Skalkos v Tzovaras Legal Pty Ltd
[2008] FMCA 543
•18 April 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SKALKOS v TZOVARAS LEGAL PTY LTD | [2008] FMCA 543 |
| BANKRUPTCY – Second application to set aside bankruptcy notice – Anshun estoppel against raising new formal defect – no defect in judgment referring to business name – judgment based upon assessed legal costs – whether cross‑demand in negligence against solicitor’s company – futile to determine since time for compliance with bankruptcy notice had expired – application dismissed. |
| Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(6A)(a), 41(6A)(b), 41(7), 306 |
| Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331, [2003] FCA 373 Henderson v Henderson (1843) 3 Hare 100, [1843‑60] All ER Rep 378, (1843) 67 ER 313 Hovan v Goycolea-Silva [2003] FCA 378 Hubner v Australia and New Zealand Banking Group Ltd (1999) 88 FCR 445 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Skalkos v Tzovaras Legal Pty Ltd [2008] FMCA 141 Vaughan v Pagotto & Ors (2006) 202 FLR 321 Wren v Mahony (1972) 126 CLR 212 |
| Applicant: | MARY SKALKOS |
| Respondent: | TZOVARAS LEGAL PTY LTD (ACN 092 725 829) |
| File Number: | SYG 375 of 2008 |
| Judgment of: | Smith FM |
| Hearing date: | 18 April 2008 |
| Delivered at: | Sydney |
| Delivered on: | 18 April 2008 |
REPRESENTATION
| Counsel for the Applicant: | Ms B D’Alessandro |
| Solicitors for the Applicant: | BDA Legal |
| Counsel for the Respondent: | Mr T Tzovaras |
| Solicitors for the Respondent: | JT Law |
ORDERS
The application is dismissed.
The applicant must pay the respondent’s costs, including reserved costs, as agreed or taxed under the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 375 of 2008
| MARY SKALKOS |
Applicant
And
| TZOVARAS LEGAL PTY LTD (ACN 092 725 829) |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This is an application filed on 18 February 2008, in which Ms Skalkos applies to extend the time for compliance with a bankruptcy notice, on the ground 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” upon which the bankruptcy notice relies. Further, she seeks an order setting aside the bankruptcy notice on the ground that such a counter claim exists, or on the ground of a defect affecting the formal validity of the bankruptcy notice.
The bankruptcy notice was issued at the request of Tzovaras Legal Pty Ltd, and identifies that company as the creditor for a judgment debt of $59,347.95 as shown in a schedule. Paragraph 2 of the notice claims that the debt is due and owing, and says: “a copy of the judgments or orders relied upon by the creditor is attached hereto and marked ‘Annexure A’”.
There is a certificate of judgment attached to the notice. It indicates that judgment in the sum of $55,600.62 was entered on 23 January 2007 in proceedings in which the plaintiff is identified as “Tzovaras Legal” and the defendant is “Mary Skalkos”.
There is evidence before me indicating that, at the time that the judgment was entered, “Tzovaras Legal” was a registered business name for a business carried on by “Tzovaras Legal Pty Limited”. There is also in evidence an application which was made to the Local Court for registration of a certificate determining costs under the Legal Profession Act, in which the applicant to the Local Court was “Tzovaras Legal Pty Ltd” and the certificate identified the applicant as “Tzovaras Legal”. The extrinsic evidence therefore clearly confirms that the judgment attached to the bankruptcy notice was a judgment entered at the request, and for the benefit, of the creditor company who served the bankruptcy notice, and who is the present respondent in this Court.
It was submitted to me by Ms Skalkos, however, that the fact that the attached judgment referred to the creditor by its business name, and not by its corporate name, was a formal defect affecting the bankruptcy notice, and that it could not be remedied under s.306 of the Bankruptcy Act 1966 (Cth). Obliquely, it was suggested that the presence of the business name on the certificate of judgment might confuse the debtor, and therefore establish a failure to comply with an essential requirement of the Bankruptcy Act.
