Wright v Rabot
[2017] FCCA 2663
•1 November 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WRIGHT & ANOR v RABOT | [2017] FCCA 2663 |
| Catchwords: BANKRUPTCY – Debtor’s application to adjourn or dismiss creditor’s petition – debtor’s allegation that a trial for defamation in which he sues the petitioning creditor will yield an outcome of or greater than the sum sought by the petitioning creditors – basis for adjournment or dismissal not established. |
| Legislation: Bankruptcy Act 1966, ss.33, 52, 60(4) |
| Cases cited: Cain v Whyte (1933) 48 CLR 639 |
| First Applicant: | IPSITA WRIGHT |
| Second Applicant: | ADRIAN PHILIP WRIGHT |
| Respondent: | MICHAEL ANTHONY RABOT |
| File Number: | MLG 999 of 2017 |
| Judgment of: | Judge Wilson |
| Hearing date: | 30 October 2017 |
| Date of Last Submission: | 30 October 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 1 November 2017 |
REPRESENTATION
| Counsel for the Applicants: | Mr P Miller |
| Solicitors for the Applicants: | Kalus Kenny Intelex Lawyers |
| Solicitors for the Respondent: | Irlicht & Broberg |
ORDERS
The applications made by the respondent under s.52(2)(b) and s.33 of the Bankruptcy Act 1966 (Cth) are dismissed.
The estate of Michael Anthony Rabot is sequestrated under the Bankruptcy Act 1966 (Cth).
The applicant creditors’ costs be taxed and paid from the estate of respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 999 of 2017
| IPSITA WRIGHT |
First Applicant
| ADRIAN PHILIP WRIGHT |
Second Applicant
And
| MICHAEL ANTHONY RABOT |
Respondent
REASONS FOR JUDGMENT
On 7 September 2017 Registrar Ryan of this court referred to me for determination the application by Ipsita Wright and
Adrian Philip Wright (“the petitioning creditors”) for an order for the sequestration of the estate of Michael Anthony Rabot (“Mr Rabot”).
On 30 October 2017 this proceeding was listed for trial before me. Rather than it proceeding as a trial, the matter turned into a contested debate during which –
a)the respondent argued that the petitioning creditors’ application for a sequestration order should be deferred until judgment is handed down in the respondent’s case presently pending before the County Court of Victoria for damages for defamation; and
b)the petitioning creditors urged me to hear and determine their application for orders for the sequestration of the respondent’s estate, arguing that the respondent’s application was unmeritorious for the four reasons given by counsel for the petitioning creditors.
Having regard to the proximity of the trial before the County Court, it is imperative that I give my decision without delay. But equally, it is essential I say no more than is necessary to dispose of this application before me as it is noxious to the administration of justice that judges of two different courts deal with the same or similar issues concurrently.
Synopsis
For the reasons that follow, in my judgment –
a)a sequestration order should be made against the estate of the respondent and I hereby make it; and
b)
the respondent may, if he wishes, prosecute the defamation proceeding before the County Court of Victoria in late
January 2018 and these orders will not prevent him from doing so.
A short factual narration
The facts leading to this application bear out the wisdom that anyone doing business with friends must assess whether friendship or business is more important.
Adrian Wright and Michael Rabot met when 12 years of age. According to Mr Wright, as children they were once so close they were mistaken for brothers. Now events have deteriorated such that the petitioning creditors are seeking the bankruptcy of the respondent and the respondent is seeking damages for defamation from the petitioning creditors.
Over a period of years, Mr Wright advanced sums of money to
Mr Rabot and to a company associated with Mr Rabot,
Bluefire Investments Pty Ltd (“Bluefire”). Before me, Mr Broberg, the respondent’s solicitor, said that Mr Rabot did not dispute that Mr Rabot was indebted to the petitioning creditors for the sum in respect of which default judgment was entered on 10 March 2017, namely $253,913.14. A detailed breakdown of the various loans between the parties may be shortly stated as follows –
a)on 2 April 2013 the petitioning creditors advanced to the respondent $60,000.00 pursuant to a loan facility bearing that date;
b)on 26 November 2013 the petitioning creditors advanced to Bluefire the sum of $35,000.00 pursuant to a loan facility agreement bearing that date;
c)on 18 March 2014 the petitioning creditors advanced to the respond the sum of $200,000.00 pursuant to a loan facility agreement bearing that date;
d)on 2 April 2014 the petitioning creditors advanced to Bluefire the sum of $200,000.00 pursuant to a loan facility agreement bearing that date; and
e)on 1 October 2013 the petitioning creditors advanced the sum of $242,900.00 to Bluefire for superannuation purposes pursuant to a loan facility agreement bearing that date.
