the Bankruptcy Notice accompanies this application.
2. Costs.
3. Interim orders as sought below.
…
The applicant seeks the following interim orders:
1. Time for compliance with the Bankruptcy Notice be extended up to and including such time as this Honourable Court thinks fit.
2. Such further or other order as the Court thinks fit.
The reference to “Bankruptcy Notice BN 1186638” in proposed order 1 above is incorrect. The Bankruptcy Notice was numbered “BN 186638”: see the Bankruptcy Notice annexed to the affidavit of Ms Quek sworn on 14 December 2015, filed on 29 December 2015 (“Ms Quek’s Affidavit”).
For reasons which are not now apparent no Notice of Grounds of Opposition was filed by Pro Trader, however, the grounds of opposition appear sufficiently from the affidavit and submissions filed on behalf of Pro Trader.
On 9 March 2016 the Court ordered that time for compliance with the Bankruptcy Notice be extended until further order of the Court.
Evidence
Ms Quek’s Affidavit
Paragraph 9(b) and pages 14, 15, 16 and 17 of Ms Quek’s Affidavit were struck out by order of the Court on 15 March 2016. Ms Quek’s Affidavit otherwise relevantly deposed as follows:
3. The Respondent is indebted to me in the amount of $45,664.78 for:
(a) outstanding wages totalling $30,243.10
(b) unpaid long service leave entitlements totalling $15,421.68.
Now produced and shown to me and marked JQ-2 is a copy of a spreadsheet showing how the amounts have been calculated. As at the date of swearing this affidavit that amount has not been paid to me and remains due and owing to me by the Respondent.
4. I formerly worked for the Respondent as an accountant. I was also a director.
5. The main director in the Respondent's business was and still is Mr Frank Watkins. He and his family own the business. Myself and another, Mr David Harte (who worked in the company as its IT/Software manager), were directors for a short period. We were not paid director's fees except for one year in or about March 2008. The Respondent's and/or Mr Frank Watkin's policy was to not have us sign a letter of employment. Mr David Harte and myself were full time employees. In my case I worked as the accountant.
6. Mr Watkin's requested to have a meeting with myself and Mr Harte on or about 22/23 May 2013. Mr Watkin's proposal was that Mr Harte and I resign in return for payment of our wages and purchase of our shares by the Respondent. Mr David Harte and myself agreed to accept $150,000 between us. Mr David Harte informs me and I do verily believe that the Respondent has paid him in full. I on the other hand have still not been paid by the Respondent. The Respondent did not purchase my shares and did not pay me my wages. This will be the subject of civil claims I intend making against the Respondent.
7. Now produced and shown to me and marked JQ-3 is a copy of one of my payslips showing my annual income on the top left hand corner as produced by MYOB. This payslip is dated 16/6/2011. This shows my annual income paid to me as an accountant for the Respondent.
8. Now produced and shown to me and marked JQ-4 a copy of a payroll advice schedule which shows that I was paid wages in stages whenever the Respondent received cash in its business. The attached payroll advice schedule is for the wages owed to me by the Respondent for the period or fortnight beginning 31/12/12 to 13/1/13 which wages we paid to me on 9 May 2013. The next line is for my wages for the period 14/1/13 to 27/1/13, which were paid to me on 9 May 2013 as and when the Respondent received cash in its business in the month of May 2013. However the following week myself and others were only paid 50% of our wages from period of 27/01/13 to 10/2/13 and that was the last payment I received from the Respondent. I left the company on 31 May 2013.
9. I previously made demand for the money that is owed to me. Now produced and shown to me and marked JQ-5 are copies of;
(a) my lawyers letter to the Respondent dated 10 September 2013
(b) [deleted].
I issued a creditor's statutory demand notice that I was forced to withdraw over alleged technical deficiencies over its form, and I withdrew it for that reason alone.
10. I have requested the Respondent to withdraw the bankruptcy notice and now produced and shown to me and marked JQ-6 is a copy of my solicitor's email to the issuing solicitors Wilson & Atkinson sent last Friday 11 December 2015.
The Court notes that in Annexure JQ-2 to Ms Quek’s Affidavit:
a)the calculation of the total wages owed shows an amount of $27,754.96 and not $30,243.10 as claimed in Ms Quek’s Affidavit at [3(a)]; and
b)claims $14,145.54 as a long service leave payment and not the $15,421.68 as set out in Ms Quek’s Affidavit at [3(b)],
and that that difference was not sought to be explained either in Ms Quek’s Affidavit or at hearing.
Pro Trader’s affidavit
Pro Trader filed an affidavit of Frank Alexander Watkins, a director of Pro Trader, sworn on 29 March 2016 (“Mr Watkins” and Mr Watkins’ Affidavit” respectively), in which Mr Watkins relevantly deposes as follows:
Background
4. On 8 April 2014, the Respondent received a Creditor's Statutory Demand dated 31 March 2014 from the Applicant (“Statutory Demand”).
5. On 17 April 2014, I caused the Respondent's solicitors, Wilson & Atkinson, to file and serve an Originating Process to set aside the Statutory Demand. This Originating Process was supported by an affidavit sworn by me on the same date. Annexed hereto and marked “FAW-1” is a true copy of the Respondent's Originating Process and my affidavit sworn in support dated 17 April 2014.
6. On 31 July 2014, I was informed by James Marzec of the Respondent's solicitors that the Statutory Demand was being withdrawn by the Applicant.
7. Later that day, the parties filed consent orders in the following terms:
7.1. the Originating Process be dismissed;
7.2. the Respondent's costs of the application be paid by the Applicant, to be taxed if not agreed.
8. On 4 August 2014, the parties' consent orders were made by Master Sanderson. Annexed hereto and marked “FAW-2” is a true copy of the Orders of Master Sanderson made on 4 August 2014.
9. On 23 February 2015, the Respondent's costs were taxed by Registrar Boyle of the Supreme Court and allowed in the sum of $7,321.42. Annexed hereto and marked “FAW-3” is a true copy of the Certificate of Taxation dated 23 February 2015, extracted on 12 November 2015.
10. On 12 March 2015, I caused James Marzec of the Respondent's solicitors to write to Tim Galic of the Applicant's solicitors regarding payment of the Respondent's costs. Annexed hereto and marked “FAW-4” is a true copy of James Marzec's
e-mail to Tim Galic dated 12 March 2015.
11. On 25 March 2015, Mr Marzec advised me that he had received an e-mail from Mr Galic. Annexed hereto and marked “FAW-5” is a true copy of Mr Galic's e-mail to Mr Marzec dated 25 March 2015.
12. On 20 April 2015, no progress having been made, I caused Mr Marzec to send another email to Mr Galic. Annexed hereto and marked “FAW-6” is a true copy of Mr Marzec's email to Mr Galic dated 20 April 2015.
13. ...
14. In November 2015, I instructed the Respondent's solicitors to prepare and issue a Bankruptcy Notice in respect of the Respondent's costs for COR 75 of 2014, which were still outstanding.
15. I am instructed by the Respondent's solicitors that Bankruptcy Notice 186638 was served on the Applicant on 9 December 2015.
16. On 11 December 2015, Mr Marzec advised me that he had received an e-mail from Mr Galic. Annexed hereto and marked “FAW-7” is a true copy of Mr Galic's e-mail to Mr Marzec dated 11 December 2015.
17. On 14 December 2015, I instructed Mr Marzec to send an e-mail to Mr Galic. Annexed hereto and marked “FAW-8” is a true copy of Mr Marzec's e-mail to Mr Galic dated 14 December 2015.
Applicant's affidavit
18. I have read the Applicant's affidavit sworn on 14 December 2015.
19. The Applicant claims at paragraph 3 of her affidavit that the Respondent is indebted to her in the amount of $45,664.78 for:
19.1. outstanding wages totalling $30,243.10; and
19.2. unpaid long service leave entitlements totalling $15,421.68.
20. I am familiar with these figures, as these appear to me to be the same amounts claimed by the Applicant in her Statutory Demand dated 31 March 2014.
21. Specifically, I believe that Annexure “JQ-2” of the Applicant's affidavit sworn on 14 December 2015 - said to be “a spreadsheet showing how the amounts [of her counterclaim, set off or cross-demand] have been calculated” - is identical to Annexure “JG-1” to her affidavit sworn on 31 March 2014 in support of her Statutory Demand.
22. The Applicant appears to make a further claim in paragraph 6 of her affidavit about her entitlement to monies pursuant to an agreement “on or about 22/23 May 2013”, whereby:
22.1. the Applicant agreed to resign from her directorship of the Respondent; and
22.2. in return for the Applicant's resignation, I agreed to promise on behalf of the Respondent to buy out her shares in the Respondent for the amount of $150,000, to be shared between the Applicant and David Harte, a former employee of the Respondent.
