Sims v Suda Ltd
[2015] FCCA 2934
•27 October 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SIMS v SUDA LTD | [2015] FCCA 2934 |
| Catchwords: BANKRUPTCY – Application to set aside a bankruptcy notice – extension of the period within which to comply with the bankruptcy notice – whether indemnity clause in employment contract covers costs order made against the applicant – indemnity did not apply – application dismissed. |
| Legislation: Acts Interpretation Act 1901, s.15C Bankruptcy Act 1966, subs-s.30(1)(b), 40(1)(g), 41(6A) |
| Byron v Southern Star GroupPty Ltd (1997) 73 FCR 264 Glew v Harrowell [2003] FCA 373 Jagatramka v Coeclerici Asia(Pte) Ltd (No.2) [2015] FCCA 2743 Olivieri v Stafford (1989) 24 FCR 413 Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 Sims v Suda Ltd [2015] FCA 967 Sims v Suda Ltd(No 2) [2015] FCA 281 |
| Applicant: | DOUGLAS ARTHUR SIMS |
| Respondent: | SUDA LTD |
| File Number: | PEG 427 of 2015 |
| Judgment of: | Judge Smith |
| Hearing date: | 27 October 2015 |
| Date of Last Submission: | 27 October 2015 |
| Delivered at: | Perth |
| Delivered on: | 27 October 2015 |
REPRESENTATION
| The Applicant appeared in person. |
| Solicitors for the Respondent: | Mr N. Ebbs, Bennett & Co |
ORDERS
The application for review of the Registrar’s decision made on 1 October 2015 be dismissed.
The applicant pay the respondent’s costs in the sum $2000.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 427 of 2015
| DOUGLAS ARTHUR SIMS |
Applicant
And
| SUDA LTD |
Respondent
REASONS FOR JUDGMENT
(Delivered Ex Tempore & Revised)
Background
The applicant brought proceedings in the Federal Court against the respondent in respect of a number of matters, including an indemnity for legal costs in respect of a settlement deed, money owing in relation to intellectual property issues and fraud. Those were proceedings WAD 255 of 2014. On 27 March 2015, Gilmour J struck out those proceedings in the judgment in Sims v Suda Ltd(No 2) [2015] FCA 281. Amongst other things, his Honour ordered the applicant to pay the respondent’s costs on an indemnity basis.
The applicant then applied for an extension of time and leave to appeal from the judgment of Gilmour J. Justice Siopis gave judgment in that application on 28 August 2015: see Sims v Suda Ltd [2015] FCA 967. His Honour ordered that the application for an extension of time and leave to appeal filed on 16 April 2015 be dismissed and for the applicant to pay the respondent’s costs.
Shortly after, on 1 September 2015, the official receiver issued bankruptcy notice 184276, addressed to the applicant, the creditor being the respondent Suda Ltd. The amount claimed in the bankruptcy notice was $30,284.00 being in respect of the costs order made by Gilmour J on 27 March 2015. The applicant applied to this Court to have that bankruptcy notice set aside. That application was heard and determined by a Registrar of the Court and was dismissed on 1 October 2015. The applicant now seeks a review of that decision.
In the meantime, the respondent has filed a creditor’s petition relying on the failure of the applicant to comply with the bankruptcy notice. The first court date of that petition is in November 2015.
Although there is no express provision in the Bankruptcy Act 1966 (Cth), providing for jurisdiction of this Court to set aside a bankruptcy notice, the source of the power is said to arise from sub-s.30(1)(b) which provides:
(1)The Court:
…
(b)may make such orders … as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
…
See Olivieri v Stafford (1989) 24 FCR 413 and, more recently, Jagatramka v Coeclerici Asia(Pte) Ltd(No.2) [2015] FCCA 2743 at 19 per Judge Manousaridis. I would add that s.15C of the Acts Interpretation Act 1901 (Cth) assists in identifying the source of the power.
Relevant to this application is sub-s.40(1)(g) of the Act which provides:
(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;
…
The effect of that section has been described in various ways which sometimes overlap. The effect was described by Lindgren J in Glew v Harrowell [2003] FCA 373. At [12] his Honour said that the effect of the section was, in broad terms that a debtor must satisfy the court that the counterclaim setoff or cross demand is made in good faith and that:
[12]… there is sufficient substance to the counterclaim, 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.