Some, but not all, of the loans described above were paid in full while others were paid in part. Those paid in full included –
a)the 2 April 2013 loan facility for $60,000.00; and
b)the 26 November 2013 loan for $35,000.00.
Those loans paid in part included –
a)the 18 March 2014 loan for $200,000.00 of which Mr Rabot paid the petitioning creditors $50,325.00; and
b)the 2 April 2014 loan to Bluefire for $200,000.00 of which Bluefire paid $16,824.94.
Unsurprisingly, the fact that a large portion of the above-mentioned loan funds went unpaid caused the petitioning creditors to enforce their rights. To that end, on the application of the petitioning creditors, a winding up order was made in respect of Bluefire by the
Supreme Court of Victoria on 14 December 2016.
The petitioning creditors issued a proceeding for the recovery of amounts due to them from Mr Rabot. After the proceeding was transferred to the County Court of Victoria, on 10 March 2017 judgment was entered in default of defence for $253,913.14 in favour of the petitioning creditors against Mr Rabot. The petitioning creditors served a bankruptcy notice against Mr Rabot for that amount. He failed to comply with it and therefore committed an act of bankruptcy on which the petitioning creditors’ creditor’s petition in this case was based. That petition was duly served on 26 May 2017.
On 22 June 2017 Mr Rabot commenced a separate proceeding in the County Court of Victoria in which he sought damages for defamation against the petitioning creditors. The statement of claim recording the defamatory assertions was perfunctory, to say the least, consisting of two paragraphs only. None of the imputations commonly seen in defamation litigation were set out. Instead, Mr Rabot sought special damages as well as aggravated damages. In so far as the special damages were concerned, Mr Rabot asserted that those damages were due by reason of two companies’ termination of Mr Rabot’s participation in various projects. That rather confusingly pleaded assertion seems to have been the basis upon which Mr Rabot has been, and remains, willing to take his defamation proceeding to trial, the listed date of which I was told is late January 2018. By way of defence to the statement of claim in the defamation proceeding, the petitioning creditors have contended that they are unable to plead to the allegations as the allegations are unintelligible. Alternatively, they deny the allegations.
No doubt the inelegance of the statement of claim in the defamation proceeding led Mr P Miller of counsel who appeared before me to submit that the respondent’s prospects of success in the defamation proceeding could not be gainsaid.
By his amended notice of opposition to the creditors’ petition filed
27 October 2017 (only a few days ago, in other words, and filed after Mr Broberg returned to the record after ceasing to act for Mr Rabot) the respondent to this proceeding relied on six grounds. Relevantly paraphrased, they were as follows –
a)Mr Rabot had an offsetting claim by reason of the defamatory comments made by the petitioning creditors, being an offsetting claim “for an amount considerably in excess of the debt” claimed (those were the words used in the notice of opposition);
b)
the respondent had issued a proceeding in the County Court of Victoria for defamation and the trial was listed to
23 January 2018;
c)the petitioning creditors’ conduct had hindered Mr Rabot from pursuing his business interests;
d)the petitioning creditors had used the bankruptcy process for an improper purpose under threat that failure to pay money would lead the petitioning creditors to pursuing a charge of criminal conduct to the effect that Mr Rabot had stolen money;
e)the court (me, in other words) ought to be satisfied that sufficient cause exists why a sequestration order ought not be made; and
f)under s.33(1) of the Bankruptcy Act 1966 (Cth) (“the Act”), the petition should be adjourned until after the trial of the defamation proceeding.
The parties’ respective positions as at 30 October 2017
On behalf of Mr Rabot, on 30 October 2017 Mr Broberg contended that I should follow the holdings of the Full Court of the Federal Court of Australia in Clapham v Commonwealth Bank[1] (“Clapham”). Below I have addressed that contention. In essence, Mr Broberg urged me to either dismiss the creditors’ petition or adjourn the hearing of it until after the trial of the defamation proceeding.
[1] [2013] FCAFC 84 at [54].