23. I deny that an agreement was ever reached as stated by the Applicant, or at all.
24. Between 23 and 24 May 2013, discussions were held regarding the Applicant's and Mr Harte's transition out of the business of the Respondent. A Deed of Settlement and Release was drafted to advance these discussions. However, due to a breakdown in negotiations between the parties, and the Applicant's notice of resignation to me on or around 27 May 2013, an agreement was never reached. I caused these matters to be documented in a letter sent by my solicitors to Ms Quek on 31 May 2013. Annexed hereto and marked “FAW-9 is a true copy of Wilson & Atkinson's letter to the Applicant dated 31 May 2013.
25. I have reviewed the records of the Respondent and can confirm that from May 2013 to present, the Respondent has not received any originating process from the Applicant in respect of the allegations raised in her affidavit sworn on 14 December 2015, other than those made in her (withdrawn) Statutory Demand dated 31 March 2014.
It would appear from the annexures to Mr Watkins’ Affidavit that:
a)the entitlement to long service leave is disputed on the basis that Ms Quek is alleged to have taken a period of long service leave thereby reducing her entitlement to 2.66 weeks which is said to equate to an amount of $2,918.17, the entitlement to which Pro Trader does not dispute: Mr Watkins’ Affidavit at Annexure FAW-1, Annexure FAW-1 being an affidavit of Mr Watkins sworn 17 April 2014 in support of an originating process to set aside a creditor’s statutory demand (“Creditor’s Statutory Demand”) issued by Ms Quek against Pro Trader (“Mr Watkins’ Statutory Demand Affidavit”) at [10(a)], [16(a) and (d)] and [24] and Annexure FAW-4 (being a letter from Pro Trader’s lawyers to Ms Quek’s lawyers) at page 3;
b)the claim for outstanding wages was also disputed as to the amount claimed because Pro Trader alleges there was a one-third reduction in Ms Quek’s remuneration during the relevant period from “November 2013”, a reduction alleged to have been implemented by Ms Quek herself as a director overseeing the finances of Pro Trader: Mr Watkins’ Statutory Demand Affidavit at [16(a)]; Annexure FAW-4 at page 2 (it is apparent that the date of “November 2013” is wrong given that it is a date after 31 May 2013, which is the date upon which Ms Quek’s employment with Pro Trader ended);
c)the Creditor’s Statutory Demand which was set aside by order of the Supreme Court of Western Australia was alleged to be defective in a number of respects: Mr Watkins’ Statutory Demand Affidavit, Annexure FAW-3 and
d)demands for Ms Quek to pay the sum of $7,321.42, being the costs of the set aside Creditor’s Statutory Demand, were made on 12 March 2015: Mr Watkins’ Affidavit at [10], Annexure FAW-4, and 20 April 2015: Mr Watkins’ Affidavit at [12], Annexure
FAW-6.
Legislative provisions and elements required to be satisfied
Sections 40(1)(g) and 41(7) of the Bankruptcy Act are the provisions most immediately relevant to Ms Quek’s application to set aside the Bankruptcy Notice.
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;
…
Section 41(7) of the Bankruptcy Act provides as follows:
(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
Section 41(7) of the Bankruptcy Act requires the Court to be “satisfied that the debtor has … a counter-claim, set-off or cross demand” of the kind set forth in s.40(1)(g) of the Bankruptcy Act.
Rule 3.02(3) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (“FCC Bankruptcy Rules”) is also relevant and provides as follows:
(3) If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand referred to 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 proceedings that resulted in the judgments or orders to which the bankruptcy notice relates.
The nature of the exercise in which the Court is involved on an application to set aside a bankruptcy notice is set out in Guss v Johnstone [2000] HCA 26; (2000) 74 ALJR 884; (2000) 171 ALR 598; (“Guss”) at [39]-[40] per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ, 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.
In Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346; (1960) 34 ALJR 182; (1960) 19 ABC 236; (1960) ALR 691 (“Ebert”), CLR at 350 per Dixon CJ, McTiernan and Windeyer JJ 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.
In James v Abrahams (1981) 51 FLR 16; (1981) 34 ALR 657 (“James”) the majority of the Full Court of the Federal Court observed that a counter-claim, set-off or cross demand “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, FLR at 24 per Deane and Lockhart JJ.
In order for the Court to be satisfied that there is a counter-claim, set-off or cross demand 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 counter-claim, set-off or cross demand: Patane v Asteron Life Ltd (formerly Royal & Sun Alliance Financial Services Ltd) (ACN 001 698 228) [2004] FCA 232; (2004) 2 ABC(NS) 85 (“Patane”) at [72]-[75] per Lander J. In Re Jocumsen (1929) 1 ABC 82 at 85 per Henchman J the Supreme Court of Queensland observed that a counter-claim, set-off or cross demand “must be … measurable in amount. An amount must have reference to money”, a view which was approved by the majority of the Full Court of the Federal Court in James, FLR at 24-25 per Deane and Lockhart JJ. Rule 3.02(3) of the FCC Bankruptcy Rules provides that where a debtor alleges a counter-claim, set-off or cross demand the affidavit in support of the application to set aside a bankruptcy notice must also state:
a)the full details of the counter-claim, set-off or cross demand; and
b)the amount:
i)of the counter-claim, set-off or cross demand; and
ii)by which the counter-claim, set-off or cross demand exceeds the amount claimed in the bankruptcy notice.
It follows from the foregoing that 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 counter-claim, set-off or cross demand available;
b)the Court must be satisfied that the amount of the counter-claim, set-off or cross demand is equal to, or in excess of, the sum of the Judgment Debt; and
c)the Court must be satisfied that the counter-claim, set-off or cross demand could not have been set up in the Supreme Court Proceedings.
Was there a counter-claim, set-off or cross demand available?
Satisfaction as to whether the amount of any counter-claim, set-off or cross demand equals or exceeds the sum of the Judgment Debt
The above two factors can be considered together.
Ms Quek’s submissions
Ms Quek made the following submissions:
a)she was served with the Bankruptcy Notice on or about 9 December 2015. The Bankruptcy Notice is referable to the Certificate of Taxation issued in the Supreme Court Proceedings, in which Ms Quek withdrew a Creditor’s Statutory Demand issued against Pro Trader over alleged technical deficiencies in the form of the Creditor’s Statutory Demand. The claim upon which the Creditor’s Statutory Demand relied is identical to part of the counter-claim, set-off or cross demand relied upon in this application for the purposes of s.40(1)(g) of the Bankruptcy Act;
b)in Ms Quek’s Affidavit she:
i)deposes that she formerly worked for Pro Trader as an accountant: at [4];
ii)deposes that Pro Trader has not paid her outstanding wages totalling $30,243.10 and unpaid long service leave entitlements totalling $15,421.68: at [3];
iii)deposes to the existence of a payslip for the period 6 to 19 June 2011 (“June 2011 Payslip”) and a payroll advice schedule for the period 3 May to 30 June 2013 (“2013 Payroll Advice”) issued by Pro Trader recording the amount of her “Base Salary” per fortnight: at [7] and Annexures JQ-3 and JQ-4; and
iv)provides a schedule calculating the amounts claimed by reference to the "Base Salary" recorded in the June 2011 Payslip issued by Pro Trader (“Calculation Schedule): at [3] and Annexure JQ-2;
c)that as between Ms Quek and Pro Trader, the balance of the account is in favour of Ms Quek, and that the quantum of Ms Quek's counter-claim, set-off or cross demand exceeds the amount of the Judgment Debt multiple times;
d)Pro Trader denies the claim, but it is not the function of this Court to resolve the merits of the parties' respective positions;
e)by reason of the fact that Ms Quek’s claim for unpaid wages and entitlements could not have been set up in answer to Pro Trader’s application for costs in the Supreme Court Proceedings, it is open to the Court to judicially infer that as the taxing officer’s role was not to resolve the merits of any counter-claim, set-off or cross demand Ms Quek’s claim could not have been set up in answer to the costs application, it is accordingly unnecessary to have separate evidence of this; and
f)even if the Court were to find that Ms Quek has failed to comply with r.3.02 of the FCC Bankruptcy Rules, such a finding is not the end of the enquiry. In Burrell v Reavill Farm Pty Ltd [2014] FCCA 1449; (2014) 286 FLR 310 (“Burrell”), the Court held that the debtor's failure to comply with r.3.02 of the FCC Bankruptcy Rules was a formal defect or irregularity which the Court could excuse. The Court relied on s.57(1) of the Federal Circuit Court of Australia Act 1999 (Cth) (“FCCA Act”), which provides that proceedings in the Court are not to be invalidated by a formal defect or irregularity unless the Court is of the opinion that substantial injustice has been caused by the defect or irregularity which cannot be remedied by an order of the Court. No such injustice has been caused to Pro Trader in this case. Accordingly the Court should excuse any formal defect or irregularity or extend the time as may be necessary for Ms Quek to remedy the same.