…
It should be noted that part of the requirement is that the counter-claim, set‑off or cross demand is one that the applicant could not have set up in the action or proceeding in which the judgment or order was obtained. That phrase has been construed narrowly. See Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 139 per Lockhart J. There his Honour said the words that he:
…could not have set up in the action in which the judgment or order was obtained. …
The phrase above meant that the applicant could not, by law, have set up in the action. His Honour there referred to a judgment of Lukin J in Re Stockviss, where his Honour said:
… I take a counter claim, set-off, or cross demand which could not be set up as one which, from the point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained … Mere failure to take advantage of the opportunity can hardly be said to be inability.
The applicant seeks, in the alternative, an extension of the period within which to comply with the bankruptcy notice. The power to do so derives from sub-s.41(6A) of the Act which provides:
…
(6A)Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a)proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
…
The discretion of the Court under that section is, subject to its context, relevantly unconfined. However, because of its context, the Court must take into account whether there exists a genuine and arguable appeal or grounds of adjournment or dismissal and the Court should only extend time for compliance with a bankruptcy notice on the existence of an appeal or application for leave to appeal when no stay has been obtained or sought in an exceptional case. See, for example, Byron v Southern Star GroupPty Ltd (1997) 73 FCR 264 at 270 to 272 per Lehane J. There has been no appeal from, or stay of the orders made by Siopis J dismissing the application for an extension of time and leave to appeal from the orders of Gilmour J.
Litigation history
The reported decisions show that the litigation history of the applicant and the respondent is complex. I do not need to summarise all of it but from what I can see, there have been two or three related sets of proceedings. When I say “related,” I mean to say that they all flow ultimately from the former employment of the applicant by the respondent and his position as an officer of that company. I will come back to the contract of employment in due course.
The first set of proceedings, as far as I am aware, were proceedings in the District Court of Western Australia. There were two sets of these: one relating to employment conditions against the respondent and another against the respondent in connection with certain inventive steps taken by the applicant or otherwise described as intellectual property arguments. These matters found their way into the Supreme Court of Western Australia. Various judgments were made in them and one involving an indemnity clause in the contract of employment was determined by Stone J, an appeal from which decision was then heard and rejected by the Court of Appeal of the Western Australian Supreme Court. There are a number of applications for special leave to the High Court but I am not familiar with the details of those applications or, indeed, the judgments in respect of which special leave is sought.
There have also been proceedings against various legal representatives of the applicant in proceedings brought by him. Amongst those were against his counsel, Mr Jooste QC, and also against a Ms Chong. Mr Sims has also brought proceedings against his solicitors but I know little about those proceedings. The proceedings against Ms Chong were brought by the applicant in the Federal Court before Barker J, who dismissed the claims. However, that decision was overturned on appeal and the proceedings are currently back before Barker J for determination. The proceedings which gave rise to the bankruptcy notice were also in the Federal Court, but were before Gilmour J and were directly against the respondent in connection with certain intellectual property matters amongst other things.
Grounds of application
The applicant raises a number of grounds that he says justifies setting aside the bankruptcy notice. The principal argument relates to the indemnity clause contained in the employment agreement. I will return to that, as that appears to me to be the argument with the most substance.
In his affidavit in support of his application to set aside the bankruptcy notice dated 17 September 2015, the applicant raised five grounds. The first ground is:
(1)The judgment by Justice Gilmour, the subject of this bankruptcy Notice is the subject of a Judgment of the Full Federal Court of Australia and an extension of time until a finding by the Federal Court is handed down, the Bankruptcy time to comply should be extended.
The problem with that ground is that the appeal to which it refers was determined by orders made by Siopis J, namely, to refuse to grant an extension of time and leave to appeal. Therefore, factually, ground 1 has no further relevance.
Ground 2 is:
(2)The Judgment of Gilmour J arises in the Federal Court matter WAD 116 of 2014, which matter is presently before the Federal Court as directed by the Federal Full Court of Appeal. The time to comply with the Notice of bankruptcy 184276 should be extended and permit the progress of the development of law which progress could see the Applicant in a position to pay, or alternately counter claim the costs.
