Tzovaras v Nufeno Pty Ltd

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FEDERAL COURT OF AUSTRALIA

George Tzovaras v Nufeno Pty Limited
[2003] FCA 1152

BANKRUPTCY – counter-claim filed in the District Court which had no jurisdiction to hear the counter-claim – whether counter claim could not have been set up in the action or proceeding in which the judgment or order was obtained

WORDS AND PHRASES – proceeding, proceedings

Bankruptcy Act 1966 (Cth), ss 40(1)(g), 41(7)
District Court Act 1973 (NSW), ss 134, 145
Supreme Court Rules (NSW), Pt 74 r 2

KBRV Resort Operations Pty Limited t/a Kingfisher Bay Resort and Village v Chilcott (2001) 51 NSWLR 516 applied
Rawlinson v Oliver [1995] 3 NZLR 62 referred to
Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 applied
Re Hodby; Ex parte Kenny (1986) 12 FCR 134 referred to
Re Ling; Ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 applied
Re Racheha; Ex parte Antonios (1980) 49 FLR 423 applied
Re Scott; Ex parte Scott v Beneficial Finance Corporation Limited (1994) 53 FCR 324 referred to
Re Willats; Ex parte Nissan Finance Corporation Limited (1991) 31 FCR 206 referred to
Smart v Esanda Finance Corp Ltd (2000) FCA 235 referred to

GEORGE TZOVARAS v NUFENO PTY LIMITED
N7234 of 2003

JACOBSON J
23 OCTOBER 2003
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7234 of 2003

BETWEEN:

GEORGE TZOVARAS
APPLICANT

AND:

NUFENO PTY LIMITED
ACN 002 523 248
RESPONDENT

JUDGE:

JACOBSON J

DATE OF ORDER:

23 OCTOBER 2003

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

  1. The Application be dismissed.
  2. The Applicant pay the Respondent’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7234 of 2003

BETWEEN:

GEORGE TZOVARAS
APPLICANT

AND:

NUFENO PTY LIMITED
ACN 002 523 248
RESPONDENT

JUDGE:

JACOBSON J

DATE:

23 OCTOBER 2003

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Introduction

  1. This is an application under s 41(7) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act ”) to set aside a bankruptcy notice upon the ground that the Applicant has a counter-claim, set-off or cross-demand as referred to in s 40(1)(g) of the Act.

  2. The Bankruptcy Notice in question is No NN 1430/03 which was issued on 17 June 2003 at the request of the Respondent.  The Bankruptcy Notice was served on the Applicant by the Respondent on 10 July 2003. 

  3. The debt upon which the Bankruptcy Notice was based was a District Court judgment of 8 August 2002 in the sum of $655,962.13 for the Respondent against the Applicant.  The judgment was entered by consent.

  4. The application to set aside the Bankruptcy Notice was filed on 30 July 2003.  On that date, Deputy District Registrar Kavallaris extended the time limited for compliance with the Bankruptcy Notice to 12 August 2003.

  5. Section 41(7) of the Act permits the Court to set aside a bankruptcy notice where the debtor satisfies the Court that he…

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Details
Case
[2003] FCA 1152
Decision Date

CaseChat Overview and Summary

The case of Tzovaras v Nufeno Pty Ltd involved the applicant seeking to set aside a bankruptcy notice under section 41(7) of the Bankruptcy Act 1966 (Cth), on the basis that he had a counter-claim, set-off, or cross-demand that he could not have set up in the action or proceeding in which the judgment or order was obtained. The dispute centred around the applicant’s claim that he had a cross-claim for equitable damages arising from an alleged breach of fiduciary duty, which he claimed could not have been set up in the District Court proceedings. The District Court had entered judgment in favour of the respondent, Nufeno Pty Ltd, under a guarantee agreement and a loan agreement concerning the purchase of Wade Island property. The applicant argued that the terms of the loan agreement and guarantee were put forward in breach of an oral agreement with Mr Peter Montgomery, who was not a party to this proceeding.

The legal issues before the court were whether the applicant had a valid cross-claim that could not have been set up in the District Court action and whether this cross-claim related to the judgment obtained by the respondent. The court examined the applicant’s affidavits and the evidence presented, noting that the applicant had signed the loan agreement and guarantee despite his claims of a breach of trust and fiduciary duty. The court also considered that the applicant had not taken any steps to enforce his claims in any court until over four years later in his defence to the District Court claim. Furthermore, the court highlighted that the fiduciary obligation in question arose from a partnership with Mr Montgomery, who was not the respondent in this case. The court had to determine whether the applicant’s cross-claim for equitable damages was related to the judgment obtained by the respondent.

The court concluded that the applicant’s cross-claim was not valid as it did not pertain to the judgment obtained by the respondent. The court held that the cross-claim related to an alleged breach of fiduciary duty by Mr Peter Montgomery, who was not the party to this proceeding. The court also found that the applicant had not shown that the cross-claim could not have been set up in the District Court action. The court dismissed the application, finding that the applicant had not satisfied the requirements of section 41(7) of the Bankruptcy Act 1966 (Cth).

The court ordered that the application be dismissed and there be no order as to costs.