On behalf of the petitioning creditors, Mr Miller urged me to make the sequestration order his client sought. He relied on four main grounds for that contention, arguing –
a)the defamation claim was unlikely to succeed;
b)most of the causes of action in the defamation proceeding are subject to an estoppel of the sort described in Port of Melbourne Authority v Anshun Pty Ltd;[2]
c)even if successful, the defamation proceeding is unlikely to produce a damages award of or greater than the sum sought in the creditors’ petition; and
d)no evidence of Mr Rabot’s solvency was adduced.
[2] (1981) 147 CLR 589
The statutory basis of Mr Rabot’s claim
Mr Broberg cast his client’s application under the auspices of s.52(2)(b) of the Act. As the Full Court of the Federal Court of Australia observed in Clapham, the discretion conferred by that
sub-section is wide.
The discretion conferred by that sub-section can be enlivened even if a petitioning creditor otherwise proves his, her or its entitlement to a sequestration order. That is because of the wording of ss.52(1) and (2) of the Act. Under s.52(1) the court that hears the creditor’s petition must require proof of the matters stated in that petition, of the service of the petition and of the fact that the debt or debts on which the petitioning creditor relies is or are still owing. But even if so satisfied, the court retains a residual discretion whether or not to make a sequestration order at all. That is the import of the phrase “… if it is satisfied with the proof of those matters, [the court] may make a sequestration order against the estate of the debtor”.[3] Further, under s.52(2) of the Act, even if the court is satisfied that the petitioning creditor’s proofs are in order, the court may nevertheless dismiss the petition if satisfied by the debtor that for other sufficient cause a sequestration order ought not be made. Again, that much is apparent from the plain wording of s.52.
[3] Bankrupty Act 1966 (Cth), s.52(1).
That said, at the highest level it has been held that a prima facie entitlement is possessed by a creditor to obtain a sequestration order where the creditor satisfies the requirements of s.52(1) of the Act. That much was held by the High Court of Australia in Cain v Whyte[4] and in Rozenbee v Kronhill.[5]
[4] (1933) 48 CLR 639.
[5] (1956) 95 CLR 407.
Let me say at once that I was persuaded that the requirements of s.52(1) of the Act had been satisfied in the circumstances of this case. Mr Broberg did not submit otherwise. He did not assert that the default judgment on which the creditor’s petition was based was other than regular.
In this case the question for me was whether Mr Rabot had satisfied the requirements of s.52(2)(b) of the Act, namely, that sufficient cause existed not to order a sequestration order. In my judgment, he did not satisfy that requirement.
Citing the decision of Gibbs J (as the former Chief Justice of the
High Court of Australia then was) in Re Schmidt; Ex parte Anglewood Pty Ltd[6] (“Re Schmidt”) the Full Court of the Federal Court of Australia in Clapham held that the court is entitled to adjourn the hearing of the creditor’s petition or dismiss it –
… if the debtor satisfies the Court that he or she has a real claim against the petitioning creditor that is likely to succeed for an amount equal to or in excess of the amount owing to the creditor …[7]
[6] (1968) 13 FLR 111.
[7] [2013] FCAFC 84 at [54].
Citing the decision of Olney J in Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (No.2)[8] (“Re James”) the Full Court of the Federal Court of Australia in Clapham addressed the situation where the court is satisfied that the debtor has a real claim but the court is unable to be satisfied that the claim is one likely to succeed. In that eventuality, the Full Court suggested that the court hearing the petition may give the debtor the opportunity to litigate his or her claim.
[8] (1994) 51 FCR 14
I canvassed that option with Mr P Miller of counsel. He resisted the idea and urged me to make an order for the sequestration of the respondent’s estate.
Of course, it must be pointed out that when referring to Re Schmidt and to Re James, each Full Court predicated its comments on the existence of a “real claim”, as each Full Court described that phrase. No elaboration was given to what was meant by the phrase “real claim”. In using that phrase, each Full Court seemed to speak interchangeably between a “real claim” that was likely to succeed as well as a
“real claim” where the court could not be certain that the so-called real claim was likely to succeed at all. In this case, I was far from persuaded that Mr Rabot was advancing anything that remotely approximated a “real claim”. I say that for several reasons, namely –
a)by reason of the extremely vague and imprecise nature of the pleaded case as advanced in the statement of claim in the defamation proceeding;
b)by reason of the fact that the quantum of loss asserted by the plaintiff in the defamation proceeding was extremely imprecise;
c)far from being satisfied that the defamation proceeding is likely to succeed for an amount equal to the petitioning creditors’ claimed amount due, I have very real doubts that the plaintiff in that case will or is likely to survive the strikeout challenge that the defence currently advances;
d)
no particulars of financial loss have been given, or at least
Mr Rabot did not put such details before me and the trial of the defamation proceeding is less than three months away; and
e)by reason of the fact that the burden under s.52(2)(b) of the Act falls upon Mr Rabot.