There is a little bit of confusion in this ground. WAD 116 of 2014 is the matter that is before Barker J, not before Gilmour J. Thus while it is correct to say that it was subject of an appeal, there is a factual inaccuracy in the ground. As I noted before, the appeal from the decision of Barker J has been determined and the matter is currently back before his Honour for preparation for hearing. That matter, however, is not a matter that concerns the respondent. It is, rather, a claim by the applicant against a Ms Chong, a legal practitioner in the State of Western Australia who had, at one time, acted for the applicant. Indeed, it was in relation to the matter in which she acted for him that the applicant has brought those proceedings. Thus ground 2 and the proceeding against Ms Chong have no bearing upon the judgment given by Gilmour J for costs against the applicant upon which the bankruptcy notice was founded, and I leave it to one side.
Ground 3 is:
(3)To refuse an application for time to comply would stultify the development of law as it would deny the Applicant, as a disadvantaged litigant in person who suffers severe disability of poverty, sickness and illiteracy at law, to pursue justice. The appointment by the Court of pro bona (sic) representation is not given lightly by the courts, and in this case, greatly assists the development of Law which has previously prejudiced the Applicant.
This ground has not raised any sensible argument which might be considered a counter-claim, cross-claim or set off in respect of the judgment given by Gilmour J. Further, it does not present any real basis for any extension of the time within which to comply with the bankruptcy notice. I struggle to understand what it means, other than that underneath, Mr Sims, as an unrepresented litigant, clearly does find it difficult to clearly express propositions of law which are relevant to the proceedings before the Court. That much is understandable. However, it does not address the questions that are raised by either sub-s.40(1)(g) or s.41 of the Bankruptcy Act.
Ground 4 is that the order subject of the bankruptcy notice revokes the irrevocable indemnity granted to the applicant by the respondent as set out in his employment contract dated 22 October 2007 and is on appeal in the High Court of Australia. To deny an extension of time before the development of law surrounding the indemnity granted to the applicant would be to inflict further injustice against the applicant.
The reference to the appeal in the High Court of Australia is, as I understand it, an application for special leave to appeal from the decision of the Court of Appeal of the Western Australia Supreme Court. I do not have that judgment before me.
However, even if I were to accept that the High Court is now being asked to grant special leave in respect of a question which might have some impact upon the judgment of Gilmour J, namely, that there might be a set off or cross-claim by reason of the indemnity, there is nothing sufficiently specific in the ground for me to determine whether or not it is sufficient in all of the circumstances to warrant setting aside the bankruptcy notice. I do not know, for example, the question which is said to arise on the application, nor do I know precisely the terms of the judgment given by the Court of Appeal. There is reference to a number of cases in ground 4. I have read those cases, but can see nothing in them of assistance to the applicant. For those reasons, I reject ground 4.
Ground 5 sets out the following:
(5)An extension to comply be extended until the findings of the Appeal CACV 128/2004 Sims v Jooste listed for hearing Tuesday 10 November 2015, (P)WAD116 of 2014 and (P)28 of 2015.
The Applicant submits to the Court an extension of time for 160 days to permit the development of Law against the Bankruptcy Application which development should have a material impact on the Applicant’s ability either:
(a)to comply
(b)Counter claim
(c)Cross-claim.
The reference to WAD116/2014 is once again reference to the proceedings before Barker J in the Federal Court, and I do not need to repeat what I said about those proceedings. The other proceedings, Sims v Jooste concerns proceedings against Senior Counsel who had acted for Mr Sims and falls within the same category of the proceeding against Ms Chong. The third is (P)28/2015, which is an application for special leave in the High Court, and I have already dealt with that.
For those reasons, none of the grounds in the applicant’s affidavit of 17 September 2015 satisfies me of the matters referred to in sub-s.40(1)(g) or indeed of the matters required to extend the time under sub-s.41(6A) of the Act.