However, in my opinion there was no failure to comply with an essential requirement of the Bankruptcy Act or its rules or forms. The bankruptcy notice clearly did what it was required to do: it identified the judgment upon which the creditor claimed payment of the debt specified in the bankruptcy notice. There is no ambiguity about the identity of the creditor who was claiming the debt in the bankruptcy notice, nor as to the amount of the claimed indebtedness, nor as to the judgment relied upon to assert that entitlement. In the absence of any defect affecting the form of the bankruptcy notice, this is not a case where s.306 has any room to operate.
In effect, the submission made by Ms Skalkos is an invitation to the Court to look behind the judgment upon which the bankruptcy notice is based, so as to find that in truth and reality no judgment is available to the specified creditor (cf. Wren v Mahony (1972) 126 CLR 212 at 224). However, such an invitation must fail by reason of the extrinsic evidence, which I have referred to above, which shows that the use of the business name in the judgment or order issued by the Local Court in fact identified the person who sought the costs assessment, who was found to be entitled to the costs assessed, who then requested the entry of judgment on the cost certificate, and who then obtained the issue of the bankruptcy notice - that is, the present respondent.
I therefore do not consider that any ground for setting aside the bankruptcy notice based on the contended defect in the Local Court judgment can succeed.
There is another reason why it cannot succeed in the present application. This is because the applicant should be held to be estopped from raising this point in this proceeding, as a result of her previously making an unsuccessful application to the Court to set aside the same bankruptcy notice.
Her first application to set aside the bankruptcy notice was brought in this Court on 25 October 2007. It admitted the service of the bankruptcy notice on 10 October 2007. It, like the present application, contended that the applicant had a cross demand against the present respondent as referred to in s.40(1)(g) of the Bankruptcy Act. Driver FM was satisfied that such a cross demand had not been established, and he dismissed the application on 12 February 2008 (see Skalkos v Tzovaras Legal Pty Ltd [2008] FMCA 141).
His Honour did not address any contention going to the validity of the bankruptcy notice, but expressly noted at [5] of his judgment that “there is no challenge to the validity of the bankruptcy notice based on its form”. Thus, although there is not an issue estoppel in relation to the present contention of a formal defect in the bankruptcy notice, the raising of the contention in the new proceeding faces an estoppel of the type now referred to as an Anshun estoppel (see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) based on the extended principle expressed in Henderson v Henderson (1843) 3 Hare 100, [1843‑60] All ER Rep 378, (1843) 67 ER 313. The raising of an Anshun’s estoppel is based upon the public interest in bringing an end to litigation, which requires parties to put forward all issues which reasonably should be put forward in a proceeding in a Court, so that the Court will not allow an issue which should have been raised in an earlier proceeding to be raised in a second proceeding unless there are circumstances explaining and justifying such conduct.
In the present case, no explanation is put to me, and I can see no reason why the present argument based on form could not have been put to Driver FM. There is at least one precedent where Anshun estoppel has been applied in support of an application to summarily dismiss a second application to set aside a bankruptcy notice (see Hovan v Goycolea-Silva [2003] FCA 378 at 25). In the present case, even if the argument based on form had merit, I would have rejected it under that principle.
Turning to the contention of a cross demand as a ground for setting aside or extending the period for compliance with the bankruptcy notice, the respondent raises several responses. The cross demand which is put forward is a proceeding against Tzovaras Legal Pty Limited in the District Court of New South Wales, alleging professional negligence in various particularised respects in the course of giving a variety of legal services to Ms Skalkos in the years 2003 and 2004.
The acts of negligence are particularised and verified in the pleading and in an affidavit before me, albeit without reference to the evidence supporting such verification. Prima facie a coherent claim of professional negligence has been put forward, and no clear defence has been presented to me by the respondent to these contentions. The claim could not have been put forward in the assessment procedure or in the Local Court in opposition to the judgment debt (see Vaughan v Pagotto & Ors (2006) 202 FLR 321). On the tests referred to by Lindgren J in Glew v Harrowell of Hunt & Hunt Lawyers(2003) 198 ALR 331, [2003] FCA 373 at [8]‑[12], it is at least reasonably arguable that Ms Skalkos has shown in her present application 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”.