Ms Quek made the following further submissions (or submissions in reply):
a)she is under no duty to "prosecute or progress" a claim. She is however in the process of issuing proceedings against Pro Trader. The proceedings are brought within time. If a claim were not brought within specified time periods Pro Trader would then be able to raise a limitation defence. No adverse inference can or should be drawn arising from the fact that Ms Quek has not yet issued those proceedings;
b)Pro Trader concedes that the claims relied upon in the Creditor’s Statutory Demand could not have been set up in the process giving rise to the Certificate of Taxation in the Supreme Court Proceedings; and
c)on a proper construction of s.40(1)(g) of the Bankruptcy Act it was in the taxation of costs in the Supreme Court Proceedings that the order for the Taxed Costs giving rise to the Judgment Debt was obtained. In any event, the merits of the claims now made by Ms Quek could not have been raised as a means to resist an order for the Taxed Costs following from the withdrawal of the Creditor’s Statutory Demand due to alleged technical deficiencies.
Pro Trader’s submissions
Pro-Trader made the following submissions:
a)Ms Quek has not satisfied the relevant statutory requirements of the Bankruptcy Act and the FCC Bankruptcy Rules in relation to her application to set aside the Bankruptcy Notice, nor has she satisfied the relevant factual and legal basis required for the Court to consider that the interests of justice would be served in setting aside the Bankruptcy Notice;
b)Ms Quek’s application should be dismissed accordingly;
c)a debtor commits an act of bankruptcy if the debtor does not, within the time specified by a bankruptcy notice, apply to the Court on the basis that he or she has a “counter-claim, set-off or cross demand” within the terms of s.40(1)(g) of the Bankruptcy Act, and must set out the relevant details in an affidavit: FCC Bankruptcy Rules, r.3.02(3);
d)in order for the Court to be satisfied that there is a counter-claim, set-off or cross demand 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 counter-claim, set-off or cross demand: Patane at [72]-[75] per Lander J;
e)at [3] of Ms Quek’s Affidavit, the counter-claim, set-off or cross demand claimed is that Pro Trader is indebted to Ms Quek in the amount of $45,664.78 for:
i)outstanding wages totalling $30,243.10; and
ii)unpaid long service leave entitlements totalling $15,421.68,
in relation to her employment with Pro Trader until May 2013;
f)these figures are amounts which, in Mr Watkins' recollection, were claimed by Ms Quek as early as June 2013: Watkins Affidavit, Annexure FAW-1 at page 4, and were claimed by Ms Quek by letter from her solicitors as early as 10 September 2013: Watkins Affidavit, Annexure FAW-1 at page 19, and are figures which have been disputed by Pro Trader on numerous occasions: Watkins Affidavit, Annexure FAW-1 at pages 25-28 and 37-38;
g)Ms Quek appears to suggest a further allegation of monies owed: Ms Quek’s Affidavit at [6], regarding her entitlement to non-particularised remuneration pursuant to an agreement "on or about 22/23 May 2013", whereby it is alleged:
i)Ms Quek agreed to resign from her directorship of Pro Trader; and
ii)in return for Ms Quek's resignation, Pro Trader agreed to buy out her shares in Pro Trader for the amount of $150,000, to be shared between Ms Quek and David Harte, another former employee of Pro Trader;
h)these allegations:
i)do not establish a prima facie case, and constitute a mere assertion;
ii)are denied by Pro Trader: Watkins Affidavit at [22]-[25];
iii)are not sufficiently particularised as to precisely how much of the amount of $150,000 stated is due and payable to Ms Quek as opposed to Mr Harte; and
iv)are insufficiently particularised for the Court to consider them in relation to this application;
i)in order for the Court to be satisfied of the asserted entitlement to recover from the creditor, the nature of the task to be performed requires weighing up considerations as to the legal and factual merit of the claim and also considering the justice of allowing the bankruptcy proceedings to go ahead (in the present case, to allow the Bankruptcy Notice to have its operative effect thereby creating an act of bankruptcy from the time of non-compliance) or requiring them to await the determination of the claim: Guss at [39]-[40] per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ;
j)Ms Quek is required to demonstrate more than a mere assertion in alleging a counter-claim, set-off or cross demand. Ms Quek is required to establish that she has a bona fide claim with sufficient prospects such that she has a prima facie case or one with a fair chance of success: Garrett v Cahill [2015] FCA 314 at [35] per Beach J (and the cases there cited);
k)a prima facie case may be established even if the debtor has not adduced evidence which would be admissible on a final hearing: Glew v Harrowell, in the matter of Glew [2003] FCA 373; (2003) 198 ALR 331 (“Glew”) at [9] per Lindgren J (and the cases there cited), but the claim must be of sufficient substance: Glew at [12] per Lindgren J; Luck v University of Southern Queensland [2015] FCA 286 at [22] per Davies J;
l)a debtor must satisfy a court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy: Glew at [12] per Lindgren J;
m)a debtor cannot satisfy the Court, for example, by showing no more than the fact that a claim is made and how the claim may be made out. It is not sufficient that a debtor believes he has a genuine claim; what is required is that the Court must be satisfied that it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue: Massih v Esber [2008] FCA 1452; (2008) 250 ALR 648 (“Massih”) at [18] per Flick J (and the cases there cited);
n)in the present case, Ms Quek seeks the Court set aside the Bankruptcy Notice based on allegations which are supported by the following documents:
i)the Calculation Schedule produced by Ms Quek herself, which has been disputed by Pro Trader;
ii)the June 2011 Payslip;
iii)the 2013 Payroll Advice; and
iv)two correspondences prepared by Ms Quek's solicitors for and on behalf of Ms Quek;
o)Pro Trader submits that in the task of weighing up the various competing considerations referred to above, the following matters militate in favour of dismissing Ms Quek's application, and consequently this proceeding:
i)the information and evidence provided by Ms Quek does not contain sufficient evidence to allow for a conclusion as to the legal and factual merit of the claim;
ii)furthermore, if Ms Quek's claim possesses legal and factual merit (which is expressly denied), the function of requiring her to comply with the Bankruptcy Notice does not prevent such a claim from being made, other than compelling her to pay the Judgment Debt arising from the Supreme Court Proceedings, to which she effectively consented on 31 July 2014;
iii)conversely, Pro Trader has obtained a Certificate of Taxation in the Supreme Court Proceedings, which is tantamount to a judgment order in terms of enforceability, but has been denied the opportunity to enforce the Taxed Costs due to the resistance of Ms Quek and the commencement of this proceeding;
iv)Ms Quek has not commenced other proceedings to act upon her claims;
v)Ms Quek has not adduced any evidence as to why she has, to date, failed to commence proceedings to act upon her claims;
vi)Ms Quek has not adduced any evidence that she will in fact commence proceedings to act upon her claims; and
vii)in spite of the above, Ms Quek invokes the mere assertion of those claims in an attempt to defeat the Bankruptcy Notice; and
p)as a result of these factors, Pro Trader submits that:
i)Ms Quek's claims are not bona fide;
ii)even if they were held to be bona fide - there is insufficient substance to evaluate whether Ms Quek's claims have prima facie reasonable prospects of success, especially as they have not been further litigated by Ms Quek in any forum; and
iii)if the application is granted, Pro Trader would continue to suffer the ongoing and substantial prejudice of being unable to enforce an unchallenged costs order.
Pro-Trader made the following further submissions (or submissions in reply):
a)Ms Quek has failed to tender any evidence or make any submission that she has prosecuted or otherwise progressed her alleged counter-claim, set-off or cross demand with due diligence or at all. Furthermore, Ms Quek has failed to provide any reason or explanation for failing to do so;
b)the Court has not received evidence of a draft or filed statement of claim by which Ms Quek has particularised her claimed entitlements, or the cause or causes of action by which relief is claimed. Ms Quek has not adduced into evidence the contract of employment by which she claims her entitlements, or reference to the legislation by which those entitlements are claimed;
c)the fact that Ms Quek has failed to progress her claims in any manner since they were first claimed against Pro Trader in June 2013: Watkins’ Affidavit, Annexure FAW-1 at page 4, is a matter which should not unreasonably be taken into account when having regard to the whether the Court is satisfied that the application constituting the cross demand is a bona fide application: Naghten v Commonwealth Bank of Australia [1998] FCA 635 (“Naghten”) at page 7 per Foster J;
d)in the absence of any explanation, the Court does not have any sufficient answer to the inference that Ms Quek's cross demand lacks the necessary bona fides required for it to qualify as a means of setting aside the Bankruptcy Notice pursuant to s.40(1)(g) of the Bankruptcy Act: Naghten at page 8 per Foster J;
e)the circumstances, including the delay in Ms Quek pursuing her claims, "are relevant to the assessment of whether there is a viable case, or whether an apparently weak or borderline case is bona fide": Gorczynski v Aitken & Ors (No 2) [2011] FMCA 86 (“Gorczynski (No 2)”) at [80] per Barnes FM (and the cases there cited). Having regard, insofar as possible on the material before the Court, to the nature of the asserted case (which involves disputed factual allegations) and the significant delay in the commencement of proceedings, it has not been established that there is a reasonable probability of success on any such claim against Pro Trader such that in justice this ought to be determined before bankruptcy proceedings in relation to Ms Quek are allowed to continue: Gorczynski (No 2) at [80] per Barnes FM (and the cases there cited);
f)the present situation is distinguishable from circumstances where, by way of example, the Taxed Costs founding the Bankruptcy Notice were being contested by Ms Quek, pending a determination by a court of appeal. In such circumstances, this Court may not consider that “the failure to commence such proceedings betokens any particular lack of confidence in the prospects of success which such a claim might have”: Cao v Goldsmith [2015] FCCA 1700 at [30] per Judge Cameron. Here, however, no such challenge or appeal has been made;
g)Ms Quek has even failed to direct the Court to personal circumstances which may have delayed the progression of her proceedings, such as financial constraints: Naghten at page 8 per Foster J, where the Federal Court held that even the judgment debtor having asserted suffering financial constraints was not "a sufficient answer" to the inference that was drawn from the judgment debtor's delay in commencing proceedings in that matter. No basis whatsoever for Ms Quek's significant delay has been offered; and
h)Ms Quek asks the Court to set aside the Bankruptcy Notice on an indefinite basis based on claims that she has not progressed for in excess of three years. In Pro Trader's submission, the legislative objective sought to be achieved by s.40(1)(g) of the Bankruptcy Act, and the interests of justice, would not be achieved by granting her application.
Consideration – availability of counter-claim, set-off or cross demand and satisfaction as to whether amount of counter-claim, set-off or cross demand equals or exceeds the sum of the Judgment Debt
In Massih at [23]-[24] per Flick J the Federal Court dealt with the nature of and differences between counter-claims, set-offs and cross demands as referred to in ss.40(1)(g) and 41(7) of the Bankruptcy Act as follows:
23 In In re Judd, Ex parte Pike, supra, Maughan AJ observed that the word “counter-claim” most probably refers to “those claims which might be the subject of a counter-claim in equity”; the term “set-off” was said to refer to “those claims which might be the subject of a set-off at common law”. And the term “cross demand” was said to be “not a technical term and must … refer to claims other than those which would be comprised in the two expressions ‘counter-claim’ and ‘set-off’”: (1924) 24 SR (NSW) 537 at 539. An “unrestricted meaning”, it was said, was to be given to the word “cross demand” (at 540). The meaning of each of these terms was also explored in In re A Bankruptcy Notice [1934] 1 Ch 431. Declaratory relief sought in the Chancery Division as to an entitlement to a charge on the proceeds of property was held not to be a “counter-claim, set-off or cross demand”. Lord Hanworth MR there observed that “set-off” was “a word well known and established in its meaning” (at 437). Of the term “cross demand” it was observed (at 438):
I turn, therefore, to what to my mind is the wider word, “cross-demand.” If a cross-demand is only to be interpreted as meaning something which could have been introduced into the action by way of counterclaim, it adds nothing to the word “counterclaim.” “Cross-demand” seems to me to be a word introduced in order to give a wider ambit to the meaning of these claims, something that would not be described, certainly, as a set-off, something that could not have been brought in the action, something that still lies outside a counterclaim, but is of a nature which can be specified and which is of such a nature that it equals or exceeds the amount of the judgment debt. I do not desire to say what “cross-demand” may include, but it is not difficult to say that it does not include a claim of such uncertain nature as appears in these Chancery proceedings. That claim does not appear to be one which it would be proper to describe as a cross-demand; it is a claim of right which may inure ultimately for the benefit of the judgment debtor. Therefore, it appears that there is no sufficient ground for setting aside this bankruptcy notice; the bankruptcy notice stands good and must be complied with.
Romer and Maugham LJJ delivered separate judgments but agreed with Lord Hanworth MR.
24. A claim for unliquidated damages for breach of contract can fall within the term “cross demand” (Re Griffin, Ex parte Soutar (1890) 1 BC (NSW) 29); as can a claim for unliquidated damages for a tort (In re Judd, Ex parte Pike, supra at 539–40). A claim for relief under the Industrial Relations Act 1996 (NSW), being a claim that the creditor pay the debtor any money that may be found owing under an arrangement as varied by the Industrial Relations Commission may also be a cross-claim or counter-demand: Re Zakrzewski; Zakrzewski v Rodgers [2000] FCA 1187 at [33]–[34], 178 ALR 694 at 704–5 per Madgwick J. A “cross demand” need not have any connection with the cause of action out of which the judgment debt arose: cf In re a Debtor [1914] 3 KB 726. A judgment debtor is thus able to “buy up a claim against the judgment creditor in order to have a ‘cross demand’”: In re Judd; Ex parte Pike (1924) 24 SR (NSW) 537 at 540 per Maughan AJ.
It would appear that Ms Quek’s claims are best characterised as cross demands, but however they might be characterised they certainly fall within the statutory phrase “counter-claim, set-off or cross demand”: compare Massih at [25] per Flick J.
Based on the Calculation Schedule, which is the lesser quantum of the amounts claims in respect of both wages and long service leave payment in Ms Quek’s Affidavit, Ms Quek’s counter-claim has two components:
a)wages said to be unpaid and owed in the sum of $27,745.96; and
b)a long service leave payment said to be unpaid and owed in the sum of $14,145.54.
Ms Quek’s evidence is that her annual income is that shown on the June 2011 Payslip: Annexure JQ-3 to Ms Quek’s Affidavit, which shows an annual salary of $84,870. The annual salary set out in the June 2011 Payslip is consistent with Annexure JQ-4 to Ms Quek’s Affidavit, the 2013 Payroll Advice for the months of May and June 2013, produced on 23 June 2013, which also shows Ms Quek’s annual salary as still being $84,870. Both the June 2011 Payslip and the 2013 Payroll Advice show Ms Quek’s fortnightly salary to be $3,264.23, and the 2013 Payroll Advice shows two payments of half of this amount ($1,632.11 on one occasion and $1,632.12 on another occasion) which is not inconsistent with Ms Quek’s evidence that on those two occasions she was only paid 50% of her wages, and that those wages were paid when Pro Trader received cash into its business: Ms Quek’s Affidavit at [8]. On this basis it is plain that there is sufficient evidence for Ms Quek to argue that at the time her period of employment ended with Pro Trader on 31 May 2013 her annual salary was $84,870, payable by way of gross fortnightly payments of $3,264.23.
The wages claimed by Ms Quek are said by her to be calculated on the basis of her fortnightly pay, and the claim is for eight unpaid fortnights at the rate of $3,264.23, and for one fortnight during which she was only paid half of her fortnightly payment, and she therefore claims $1,632.12 for that fortnight: Ms Quek’s Affidavit at [3] and Annexure JQ-2. The nine fortnights for which the wages underpayment claim is made are contiguous, starting with the fortnight commencing on 28 January 2013 and ending on 10 February 2013, and going through to the fortnight commencing 20 May 2013 and ending on 31 May 2013 (this being a short “fortnight” because 31 May 2013 was Ms Quek’s last day of employment with Pro Trader): Ms Quek’s Affidavit at [3] and [8] and Annexures JQ-2 and JQ-4.
When Ms Quek’s evidence is looked at as a whole it is clear that the full details of the amount of the cross demand as it relates to the wages payment are set out in Ms Quek’s Affidavit, incorporating reference to:
a)the Calculation Schedule: Ms Quek’s Affidavit at Annexure JQ-2, in which Ms Quek sets out how the amount of wages has been calculated: Ms Quek’s Affidavit at [3]; and
b)Ms Quek’s annual income and her normal fortnightly income, which are set out in the June 2011 Payslip and the 2013 Payroll Advice, and at [7] and [8] of Ms Quek’s Affidavit, and Ms Quek references the amounts in the 2013 Payroll Advice as being her fortnightly wages, or 50% of her wages for the period in which she was not paid what she claims to be the full amount of her fortnightly wages.
To the extent that Pro Trader’s evidence suggests that the amount payable to Ms Quek as wages is in dispute, and in particular because of a claimed reduction in remuneration for Ms Quek, the Court notes that it is not required, at this stage, to determine the merit of either Ms Quek’s cross demand or the claim now made by Pro Trader that there was a reduction in the wages payable to Ms Quek. It suffices to observe that Ms Quek’s cross demand for unpaid wages is, on its face, one which is arguable and sustainable as set out above, but also because:
a)the 2013 Payroll Advice was produced on 23 June 2013, more than three weeks after Ms Quek finished her employment with Pro Trader, and is, on its face, a Pro Trader document which shows Ms Quek’s annual salary as being $84,870, and a full fortnight’s wages as possibly being $3,264.23, which is consistent with the counter-claim made by Ms Quek; and
b)the year-to-date figure of $52,659.83 set out in the 2013 Payroll Advice and said by Pro Trader to be a figure which represents an agreed reduction in Ms Quek’s wages, is also a figure consistent with Ms Quek’s argument that she has not been paid for eight fortnights at the full amount of wages payable, and for one fortnight at half the amount of her wages payable, and if the amount claimed in the Calculation Schedule of $27,745.96 is added to the year-to-date figure of $52,659.83 the resultant figure of $80,405.79 is sufficiently close to the claimed annual salary of $84,870 to support Ms Quek’s cross demand that she has been underpaid wages in the amount claimed for the nine fortnights concerned.
