BANKRUPTCY AND INSOLVENCY – application to set aside bankruptcy notice – “counter-claim, set-off or cross demand” pursuant to ss 40(1)(g) and 41(7) of the Bankruptcy Act 1966 (Cth) – supplementary ground raised that the judgment upon which the bankruptcy notice was issued was invalid due to inclusion of filing fee so as to render bankruptcy notice invalid – held: bankruptcy notice was valid pursuant to s 306(1) of the Bankruptcy Act 1966 (Cth) – held: “counter-claim, set-off or cross demand” established – held: application to set aside bankruptcy notice allowed with costs
Murray M and Harris J, Keay’s Insolvency: Personal and Corporate Law and Practice (9th ed, Lawbook Co., 2016)
Date of hearing:
20 October 2016
Registry:
New South Wales
Division:
General Division
National Practice Area:
Commercial and Corporations
Sub-area:
General and…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Tu v Chang (No 2) [2016] FCA 1568
Case
[2016] FCA 1568
Decision Date
CaseChat Overview and Summary
In Tu v Chang (No 2), Mr Tu applied to set aside a bankruptcy notice issued by Ms Chang, which was based on costs orders made in her favour. Mr Tu contested the validity of the bankruptcy notice on two grounds: first, that the judgment upon which the notice was issued was invalid due to the inclusion of a filing fee; and second, that he had a counter-claim, set-off or cross-demand that exceeded the amount specified in the bankruptcy notice. The court was required to determine whether the bankruptcy notice was valid and whether Mr Tu had established a counter-claim, set-off or cross-demand that exceeded the amount specified in the notice.
The court found that the first ground of Mr Tu's application failed because the defect relied upon did not invalidate the bankruptcy notice. The court also found that Mr Tu had established a counter-claim, set-off or cross-demand that exceeded the amount specified in the bankruptcy notice. As a result, the court allowed the application to set aside the bankruptcy notice and ordered that Ms Chang pay Mr Tu's costs of and incidental to the application, without any reduction or apportionment in respect of the unsuccessful ground in the application.
This case highlights the importance of establishing the validity of a bankruptcy notice and the potential for a counter-claim, set-off or cross-demand to exceed the amount specified in the notice. It also demonstrates the court's willingness to set aside a bankruptcy notice where the debtor has established a valid counter-claim, set-off or cross-demand.
Orders
Orders of the court
1. The application be allowed.
2. Bankruptcy notice number BN 190586 issued 3 May 2016 addressed to Mr Dat Quyen Tu be set aside.
3. The respondent pay the applicant’s costs of and incidental to the application, without any apportionment or reduction as to costs of the unsuccessful ground in the application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
For the reasons that follow:(1)the first ground must fail because the defect relied upon by Mr Tu does not invalidate the bankruptcy notice;(2)the second ground must succeed because Mr Tu has established that he has an offsetting claim with sufficient prospects of success which exceeds the amount specified in the bankruptcy notice;(3)the application must be allowed by reason of Mr Tu’s success on the second ground, and therefore the bankruptcy notice must be set aside; and(4)Ms Chang must pay Mr Tu’s costs of and incidental to the application, without any reduction or apportionment in respect of the unsuccessful ground in that application.Ground 1: alleged invalid statement of the judgment debt The debt upon which the bankruptcy notice issued was based on costs orders made on 15 August 2012 in Ms Chang’s favour in failed District Court proceedings brought against her by Mr Tu in 2010. The costs incurred were subject to a process of assessment and the issuing, on 18 January 2016, of two certificates for Ms Chang’s costs of the proceedings and for the costs of assessment, following an assessor’s costs determination (with written reasons). The two certificates were formally entered as orders on 4 February 2016. There is no outstanding dispute as to the making of that costs order or of the assessment and certification of their quantum. This ground turns on the resolution of a dispute about the validity of the “judgment/order” that was entered (and issued and annexed to the bankruptcy notice) consequent upon the filing of those costs certificates, both in terms of its legal effectiveness in its own right, and in terms of its impact on the validity of the bankruptcy notice that relies upon it.Legislative framework and administrative process Costs certificates, upon filing in a court having jurisdiction to order payment of that amount of money, are taken to be a judgment of that court for the amount of the unpaid costs of the claim and the unpaid costs of the costs assessment: ss 368(5) and 369(7) of the LPA 2004, reproduced below. Judgment can then be entered administratively without any further step being taken. The LPA 2004 was repealed with the commencement of the Legal Profession Uniform Law (NSW), but the operation of ss 368 and 369 was preserved in transitional provisions in relation to costs orders made before repeal, as in this case. The terms of ss 368(5) and 369(7) are relevantly the same as the terms of ss 208J(3) and 208JA(4) respectively of the Legal Profession Act 1987 (NSW) (LPA 1987). Section 208J(3) is the provision considered in a number of the authorities referred to below. The reasoning of those cases in relation to s 208J(3) (and thus s 208JA(4)) of the LPA 1987) therefore applies equally to ss 368(5) and s 369(7) of the LPA 2004. Section 368(5) of the LPA 2004 dealing with costs assessment certificates (as continues to apply to these proceedings) was as follows:In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed.