Sarina v O'Shannassy (No 7)

[2024] FedCFamC2G 102

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 2)

Sarina v O’Shannassy (No 7) [2024] FedCFamC2G 102  

File number(s):

SYG 1339 of 2018

Judgment of:

JUDGE CAMERON

Date of judgment:

9 February 2024

Catchwords:

BANKRUPTCY – Provable debts – unliquidated damages in tort - whether damages flowing from a verdict for the applicant with unliquidated damages to be assessed which was ordered before the respondent’s bankruptcy would be a debt provable in the bankruptcy.   

Legislation:

Bankruptcy Act 1966 (Cth), ss 58, 82

Cases cited:

Sarina v O’Shannassy (No 5) [2020] FCCA 2911

Sarina v O’Shannassy (No 6) [2020] FCCA 3422

Sarina v O’Shannassy [2021] FCA 1649

Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234

Foots v Southern Cross Mine Management Pty Ltd & Ors (2007) 234 CLR 52

Alexander v Ajax Insurance Co Ltd [1956] VLR 436

Division:

General

Number of paragraphs:

15

Date of last submissions:

3 March 2023

Date of hearing:

On the papers

Place:

Sydney

Counsel for the Applicants:

Mr C. Bolger

Solicitor for the Applicants:

Kalantizis Lawyers

Counsel for the Respondent:

The Respondent in person

ORDERS

SYG 1339 of 2018

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)

BETWEEN:

CLINTON SARINA

First Applicant

MARTIN GREEN

Second Applicant

AND:

JOHN O'SHANNASSY

Respondent

ORDER MADE BY:	JUDGE CAMERON
DATE OF ORDER:	9 FEBRUARY 2024

THE COURT ORDERS THAT:

1.The matter be listed for further directions.

Note: The form of the order is subject to the entry in the Court’s records.

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

REASONS FOR JUDGMENT

JUDGE CAMERON

INTRODUCTION

1. The applicants, Mr Sarina and Mr Green, commenced this proceeding on 11 May 2018 alleging that the respondent, Mr O’Shannassy, had defamed them in an email.  The procedural history of the proceeding is that:

   (a)four interlocutory judgments were delivered by this Court over the duration of the action at first instance;

   (b)on 30 October 2020 the action was, in substance, dismissed:  Sarina v O’Shannassy (No 5) [2020] FCCA 2911;

   (c)on 17 December 2020 orders for costs were made:  Sarina v O’Shannassy (No 6) [2020] FCCA 3422;

   (d)the applicants appealed to the Federal Court of Australia;

   (e)on 19 November 2021 Rares J allowed the appeal and ordered that the matter be remitted to this Court for an assessment of damages: Sarina v O’Shannassy [2021] FCA 1649 (Appeal Judgment);

   (f)on 29 April 2022 Mr O’Shannassy filed a debtor’s petition and became bankrupt.

2. These reasons concern a preliminary issue, namely whether any damages ascertained in accordance with the orders of the Federal Court would be a debt provable in Mr O’Shannassy’s bankruptcy. A debt provable in the bankruptcy could not be assessed in this proceeding absent leave of the Court under s.58(3)(b) of the Bankruptcy Act 1966 (Cth) (Act).  A debt that is not provable in bankruptcy is “outside the reach of the statute”:  Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234 at 257 [70] and remains enforceable after the bankrupt is discharged from bankruptcy.

3. Mr O’Shannassy contended that any damages to be awarded would be a debt provable in his bankruptcy whereas the applicants contended the contrary.

   LEGISLATION

4. The Act relevantly provides:

   58       Vesting of property upon bankruptcy – general rule

   …

   (3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

   (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

   (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

   …

   82       Debts provable in bankruptcy

   (1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

   …

   (2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.

   …

   SUBMISSIONS

   Respondent

5. Mr O’Shannassy argued that the obligation to pay damages had been created by the Appeal Judgment, which was delivered before the date of his bankruptcy, and so under s.82(1) of the Act would be a debt provable in the bankruptcy. In making that argument Mr O’Shannassy relied by analogy on the authority of Foots v Southern Cross Mine Management Pty Ltd & Ors (2007) 234 CLR 52 where it was stated that had a costs order been made and taxed before the debtor’s bankruptcy ensued, it would have been a provable debt and that:

   Even if the order had not been taxed before bankruptcy, it would nonetheless have been provable as a debt incurred “by reason of an obligation incurred before the date of the bankruptcy”; namely the antecedent making of the costs order  (at 76 [67]).