In summary, the evidence in relation to Ms Quek’s cross demand for unpaid wages is sufficient to establish an arguable case that she has been underpaid wages in the amount claimed by her, namely $27,745.96. The claimed liability for underpaid wages which the Court has found to be arguable is therefore an amount which plainly exceeds the amount claimed under the Bankruptcy Notice.
In relation to Ms Quek’s claim for long service leave it is unnecessary for the Court to consider whether there is an entitlement to long service leave as claimed by Ms Quek because Pro Trader concedes that there was an entitlement to long service leave, but disputes the amount of long service leave owed, both as to the quantum of long service leave in weeks owed and the resultant sum of money owed, but concedes that a sum of $2,918.17 was owed to Ms Quek arising from her entitlement to long service leave.
When the admitted liability for Ms Quek’s long service leave entitlement is added to her claimed liability for unpaid wages the total amount thereof is quantifiable which it must be: Patane at [72]-[75] per Lander J; James, FLR at 24-25 per Deane and Lockhart JJ, in the sum of $30,664.13, again an amount which plainly exceeds the amount claimed under the Bankruptcy Notice.
Pro Trader argued that because Ms Quek has not proceeded with any action other than the Creditors Statutory Demand which was set aside that her claims are weak or not made in good faith.
Pro Trader relied upon a passage from Gorczynski (No 2) at [80] per Barnes FM where, citing Naghten, the Federal Magistrates Court said that:
… even if strictly speaking, the alleged counter-claim, set-off or cross demand could not have been set up in the action or proceedings in which the judgment or order was obtained due to its nature … the circumstances, including the delay in pursuing such claim, are relevant to the assessment of whether there is a viable case, or whether an apparently weak or borderline case is bona fide …
When considering this issue it is still necessary for the Court to first determine whether or not there is a viable (as opposed to a proven) claim which might be pursued by the party seeking to set aside a bankruptcy notice.
It is relevant to observe that this is not a matter in respect of which no claim has ever been made. The claims now made by Ms Quek in support of the application to set aside the Bankruptcy Notice were claims that were made in the Creditors Statutory Demand. They have also been reiterated in correspondence between the parties’ solicitors since that time. On the other hand, there is no evidence that those claims have been the subject of proceedings instituted by Ms Quek in any other court or quasi-judicial body since the Creditors Statutory Demand was set aside. At hearing, there was a cryptic reference to proceedings said to have been instituted by Ms Quek, said to be “complex Corporations Act proceedings that incorporate what … [Ms Quek] is seeking”: Transcript, page 3, but which were the subject of no further useful elucidation by Ms Quek’s Counsel. No copy of any pleading in the “complex Corporations Act proceedings” was sought to be tendered by Ms Quek’s Counsel, nor was it otherwise explained. Pro Trader’s Counsel did acknowledge that Pro Trader’s solicitors had received, by email, a writ in the Supreme Court of Western Australia at 4.00pm on the Friday preceding the Monday morning hearing, but Pro Trader’s Counsel was not in a position to take that matter further not having had occasion to properly consider the content of the writ or take instruction on its content: Transcript, pages 19-20, not that it was for Pro Trader to do so, the onus of making out that there were other proceedings in relation to the wages and long service leave claims being a matter for Ms Quek to satisfy the Court about: Massih at [17] per Flick J, and which, in relation to the “complex Corporations Act proceedings”, she failed to do.
Insofar as Pro Trader asserts that Ms Quek’s claims are weak or not made in good faith because no other action has been proceeded with in respect of them since the Creditors Statutory Demand was set aside, the Court has considered whether the failure to institute other proceedings in respect of the wages and long service leave claims might be:
a)indicative of a lack of confidence in those proceedings; or
b)an indication that the claims are not made in good faith.
With respect to the long service leave claim the assertion of a lack of confidence or bad faith is not an assertion that can be made out by Pro Trader as it concedes that there is an entitlement to long service leave, and admits liability, at least in part: see [10(a)] and [34] above.
In relation to the wages claim, for reasons set out above: see [28]-[33] above, the Court has already concluded that there is, on the evidence contained in Ms Quek’s Affidavit, an arguable claim or claims in relation to unpaid wages. Whether the claims be founded in breach of contract at common law, or for breach of a civil penalty proceeding for failure to make payment in full when payment falls due: Fair Work Act 2009 (Cth) (“FW Act”), s.323(1), or some combination of all or any of the above (including any claims which might be made in this Court’s associated or ancillary jurisdiction: FCCA Act, s.18; Rana v Google Inc [2017] FCAFC 156; (2017) 254 FCR 1; (2017) 350 ALR 280), those claims are still within the relevant limitation periods: Limitation Act 2005 (WA), s.13; FW Act, s.544.
In all of the above circumstances, the failure to make the long service leave and wages claims in another forum since the Creditors Statutory Demand was set aside, is not indicative of claims made in bad faith or which lack substance.
Pro Trader claimed that Ms Quek’s set aside application also ought to be dismissed on the basis that she had not complied with r.3.02(3) of the FCC Bankruptcy Rules in that she had not provided details of her cross demand or the amount by which it exceeds the amount claimed in the Bankruptcy Notice.
It is plain from what the Court has set out at [28]-[43] above, that full details of the cross demand have been provided, and although there are two different amounts claimed for each of the wages and long service leave claims respectively, those amounts when appropriately combined, and wether the greater or lesser amount is taken, exceed, by a considerable sum, the Judgment Debt. Thus, taking for the purposes of certainty, the lesser of the amounts claimed, that is the amounts of $27,745.96 for the wages claim and $14,145.54 for the long service leave payment claim (see [28] above), it is possible to calculate the amount by which the cross demand exceeds the amount claimed in the Bankruptcy Notice. Alternatively, the cross demand is for an amount between that set out above in respect of each of the wages and long service leave claims, and, up to and including, the higher amount referred to in Ms Quek’s Affidavit, namely $30,243.10 for wages and $15,421.68 for the long service leave payment. Again, it is possible to calculate, albeit within a range, but a relatively small range, the amount by which the cross demand exceeds the amount claimed in the Bankruptcy Notice.
For the above reasons the Court does not consider that Pro Trader’s claim with respect to Ms Quek not having met the requirements of r.3.02(3) of the FCC Bankruptcy Rules has been made out.
If the above conclusion with respect to r.3.02(3) of the FCC Bankruptcy Rules is wrong, then the Court needs to consider whether or not any failure to comply with r.3.02(3) of the FCC Bankruptcy Rules can be excused.
In James v Commonwealth Bank of Australia [2015] FCA 582; (2015) 236 FCR 379 at [43]-[48] per Katzmann J the Federal Court observed as follows with respect to this issue (in the context of a challenge to the rationale in this Court’s judgment in Burrell):
43 There is certainly an arguable case that the primary judge erred in concluding that he had no power to grant Mr James an extension of time or to dispense with strict compliance with r 3.02.
44 In Burrell Judge Manousaridis referred, amongst other things, to three decisions of this Court which the primary judge did not mention in his reasons and which tell against his Honour’s conclusion. It is sufficient for present purposes to refer to one – Hussain v King Investment Solutions Pty Ltd (2006) 153 FCR 428 – which was a case where the debtor failed to serve his application to set aside a bankruptcy notice within the three days required by the rules (then r 30.02(4) of the Federal Magistrates Court Rules 2001 (Cth), which Judge Manousaridis observed was in substance the same as r 3.02(3) of the Bankruptcy Rules). There, Gyles J said at [25] [26]:
There is a critical difference between rules of court, on the one hand, and statutory obligations on the other. … [T]here 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.
45 In Burrell the judgment creditor relied on a decision of Edmonds J in O’Meara v Deputy Commissioner of Taxation [2009] FCA 1575 to the effect that a failure to file an affidavit as required by r 3.02 of the Federal Court (Bankruptcy) Rules 2005 (Cth), which is the same as r 3.02 of the Bankruptcy Rules, “mandates what is required for an application to set aside a bankruptcy notice”, so that if there is non-compliance, “it is as if no application to set aside the Bankruptcy Notice was ever filed”. But Judge Manousaridis said at [47] that O’Meara could not be regarded as authority for the proposition that the court had no power under r 1.06(1) of the Federal Circuit Court Rules to dispense with compliance with any of the Bankruptcy Rules for no application was made to Edmonds J that he do so and his Honour’s attention was never drawn to the three judgments of this Court to the contrary.