However, it cannot be said on the present evidence before this Court that she has shown a “fair chance of success” or a “genuine” claim in a sum of money exceeding the amount of the judgment debt now relied upon by the respondent. The pleading in the District Court is particularly obscure in relation to its particulars of loss and damage. The picture suggested in the pleading and in the affidavit before me is that not all legal services covered by the judgment debt would have been affected by the alleged professional negligence. The basis on which collateral loss is being claimed is entirely obscure on the present evidence, both in relation to causation and quantum. I would not, therefore, at present be satisfied that the evidence before me shows a cross demand as is referred to in s.40(1)(g).
Moreover, I do not consider that I should attempt to arrive at a state of satisfaction as to the cross demand which is put before the Court in the present application.
The respondent argued that I should decline to do that under principles of issue estoppel, arising from Driver FM’s judgment which had addressed the same issue. There is some force in that submission. However, Ms Skalkos argues that she is putting forward in the present application a different cross demand to that which she presented to Driver FM. In the application before him, the cross demand was sought to be found in a claim for professional negligence addressed at a principal in the solicitors firm personally, and not at the company which conducted the legal practice. It is pointed out that the statement of claim currently before the District Court has been amended, so as to substitute the company as defendant, rather than the solicitor.
Ultimately, I consider that there is a clearer reason for declining to address whether the District Court proceeding as presently constituted provides a counter claim such as referred to in s.40(1)(g). This is that such a determination would be academic, and would not have the effect of allowing the Court to make any order which would prevent an act of bankruptcy occurring by reason of Ms Skalkos’ failure to comply with the demand to pay made in the bankruptcy notice.
On the admitted date of service of the bankruptcy notice, Ms Skalkos was required to comply with the notice by payment of the demanded debt by 31 October 2007. That date for compliance was automatically extended pursuant to s.41(7) of the Bankruptcy Act during the duration of the application which was ultimately dismissed by Driver FM on 12 February 2008. However, under that section the date for compliance was extended only “until and including the day on which the Court determines whether it is so satisfied”. Consequently, since Ms Skalkos did not immediately pay the debt, she committed an act of bankruptcy on 13 February 2008.
The present application, being the second application to set aside the bankruptcy notice, was made on 18 February 2008. No automatic stay under s.41(7) then came into effect, because the application was not brought “before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice”, as is a precondition under that subsection. Nor did the Court at any time during the currency of the present application have the power, whether prospectively or retrospectively, to extend the time for compliance with the notice pursuant to s.41(6A)(b), since that power is only available where the application to the Court has been made “before the expiration of the time fixed for compliance”. There is no suggestion in the evidence that there was a proceeding in another Court to set aside the judgment, which would have allowed the Court to exercise that power during the currency of the present application under s.41(6A)(a).
The consequence of the act of bankruptcy having accrued immediately after Driver FM gave his judgment on the previous application, is that it would be futile for this Court now to determine whether Ms Skalkos’ District Court proceeding would amount to a cross demand described in s.40(1)(g). Such a determination could have no consequences, either in removing the act of bankruptcy, or in relation to any future issues that might arise on a bankruptcy petition based on that act of bankruptcy (see Hubner v Australia and New Zealand Banking Group Ltd (1999) 88 FCR 445 at [23]).
For that reason, I would exercise my discretion not to grant an order setting aside the bankruptcy notice, even if Ms Skalkos’ arguments concerning her present District Court proceedings should be accepted under the tests in Glew v Harrowell.
I am therefore not persuaded on any ground that the bankruptcy notice should be set aside, and I can see no basis on which the Court should now attempt to extend the time for complying with it, since that time has expired irredeemably.
In relation to the costs of her application, Ms Skalkos accepts that costs should follow the event. However, the respondent seeks indemnity costs on the basis that the application was manifestly doomed to fail, and ought never have been commenced. There is some substance to that argument. I think some of the arguments which were presented to me were not fully thought through. However, there was a basis for the contention that the cross demand had a different character to that which had been addressed by Driver FM, and some support for a further application might appear to have come from [16] of Driver FM’s judgment. These factors might understandably have encouraged Ms Skalkos to come back to Court.
On balance, I have not been persuaded that the present circumstances come within the exceptional discretion to order indemnity costs, and I think costs should be assessed on the normal basis.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 14 May 2008
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