Orders

Orders of the court

1. The Application be dismissed.

2.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The proceedings then continued until they were settled pursuant to the Heads of Agreement to which I have referred.The Applicant’s Evidence The Applicant filed three affidavits in support of this application. They were sworn on 30 July 2003, 9 August 2003 and 9 September 2003. There were a large number of exhibits to the affidavits. They were so lengthy that they comprised most of seven volumes of Court Books, which were prepared by the Applicant. There was an eighth volume of Court Book produced on the morning of the hearing. It contained the transcript of the District Court proceedings. The gist of the Applicant’s evidence was that he entered into an oral joint venture agreement with Mr Montgomery for the acquisition and development of the Wade Island land on the same terms as those which were contained in a written joint venture agreement for the acquisition and development of land known as the “Craigee land”. Under the Craigee joint venture agreement, Mr Montgomery’s company, Sadeli Pty Limited, was required to provide the finance for the acquisition, sub-division, marketing and sale of the land. There was no personal obligation on the Applicant to repay the funding. Nor did he guarantee it. Thus, the effect of the Applicant’s evidence is that he was not bound to repay the moneys advanced by Mr Montgomery for the acquisition and development of Wade Island. Nevertheless, the written terms of agreement under which the funding was provided for the Wade Island land, (i.e. the Loan Agreement and Guarantee), were quite inconsistent with the terms of the joint venture for which the Applicant contends. The Applicant was cross-examined on these documents. He agreed that he had legal advice when he signed them. He said that he regarded the Loan Agreements and the Guarantee as a breach of the agreement which he had made with Mr Montgomery and a breach of the trust which he placed in Mr Montgomery as a partner but he signed the documents because he had “no choice”. This was because he was committed to the purchase of the Wade Island land. Notwithstanding what the Applicant claims to be a serious breach of contract and a breach of trust, he took no steps whatsoever to enforce the contract for which the Applicant contends. Nor did he put forward his claims in any court until he sought to raise them by way of amendment over four years later in his defence to the District Court claim. In paragraph 9 of his affidavit of 9 August 2003 the Applicant deposed to his understanding of the terms of settlement of the District Court proceedings recorded in the Heads of Agreement. He swore that he did not consider that he was giving up his right to prosecute his claims for fiduciary duty against the Respondent or against Mr Montgomery. Nevertheless, on 1 November 2002, that is to say approximately three months after the Heads of Agreement, the parties entered into a Deed of Settlement, the effect of which was to extend the time for Australand and the Applicant to pay the judgment debt.

Decision

Reasons for decision

JACOBSON J
Section 41(7) of the Act permits the Court to set aside a bankruptcy notice where the debtor satisfies the Court that he or she has a counter-claim, set-off or cross-demand as referred to in s 40(1)(g), namely:-“… 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”. (emphasis added) The judgment in the District Court was entered by Naughton DCJ pursuant to a Heads of Agreement which provided for judgment in the sum of $655,962.13 “to be entered forthwith with the cross-claim be dismissed” (sic). Notwithstanding this, the Applicant claims that he has a cross-claim which he could not have set up in the District Court action. The cross-claim upon which the Applicant relies is a claim for equitable damages said to arise from a breach of fiduciary duty. One of the many difficulties which the Applicant faces is that the fiduciary obligation is said to arise from a partnership or joint-venture made with a person who is not the Respondent to this application and who did not issue the Bankruptcy Notice. The judgment in the District Court is for a guarantee of money lent by the Respondent to Australand Pty Limited (“Australand”) under a deed of loan dated 9 March 1998 (“the Loan Agreement”). The guarantee was contained in a deed entered into on the same date (“the Guarantee”). The Loan Agreement and the Guarantee contained the terms on which the Respondent provided funding for the purchase of a property at Wade Island. The substance of the cross-claim, which the Applicant says he could not set up in the District Court, is that the Loan Agreement and the Guarantee were put forward by a Mr Peter Montgomery in breach of the terms of an oral agreement made between the Applicant and Mr Montgomery for the acquisition and development of the Wade Island land.The District Court Proceedings The proceedings in the District Court were commenced by a statement of liquidated claim filed on 22 May 2001 (the “Statement of Claim”). The Statement of Claim sought judgment against Australand for the moneys advanced by the Respondent under the Loan Agreement. It also claimed judgment against the Applicant under the Guarantee. The Applicant filed a cross-claim and a third party cross-claim in the District Court. He was the second cross-claimant in an amended third party cross-claim in which Nufeno Pty Limited (i.e. the present respondent) was named as the first cross-defendant. Mr Montgomery was the second cross-defendant. It is unnecessary to record the detail of the cross-claims. It is sufficient to say that they were equitable claims arising from various joint-ventures or partnerships said to have been entered into by Australand and the present respondent (or an entity controlled by one or both of the Respondent and Mr Montgomery) for the acquisition, development, marketing and sale of various rural properties. The proceedings came on for hearing before Naughton DCJ on 7 August 2002. During the course of the hearing, the Applicant sought to further amend the third party cross-claim so as to allege in the alternative that the joint-venture or partnership agreement was made between the Applicant and Mr Montgomery personally.

Ratio Decidendi

Legal Principle Established

Established by: JACOBSON J

Full text does not contain this section.