46 While I have not had the benefit of full argument on this question, I must say that, far from being “plainly wrong”, the reasoning in Burrell seems to me to be compelling.
47 In Burrell, Judge Manousaridis also held that the debtor’s failure to comply with r 3.02 of the Bankruptcy Rules were formal defects or irregularities which the court could excuse. In this respect, his Honour relied on s 57(1) of the Federal Circuit Court of Australia Act 1999 (Cth), which provides that proceedings in that court are not to be invalidated by a formal defect or irregularity unless the court is of the opinion that substantial injustice has been caused by the defect or irregularity which cannot be remedied by an order of the court.
48 In the present case, the primary judge did not advert to the reasons given in Burrell, let alone explain what was wrong with them. In the circumstances, it is impossible to understand how he could have come to the conclusion that the decision was plainly wrong: see Informax International Pty Ltd v Clarius Group Ltd (2011) 192 FCR 210 at [53] [56] (Perram J).
In Beaman v Bond & Anor [2015] FCCA 2311; (2015) 301 FLR 427; (2015) 14 ABC(NS) 1 (“Beaman”) this Court made detailed observations with respect to Burrell. In Beaman at [17]-[22] per Judge Lucev this Court said as follows:
17. In Burrell the issue was whether non-compliance with r.3.02 of the FCC Bankruptcy Rules could be forgiven by the Court under r.1.06(1) of the FCC Rules or r.3.05(1) of the FCC Rules which allowed the Court to extend a time fixed by the FCC Rules. The Court held that it had power under r.1.06(1) of the FCC Rules to dispense with the requirements of r.3.02 of the FCC Bankruptcy Rules if it was in the interests of justice to do so: Burrell at [41], [47]-[48], [55] and [81] per Judge Manousaridis.
18. In Burrell the Court noted that the FCC Bankruptcy Rules were rules made by the Judges of the Court for or in relation to the practice and procedure to be followed in the Court under s.81(1)(a) of the FCCA Act, and were therefore, rules intended to govern the practice and procedure of the Court in relation to its bankruptcy jurisdiction: Burrell at [38] per Judge Manousaridis. The Court went on to observe that, as with all rules and forms of procedure, the FCC Bankruptcy Rules were not ends in themselves, but means to an end, namely, the attainment of justice: Burrell at [39] per Judge Manousaridis, citing Union Bank of Australia v Harrison, Jones & Devlin Ltd [1910] HCA 44; (1910) 11 CLR 492 at 504 per Griffith CJ (“Union Bank”).
19. In Burrell the terms of the relevant rules in the FCC Bankruptcy Rules and FCC Rules were set out: Burrell at [40] per Judge Manousaridis, (and see [2], [11] and [13] above) and the Court went on to observe that on a literal reading the FCC Rules did not apply to the FCC Bankruptcy Rules, but that in the Court’s opinion to read the FCC Rules literally would be unwarranted given the terms of s.33(1) of the Bankruptcy Act permitting an extension of time in relation to matters under the Bankruptcy Act, and the Court observed that it “would be odd if the Court had power to extend times limited by the [Bankruptcy] Act, but no power to extend time limited by the rules of procedure” in the FCC Bankruptcy Rules, and therefore both r.1.06(1), the dispensation rule, and r.3.05, the extension of time rule, of the FCC Rules applied to the FCC Bankruptcy Rules: Burrell at [41] per Judge Manousaridis.
20. The fact that it might be “odd” if the Court had power to extend time limited by the Bankruptcy Act, but not power to extend times under the FCC Bankruptcy Rules, is of itself of no consequence in relation to whether compliance can be dispensed with. What is required is that the “other rules of the Court” under r.1.03(2) of the FCC Bankruptcy Rules, be “not inconsistent with” the FCC Bankruptcy Rules. Thus, if there be a rationale for the finding expressed in paragraph [41] of Burrell, it must be that the provisions of rr.1.06(1) and 3.05 of the FCC Rules are not inconsistent with r.3.02 of the FCC Bankruptcy Rules.
21. Following the rationale of the High Court’s judgment in Adams v Lambert [2006] HCA 10, (2006) 228 CLR 409; (2006) 80 ALJR 679; (2006) 225 ALR 396; (2006) 3 ABC(NS) 835 this Court in Burrell found that s.306(1) of the Bankruptcy Act, which provides that proceedings under the Bankruptcy Act are not invalidated by a formal defect or irregularity subject to no irremediable substantial injustice having been caused by a formal defect or irregularity, probably did not apply because r.3.02 of the FCC Bankruptcy Rules did not give rise to a formal defect or irregularity under the Bankruptcy Act because the FCC Bankruptcy Rules were made under the provisions of s.81 of the FCCA Act: Burrell at [52] per Judge Manousaridis. The Court did however go on to find that the provisions of s.57(1) of the FCCA Act, in essentially the same terms as s.306(1) of the Bankruptcy Act, did apply, a defect or irregularity being a failure to comply with the requirement to be found in the FCCA Act, namely, the requirement to duly comply with r.3.02 of the FCC Bankruptcy Rules: Burrell at [53]-[54] per Judge Manousaridis.
22. The Court agrees with the conclusion in Burrell that any formal defect or irregularity which would otherwise invalidate these proceedings would be subject to s.57(1) of the FCCA Act, and it follows that such formal defect or irregularity would not be the subject of s.306(1) of the Bankruptcy Act. For reasons which follow, however, it is unnecessary to consider in any detail the issue of invalidity inherent in the requirements for the application of s.57(1) of the FCCA Act or s.306(1) of the Bankruptcy Act.
Beaman was appealed, unsuccessfully, but not in relation to any issue associated with the above comments by this Court concerning Burrell: see Beaman v Bond & Anor [2017] FCAFC 142; (2017) 254 FCR 480; (2017) 15 ABC(NS) 250.
If there has been a failure by Ms Quek to comply with r.3.02(3) of the FCC Bankruptcy Rules the Court is of the view that no substantial injustice affecting Pro Trader has thereby been effected. No person or ordinary reasonable intelligence, let alone a lawyer trained to look at words and ascertain their meaning or substance, could fail to understand from Ms Quek’s Affidavit that she makes a claim, here a cross demand, in respect of alleged underpayment of wages and non-payment of long service leave, and in the amounts, or within the range of amounts, set out above: see [28] and [45] above. It is also plain from both the written and oral submissions that Pro Trader understands that that is the factual substance of the claims made by Ms Quek. The fact that those claims do not yet have a legal slot or slots into which they might be pigeon-holed, for example, a common law contract claim, or a statutory fair work claim, in respect of the underpayment of wages, or a claim under the Long Service Leave Act 1958 (WA) for non-payment of long service leave (a claim which can probably also be brought under the relevant provisions of the FW Act), does not alter the factual substance of the claims made. In any event, the legal characterisation of those claims are matters of law, not fact, and therefore inappropriate for inclusion in an affidavit. Thus, to the extent that there is any non-compliance with r.3.02(3) of the FCC Bankruptcy Rules, the Court is of the view that s.57(1) of the FCCA Act applies to cure the defect or irregularity thereby arising. For the reasons set out above no substantial injustice is caused by treating the defect or irregularity as remedied pursuant to s.57(1) of the FCCA Act.
The Court notes that Ms Quek asserts that there was an agreement reached between Pro Trader, herself and another employee, that in return for the resignation of the other employee and Ms Quek as directors and employees there would be a payment of $150,000 to be paid to her and the other employee, and that the other employee has been “paid … in full”: Ms Quek’s Affidavit at [6]. It is simply not possible for the Court to have regard to this claim (if indeed such a claim be made in these proceedings) because of the lack of particularization. Whilst the other employee is said to have been paid in full, there is no indication as to how much the other employee was paid, and how much (if anything) therefore remains to be paid to Ms Quek. The Court further notes that the claim is disputed by Pro Trader, and that the existence of any agreement to pay a sum of up to $150,000 to Ms Quek is denied. It is unnecessary, and not the task of the Court at this stage in any event, to make any determination of the merit of the respective claims with respect to Ms Quek’s claim concerning the $150,000: it suffices to note that it is not particularized, and the Court cannot ascertain either with any certainty, or at all, the amount that Ms Quek says is owed to her as a consequence of the $150,000 claim. In those circumstances, the Court has had no regard to the purported claim for the purposes of determining these issues: Patane at [72]-[75] per Lander J; James, FLR at 24-25 per Deane and Lockhart JJ.
In the circumstances set out above, the Court is satisfied that Ms Quek has an arguable claim, or one of “sufficient substance”: Garrett at [38] per Beach J, with respect to:
a)unpaid wages in the sum of at least $27,745.96: see [28]-[33] above; and
b)long service leave liability unpaid in the amount of at least $2,918.17: see [34] above,
and in all of the above circumstances is satisfied that there is a cross demand available, and that that cross demand is equal to or exceeds the sum of the Judgment Debt set out in the Bankruptcy Notice.