6. Mr O’Shannassy pursued that contention by arguing that s.82(2) of the Act did not apply to his case, saying that damages cannot be characterised as a demand in the nature of unliquidated damages. In support of that contention Mr O’Shannassy quoted Kirby J in Coventry v Charter Pacific Corporation at 276 [144], where his Honour said:

   …The sub-section talks of a “demand”. In our system of law, “demands” are formulated by those who demand. Commonly, they make such demands by oral claims, letters before action and eventually by pleading a claim in a court of law. Such a pleading could not be conclusive. In every case it would remain for the court to characterise the “demand”. This is made clear by the use of the expression “in the nature of” in s 82(2). The court deciding the character of the demand looks at the nature of the demand. It is not confined to the language of its formulation. But as a practical rule of thumb, where proceedings have been brought, the formulation of the demand in those proceedings will ordinarily be the best evidence of the true character of the plaintiff’s “demand”. At least this approach is more certain. It is supported by precedent. Until a more comprehensive and reformed law is adopted by the Parliament, that would be the solution I would favour.

   Applicants

7. The applicants submitted that because the damages ordered by Rares J were founded on an action in defamation they were unliquidated, that is to say uncertain and depending on an assessment of the loss suffered. In that connection they pointed, amongst other things, to the fact that damages in this matter remain to be assessed. The applicants submitted that because the claim is for unliquidated damages, s.82(2) of the Act applies with the consequence that the damages ordered are not provable in Mr O’Shannassy’s bankruptcy.

8. In response to Mr O’Shannassy’s submissions concerning Foots, the applicants argued that for a “contingent” liability to arise under s.82(1) of the Act, there must be an obligation upon which the contingency can operate at the date of bankruptcy. The applicants submitted that it was common ground in this case that any liability, in the form of a debt or obligation to pay, had not been assessed and was therefore unknown. They also argued that Rares J had remitted this matter on “the question of damages” not on the “quantum of damages”. They said that an order of that sort could not be equated with the creation of a right to damages with the consequence that Mr O’Shannassy had not been liable to pay damages before becoming bankrupt.

   CONSIDERATION

   The issue remitted to this Court

9. The applicants’ submission that the matter was remitted to this Court to determine “the question of damages” rather than to assess damages is incorrect.  The relevant order of the Federal Court was:

   6. The matter be remitted for the assessment of the appellants’ damages to the Federal Circuit and Family Court of Australia (Division 2) pursuant to s 28(1)(f) of the Federal Court of Australia Act 1976 (Cth) and be heard by a judge other than the primary judge.

   (emphasis added)

   That order reflects his Honour’s reasons at [94]-[99] of the Appeal Judgment.

10. To that extent, the facts of this case echo those in Foots and I agree with the applicants’ submission that:

    The facts and circumstances encompassing the issue in the present proceedings do have some similarity to the issues dealt with in Foots in that in both instances judgment in favour of the successful party was delivered before the unsuccessful party was declared bankrupt (on their own petition) …

    I also agree with Mr O’Shannassy’s submission that:

    ... Rares J awarded judgment for the Appellants and remitted the matter for assessment of the Appellants’ damages to the Federal Circuit and Family Court of Australia for a hearing on the quantum of damages.

11. As such, Mr O’Shannassy was liable to pay an amount of damages to the applicants from the date of the Appeal Judgment, which was before he became bankrupt.

    The nature of the liability

12. Notwithstanding the foregoing comments, the point in time when any liability to pay damages accrued is not the determinative issue in this proceeding. Section 82(1), which is relevantly concerned with when liabilities and obligations arise is subject to s.82(2), which is concerned with the nature of such liabilities and excludes unliquidated tortious liabilities from s.82(1)’s reach. Consequently, the nature of Mr O’Shannassy’s liability to pay damages for defamation, rather than the date of its accrual, determines whether the obligation is governed by the Act.

13. Defamation is a tort and Mr O’Shannassy has been found to have defamed the applicants.  Damages for defamation are uncertain and depend on an assessment of the loss suffered and so are unliquidated.  They are neither a debt nor a liquidated demand of the sort considered in Alexander v Ajax Insurance Co Ltd [1956] VLR 436. That being so, they are not a provable debt under s.82 of the Act.

    CONCLUSION

14. I find that Mr O’Shannassy’s liability to pay damages to the applicants is not a debt provable in his bankruptcy and that consequently the Court can proceed to assess damages as ordered by the Federal Court.

15. The matter will stand over for directions.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron.

Associate:

Dated:       9 February 2024