In his affidavit of 12 October 2015, the applicant raises four grounds:
i.The first repeats ground 4 of the earlier affidavit.
ii.The second is that the Registrar, in dismissing the application to set aside the bankruptcy notice or an extension of time, discriminated against the applicant both at law and fact because the applicant is indemnified against such bankruptcy notice relating to indemnified costs. I will return to this ground.
iii.The third ground is that the appellant is not a lawyer. That effectively repeats ground 3 in the first affidavit.
iv.The fourth ground, to deny to set aside, alternately, an extension of time before the development of law surrounding the indemnity granted to the applicant would be to inflict further injustice against the applicant, effectively repeats ground 2 in the first affidavit.
Indemnity issue
I turn, then, to the indemnity issue. There appears to me to be two questions that arise. The first is whether the indemnity clause actually covers the costs order made against the applicant. The second is that if that is the case, whether it is something that the applicant was unable to raise before Gilmour J. The indemnity clause is cl.14.1 in the contract of employment between the applicant and Eastland Medical Systems Limited (as the respondent was then known). It provided:
14.1 Indemnity
To the maximum extent permitted by law, the Company will indemnify the Executive and keep the Executive indemnified against any Legal Proceedings and any claims of any kind made against, suffered, paid or incurred by the Executive pursuant to, arising from or in any way connected with the Executive being an officer of the Company, the employment of the Executive by the Company any act or omission by the Executive, directly or indirectly, connected therewith, or a breach by the Company of its obligations under this Deed.
Mr Sims also points to cl.14.2, which continues the indemnity, and 14.3, which provides that any substantiated amounts payable by the company under the agreement and the indemnity are due and payable by the company to the executive, that is, Mr Sims, on demand.
Although Mr Sims placed some importance on the continuing nature of the indemnity, in my view, that is beside the point. The real question is, as I have noted, whether the indemnity clause in 14.1 actually covers the circumstances of this case, namely, where Mr Sims sued his former employer and is ordered to pay costs as a result of having those proceedings struck out.
In my view, it does not. The reason is that on the plain reading of the words, it relates to a claim being made against the applicant, rather than a claim being made by him so that the indemnity is against, effectively, two matters: one, legal proceedings, which is a defined term; and claims of any kind made against, suffered, paid or incurred by the executive. The word “made against” is of some importance in the clause.
The qualifier to that is what follows from the words “pursuant to, arising from”. There are four matters that qualify the indemnity, namely, that it is pursuant to, arising from or in any way connected with:
i.The executive being an officer of the company;
ii.the employment of the executive by the company;
iii.any act or omission by the executive, directly or indirectly connected therewith; or
iv.a breach by the company of its obligations under this deed.
It might be suggested that the last of these means that, if the proceedings before Gilmour J concerned breaches by the company of its obligations under the deed, the clause operates so that the respondent must indemnify the applicant against any costs orders against him in those proceedings. That would be an odd result and in light of that this construction is not sufficiently arguable so as to warrant setting aside the bankruptcy notice.
The second issue, if I am wrong about that, is whether or not the indemnity clause, or the applicant’s right under it, is something that could not have been set up in the action or proceeding in which the judgment or order was obtained. Mr Ebbs, who appeared for the respondent, submitted principally that the indemnity clause could not have been set up in the proceedings because the indemnity related to an order for costs which only arose at the end of the proceedings.
That may be so; however, costs in proceedings are an issue in proceedings ordinarily sought by one side or the other, depending on the result in the substantive claims. Particularly in circumstances where the claim is struck out or summarily dismissed, there arises a claim against the unsuccessful party in respect of costs.
It is in those circumstances, in my view, that it was at least open to the applicant to raise the question of the indemnity before Gilmour J and, therefore, at least arguably, it was something that could have been raised before him and, therefore, excludes the argument about the indemnity from the operation of sub-s.40(1)(g). For that additional reason, I consider that the application for review should be dismissed.
On the question of costs, Mr Sims argues that he has an irrevocable indemnity against claims of any kind and that, I infer, means a claim for costs in these proceedings. Perhaps ironically, I have found that that is an argument that could have been made before Gilmour J and, therefore, sub-s.40(1)(g) applied. However, I have also found that the indemnity did not apply in the circumstances such are these proceedings, and for those reasons, I find that the applicant, being unsuccessful, ought to pay the costs of the respondent and I set the amount of those costs at $2000.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Judge Smith
Associate:
Date: 30 October 2015
4
9
3