Could the counter-claim, set-off or cross demand have been set up in the Supreme Court Proceedings?
Ms Quek’s submissions
Ms Quek submitted that:
a)Ms Quek's claim for unpaid wages and entitlements could not have been set up in answer to Pro Trader’s application for the costs of the Supreme Court Proceedings. The meaning of “action or proceeding in which the judgment was obtained” is authoritatively dealt with in Chesson v Smith (1992) 35 FCR 594 (“Chesson”), where a bankruptcy notice was issued pursuant to a costs determination arising from the dismissal of an interlocutory application for leave to commence proceedings. The Full Court of the Federal Court held that the relevant “proceeding” for the purposes of s.40(1)(g) of the Bankruptcy Act was either the application for the interlocutory order or the application for a costs order in that interlocutory application. In either case the claim in the substantive proceeding could not have been set up in answer to the application for a costs order because of the nature of the proceedings;
b)in this case, the “proceeding” is the process whereby the taxing officer determined the Taxed Costs: Massih at [46] per Flick J. When making a costs determination, it is no part of the function of a costs assessor to entertain cross-claims which may be brought: Massih at [41] and [43]-[45] per Flick J. Accordingly, Ms Quek's claim for unpaid wages and long service leave could not have been “set up” during the earlier processes undertaken in the Supreme Court Proceedings; and
c)Ms Quek claim for unpaid wages and entitlements could not therefore have been set up in answer to Pro Trader’s application for costs in the Supreme Court Proceedings.
Pro Trader’s submissions
Pro-Trader’s submissions were as follows:
a)Ms Quek's submission implies that the costs determination in the Supreme Court Proceedings constituted a separate action or proceeding. In fact, the proceeding in which Pro Trader obtained the Certificate of Taxation against Ms Quek was the same proceeding in which the merits of Pro Trader's alleged claims were to be argued, being the Supreme Court Proceedings (that is, Pro Trader's application to set aside the Creditor’s Statutory Demand made by Ms Quek);
b)it is common ground that Ms Quek withdrew the Creditor's Statutory Demand immediately prior to the hearing of the application to set it aside, and on that basis, the Supreme Court Proceedings were dismissed with costs;
c)Pro Trader concedes that the administrative process of taxation of Pro Trader's costs in the Supreme Court Proceedings would not have been an appropriate forum for the argument of Pro Trader's counter-claim, set-off or cross demand. The hearing of Pro Trader's application to set aside the Creditor’s Statutory Demand however remained the primary component of the Supreme Court Proceedings, and directly concerned as its subject matter the claims now raised by Ms Quek. Pro Trader therefore says that Ms Quek’s claims were capable of being set up, and argued, in the Supreme Court Proceedings;
d)consistent with the legislative objective sought to be achieved by s.40(1)(g) of the Bankruptcy Act, it has been held that the phrase “could not have been set up” refers to a “cross-claim, set-off or cross demand” which could not have been set up as a matter of law: a mere failure to take advantage of an opportunity to do so does not fall within s.40(1)(g) of the Bankruptcy Act;
e)Ms Quek had occasion to argue the merits of the cross demand she now brings in this proceeding in the Supreme Court Proceedings but instead withdrew the Creditor's Statutory Demand and consented to an order against her for the Taxed Costs, depriving herself of the opportunity to set up the cross demand now made by virtue of her own decision;
f)Chesson and Massih are judgments in which bankruptcy notices were set aside because of counter-claims, set-offs or cross demands that could not have been set up in the action or proceeding in which the judgments or orders were obtained;
g)Chesson and Messih reflected the fact that the legal particulars of those cases meant that the debtors had no legal opportunity to agitate their claim in the original action or proceeding in which the judgment or order was derived;
h)in Chesson, the respondent filed in the Supreme Court of New South Wales a summons seeking leave to commence proceedings out of time. The application for extension of time was dismissed with costs, and subsequently a certificate of taxation was issued for the amount of the appellant's costs. The respondent filed affidavits pursuant to s.41(7) of the Bankruptcy Act to the effect that she had a counter-claim against the appellant which she claimed could not have been set-up in the Supreme Court;
i)in setting aside the Bankruptcy Notice in Chesson at [8]-[9] per Beaumont, Gummow and Cooper JJ, the Federal Court held that:
[8] ... In the present case, although the order for costs is by virtue of section 40(3)(b) of the Act deemed to be a final order obtained in the action in which it was obtained, the order of Master Windeyer dismissing the application for leave was itself interlocutory - see Hall v Nominal Defendant, ( 1966) 117 CLR 423. It follows, in our view, that the claim for final relief, the subject of the respondent's cross-demand, could not have been set-up in answer to the appellant's application for a costs order made in the interlocutory application.
[9] In other words, to adopt the language of Burchett J in Pollnow's case, the position is as follows. The relevant, “proceeding”, for the purposes of section 40(1)(g), is either the application for the interlocutory order for leave or the application for a costs order in that interlocutory application. In either case the common law claim could not have been set up in answer to the creditor's application for a costs order in the interlocutory matter. That follows from the nature of the proceeding ...
j)Chesson stands as authority for the proposition that in the case of an interlocutory proceeding, the "proceeding" for the purposes of s.40(1)(g) of the Bankruptcy Act is regarded as either the interlocutory application itself or the costs determination that follows. Applying that to the present case, the term "proceeding" applies to:
i)Pro Trader's application to set aside the Creditor's Statutory Demand; and
ii)the taxation of costs that ensued within the application to set aside the Creditors’ Statutory Demand;
k)Chesson is, however, distinguishable from the present circumstances in that the originating application in that "proceeding" was an application for extension of time which was dismissed, and did not therefore allow for claims to be set up in answer to the interlocutory application, given that extension of time applications are by their nature of narrow compass, whereas in the present circumstances, the Supreme Court Proceedings were commenced on the basis of the claims in the Creditor's Statutory Demand, which claims now form the basis for Ms Quek’s cross demand;
l)in Massih the parties were involved in litigation in the Equity Division of the Supreme Court of New South Wales regarding the nature of the arrangement between them in respect to the development of a property. During the course of the proceedings in the Supreme Court of New South Wales a costs order was made in favour of the respondent Mr Esber which was later assessed to be in the sum of $77,498.96. Judgment was subsequently entered against the applicant in the New South Wales District Court on 19 December 2007. A bankruptcy notice was served on 11 February 2008 requiring either payment or the making of an “arrangement to the creditor's satisfaction for settlement of the debt” within 21 days. Annexed to the bankruptcy notice was a Certificate of Judgment of the New South Wales District Court certifying the recovery of judgment in that court. The “counter-claim, set-off or cross demand” relied upon by the applicant was his right to set-off the losses incurred in respect to the development of the Merrylands property;
m)on 8 May 2008 a Notice of Motion was filed in the Supreme Court of New South Wales seeking leave to file and serve a cross-claim or seeking a variation of the judgment by way of a declaration that “the defendant is entitled to contribution from the plaintiff to half of any losses from the development and sale of the property”. An Amended Notice of Motion was resolved on 31 July 2008;
n)in Massih at [43], [44] and [46] per Flick J in setting aside the bankruptcy notice the Federal Court stated as follows:
[43] For the purposes of s 40(1 )(g) of the Bankruptcy Act, the inquiry is thus directed to determining whether or not in that proceeding in the District Court whereby the Certificate was filed, the Applicant “could not have set up” his claim to bring losses in the development of the Merrylands property into account. Those claims could not have been “set up” during the earlier administrative processes being undertaken by the costs assessor.
[44] Nor is it considered that the Applicant's claims could have been set up in the “action or proceeding” in the District Court. The present Respondent, having obtained the Certificate of Determination of Costs, thereafter filed the Certificate with the District Court and it was s 368(5) of the 2004 Act which gave effect to that Certificate as a “judgment” of the District Court. No submission was advanced that the filing of the Certificate with the District Court did not constitute an “action or proceeding” for the purposes of s 40(1)(g).
…
[46] The result of the present Application, it is considered, can be stated simply. For the purposes of the present Application, it was accepted that the joint venture agreement as between the Applicant and the Respondent gave rise to losses, those losses being said to be approximately $160,000. Those losses obviously exceed the judgment debt of $77,498.96. But, as at the date upon which the Bankruptcy Notice was served in February 2008, no account had been taken - as had been ordered by Hall J in March 2007. Whether an account had or had not been taken, however, those losses could not have been set up during the process whereby the costs assessor made a determination as to costs. Nor could those losses have been set up in opposition to the filing of the Certificate of the costs assessor with the District Court and the judgment thereafter being taken to have been made by reason of s 368(5) of the Legal Profession Act.
o)in Massih the Federal Court therefore held that the judgment debtor could not have set up their counter-claim, set-off or cross demand in the following actions or proceedings:
i)the administrative processes of the costs assessor in the Supreme Court of New South Wales; and
ii)the judgment creditor's filing of its Supreme Court of New South Wales costs order in the District Court of New South Wales for enforcement purposes.