Then there is the public interest of not propping up insolvency.
[9] (1988) 83 FCR 314.
No evidence was put forward by Mr Rabot about his solvency. In
Re SVIR; Ex parte Commissioner of Taxation,[9]Burchett J of the Federal Court of Australia held that on an application under s.52(2)(b) of the Act to dismiss a petition “for other sufficient cause”, the court is required to consider not only the interests of the individual parties before the court but also the public interest which may be adversely affected by the propping up of insolvency. Naturally, unsecured creditors are relevant to that issue. So too are persons who have dealt with Mr Rabot between the date of the filing of the creditor’s petition and up until the hearing of that petition. Persons in that category are in a state of uncertainty pending the determination of the creditor’s petition.
The claim in the defamation proceeding will survive the bankruptcy
Mr Miller submitted that even if I were to order Mr Rabot’s estate to be sequestrated, Mr Rabot could independently carry on with his defamation proceeding because such a proceeding is in the nature of a claim for personal wrong done to the bankrupt for the purposes of s.60(4) of the Act. Mr Miller relied on the decision of the
Supreme Court of Queensland in Holmes v Goodyear Tyre and Rubber Co (Aust) Ltd[10] as authority for that proposition. John Dixon J approved of that formulation in Sheehan v Brett-Young (No.3).[11] Those authorities do not bind me, in stricto sensu, but each has a character rendering it persuasive and I choose to apply each.
[10] (1984) 55ALR 594.
[11] [2016] VSC 39 at [57].
In Clapham, the Court addressed the way a trial judge such as me should assess the merits of the debtor’s claim of the sort advanced by Mr Rabot. In essence, the Court held that the judge should consider quantum and liability in the light of available material and the progress of the case towards trial, relevantly here, the defamation case. While true, the Full Courts in both Clapham and in Endresz v Australian Securities and Investments Commission (No.2)[12] (“Endresz”) applied a highly benevolent approach to the facts of the cases with which each was concerned, neither case had a factual situation similar to the facts that confront me in this case. And so, while each decision is binding, the learning in each case instructs that applications under s.52(2)(b) of the Act are idiosyncratic, varying one to the next. This case is equally idiosyncratic. As I read the decisions in Clapham and Endresz, neither positively mandated an outcome for the dismissal or adjournment of the debtor’s application.
[12] [2015] FCAFC 33.
Mr Broberg submitted that the making of a sequestration order would orchestrate real hardship to Mr Rabot because such an order will cause him to lose his position as a director of companies that he said are poised to take advantage of opportunities in Sri Lanka. Whether or not that turns out to be the fact is a matter of speculation. It seemed to me to be beyond the matters of concern to me in this application.
As to s.33 of the Act founding the basis of the relief the respondent sought, no good reason was offered as a sound ground for any such adjournment. The respondent’s defamation case will roll on.
Conclusion
Based on the foregoing, I am of the view that it could not be said that Mr Rabot has a real claim to any success, let alone success that equated to or eclipsed the petitioning creditor’s claim, as result of the defamation case. Without wishing to pre-judge that litigation – but in so far as I need to make some informed assessment of the likelihood of success in the defamation litigation – the prospects at this stage of the defamation case seem to me to be very poor. I am not willing to let this case meander until late January 2018 and most likely beyond. Creditors beyond the petitioning creditors in this case have a legitimate interest in the expeditious resolution of this case. In any event, Mr Rabot is entitled to pursue the defamation case irrespective of his status as a bankrupt.
Orders
I dismiss Mr Rabot’s application under s.52(2)(b) of the Act and under s.33 of the Act.
I make a sequestration order against the estate of
Michael Anthony Rabot.
The applicant creditors’ costs be taxed and paid from the estate of respondent debtor in accordance with the Act.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Judge Wilson
Date: 1 November 2017
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