Pro Trader further submitted that Ms Quek failed to establish the mandatory third requirement for setting aside a bankruptcy notice pursuant to the FCC Bankruptcy Rules, that is, Ms Quek did not adduce any evidence that the counter-claim, set-off or cross demand alleged as early as 10 September 2013 could not have been raised in the Supreme Court Proceedings which commenced on 17 April 2014 and were dismissed (along with Ms Quek's Creditor’s Statutory Demand) by consent on 31 July 2014, and in this respect:
a)in the Supreme Court Proceedings Ms Quek did in fact attempt to set up the cross demand and, by consenting to the withdrawal of her Creditor’s Statutory Demand and the payment of the Taxed Costs, failed to do so: Watkins’ Affidavit at [4]-[7] and [18]-[21];
b)Ms Quek has claimed in this proceeding that the basis for withdrawing her Creditor's Statutory Demand was “I was forced to withdraw [the demand] over alleged technical deficiencies over its form, and I withdrew it for that reason alone”: Ms Quek’s Affidavit at [9], but she has not explained expressly or by inference:
i)what the alleged technical deficiencies were that occasioned the withdrawal of the Creditors Statutory Demand;
ii)why Ms Quek has not reissued an amended Creditor's Statutory Demand for the sums claimed against Pro Trader since the dismissal of the Supreme Court Proceedings; or
iii)why Ms Quek has not commenced proceedings in any other forum for the sums claimed against Pro Trader since the dismissal of the Supreme Court Proceedings;
c)Pro Trader, having obtained a Certificate of Taxation on 23 February 2015 for the Taxed Costs: Watkins’ Affidavit, Annexure FAW-3 at page 40, attempted on several occasions after the dismissal the Supreme Court Proceedings and the issuance of the Certificate of Taxation to contact Ms Quek to finalise this matter: Watkins’ Affidavit at [10]-[13]; Annexures FAW-3 to FAW-6. Pro Trader did not receive any response until 11 December 2015, two days after the service of its Bankruptcy Notice upon Pro Trader: Watkins’ Affidavit, Annexure FAW-7 at page 48. Further attempts by Pro Trader to discuss these matters after Ms Quek's response was received were made, but produced no response by Ms Quek, other than the issuance of this proceeding: Watkins’ Affidavit, Annexure FAW-8 at page 49;
d)it is Pro Trader's submission that Ms Quek's cross demand is not bona fide, has been effectively abandoned by Ms Quek since 31 July 2014, and is only being agitated again at this late stage in an attempt to defeat Pro Trader’s Bankruptcy Notice; and
e)because Ms Quek's Affidavit does not state why the cross demand claimed was not raised in the Supreme Court Proceedings, the statutory requirements for a set aside application have not been met.
Consideration – could the cross demand have been set up in the Supreme Court Proceedings
The consideration of whether the cross demand now made by Ms Quek could have been set up in the Supreme Court Proceedings does not require a detailed consideration of cases such as Chesson and Massih. The fact of the matter is that the cross demand now made was set up in the Supreme Court Proceedings, and was the very demand made by the Creditors Statutory Demand. As submitted by Ms Quek (see [22(a)] above) the two demands are “identical”. Ms Quek subsequently decided to withdraw the Creditors Statutory Demand because of perceived technical deficiencies (which were not elaborated upon before this Court), resulting in the dismissal of Ms Quek’s application in the Supreme Court Proceedings. Nothing in the evidence in these proceedings indicates that the cross demands now made, which were the demands made in the Creditors Statutory Demand in the Supreme Court Proceedings, were not demands that were properly made in those proceedings. There has been no suggestion that Ms Quek could not have filed an amended Creditors Statutory Demand in the Supreme Court Proceedings, or filed a new application with a new creditors statutory demand in further Supreme Court proceedings, but for reasons which remain unexplained in these proceedings, she did not do so. Simply put, the cross demands in these proceedings are the same demands which were made in the Supreme Court Proceedings, and which, but for technical deficiencies (which do not affect the nature of the demands themselves), were demands capable of being heard in the Supreme Court Proceedings.
In any event, Chesson is distinguishable because the relevant proceedings in that matter were interlocutory, and the costs order was made on an interlocutory application which was not final. In the present proceedings the costs order in the Supreme Court Proceedings in relation to the Creditors Statutory Demand is a final order arising from the dismissal of those proceedings in which the demand made was the same demand as is now made by Ms Quek in her cross demand in these proceedings. The costs order in the Supreme Court Proceedings thus arises from the dismissal of the very demands which are now sought to be made by way of cross demand in these proceedings.
Like Chesson, Massih is distinguishable because in Massih there was no opportunity to argue about the matter the subject of the cross demand in the proceedings which gave rise to the costs order. As explained at [57] above, the position is quite different here. Massih is further distinguishable because the costs order in that case was a costs order made pursuant to the provisions of the Legal Profession Act 2004 (NSW) (“LP Act”) under which it is no part of the function of the costs assessor to entertain cross-claims or cross demands: Massih at [41] per Flick J. Thus, although the costs assessor’s determination is final, subject to review provisions in the LP Act, the costs assessor is precluded from dealing with the merit of any counter-claims or cross demands. Absent the apparent technical deficiencies in the Creditors Statutory Demand there would have been no such preclusion on the Supreme Court in determining the demands made in the Creditors Statutory Demand, which the Court has already observed, are the same demands now made as cross demands in these proceedings.
For the above reasons, the Court is of the view that the cross demands now made by Ms Quek in these proceedings could have been, and in fact were, set up by her in the Supreme Court Proceedings, and there is therefore no basis for the Court to be satisfied that the cross demand could not have been set up in the Supreme Court Proceedings. On this basis, the necessary requirements for the Court to set aside the Bankruptcy Notice: see [20], and in particular [20(c)], above, have not been made out, and it follows that the application to set aside the Bankruptcy Notice must be dismissed.
Abuse of process
Although the final orders sought by Ms Quek sought that the Bankruptcy Notice be set aside as an abuse of process: see [3] above, there was no written submission or oral argument put to that effect: see [22]-[23] and [54] above. Even if such a submission or argument was put it could not succeed for the reasons set out below.
In considering whether the issuance of a bankruptcy notice is an abuse of process it must be borne in mind that an express object of a bankruptcy notice is to persuade the debtor to pay the debt the subject of the bankruptcy notice, and it is unarguable to say that issuing the bankruptcy notice as a means to secure payment, or with an intention or hope that the debt would be paid, is an abuse of process where sequestration proceedings are intended to be invoked upon noncompliance: Slack v Bottoms English Solicitors [2002] FCA 1445 (“Slack”) at [20]-[21] per Spender J. If the purpose of a bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke a court's jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process: Brunninghausen v Glavanics [1998] FCA 230. It is not an abuse of process if a creditor genuinely intends to pursue the matter if there is default in complying with the notice and there is no evidence of collateral purpose or undue pressure: Killoran v Duncan [1999] FCA 1574 (“Killoran”) at [12]-[13] per Gyles J. The relevant time to judge abuse of process is the time at which a bankruptcy notice is issued, and subsequent events generally have less relevance: Killoran at [13] and [15] per Gyles J.
The onus of proving the existence of a collateral purpose lies on the debtor: Cavoli v Etl [2007] FCA 1191; (2007) 5 ABC(NS) 363 at [17] per Heerey J, and more than mere assertion is required: Watts v Adelaide Bank Limited [2009] FCA 420.
In order to make out an abuse of process a party must establish more than:
a)the mere obtaining of a judgment;
b)the issuance of a bankruptcy notice; and
c)the existence of a proceeding challenging the judgment: Seller v Deputy Commissioner of Taxation [2011] FCA 865; (2011) 84 ATR 501; (2011) 282 ALR 80; (2011) 9 ABC(NS) 195 (“Seller”) at [25] per Flick J.
There is no evidence that, in serving the Bankruptcy Notice on Ms Quek, Pro Trader seeks to do anything other than genuinely invoke the sequestration jurisdiction of this Court should Ms Quek fail to comply with the Bankruptcy Notice. There is no evidence of Pro Trader:
a)having any collateral purpose; or
b)having applied any undue pressure to, or in relation to, the alleged debt owed by, Ms Quek.
It follows from the foregoing that to the extent that Ms Quek submits that the Bankruptcy Notice ought to be set aside as an abuse of process, that submission must fail.
Conclusion and orders
The Court has concluded that Ms Quek has failed to make out her case that 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 being a counter-claim, set-off or cross demand that could not have been set up in the Supreme Court Proceedings, or that the issuance of the Bankruptcy Notice was an abuse of process.
It follows from the above conclusion that there will be an order that the application to set aside the Bankruptcy Notice be dismissed.
The Court will hear the parties as to costs.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Date: 11 October 2018
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