Wu v Li

[2019] FCCA 1190

FEDERAL CIRCUIT COURT OF AUSTRALIA

WU v LI [2019] FCCA 1190

Catchwords:
BANKRUPTCY – Application to set aside a bankruptcy notice – whether the applicant has a counterclaim, set off or cross-demand – whether the bankruptcy notice is misleading – whether the bankruptcy notice has been properly issued – no abuse of process where the respondent had issued the bankruptcy notice – application to set aside the bankruptcy notice is dismissed.

Legislation:

Bankruptcy Act 1966 (Cth), ss.27, 40

Cases cited:

Genovese v BGC Construction Pty Ltd [2005] 215 ALR 440
Stec v Orfanos [1999] FCA 457

Applicant: TAO WU

Respondent: YU XIN LI

File Number: SYG 595 of 2019

Judgment of: Judge Street

Hearing date: 7 May 2019

Date of Last Submission: 7 May 2019

Delivered at: Sydney

Delivered on: 7 May 2019

REPRESENTATION

Counsel for the Applicant: Mr D Thomas

Solicitors for the Applicant: Mcinnes Wilson Lawyers

Counsel for the Respondent: Mr A Flecknoe-Brown

Solicitors for the Respondent: WMG Legal Pty Ltd

ORDERS

1. The application is dismissed.

2. The applicant pay the first respondent’s costs fixed in the amount of $10,000.00.

DATE OF ORDER: 7 May 2019

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 595 of 2019

TAO WU

Applicant

And

YU XIN LI

Respondent

REASONS FOR JUDGMENT

1. These are proceedings within the Court’s jurisdiction under s 27 of the Bankruptcy Act 1966 (Cth) (“the Act”) seeking to set aside a bankruptcy notice served upon the applicant on 19 September 2018 pursuant to s 40(1)(g) of the Act. The proceedings were brought in the Federal Court of Australia, on the last day to do so, to set aside the bankruptcy notice.

2. The grounds upon which the applicant seeks to set aside the bankruptcy notice is, first, that the applicant has a counterclaim, setoff or cross-demand, equal to or exceeding the amount of the judgment debt of a sum under the final order, being a counterclaim, setoff or cross-demand, that he or she could not have set up in the action or proceedings in which the judgment order was obtained. There is a further argument advanced that the bankruptcy notice is misleading and a further argument that because there were proceedings that were still on foot at the time that the bankruptcy notice the subject of these proceedings was issued, the Court should find that there has been an abuse of process when another Court was still determining a cost question relating to an earlier bankruptcy notice.

3. The proceedings, the subject of the alleged counterclaim, setoff or cross-demand, have been brought in the Supreme Court of the ACT and are presently the subject of a reserved decision in relation to the leave granted to add to the proceedings a derivative suit. Those proceedings are ones in respect of which the applicant annexed the statement of claim, taking proceedings against both the respondent and his wife. The nature of the claim advanced on its face is an alleged joint liability by the applicant and his wife. The underlying building contract was tendered and supports only a joint liability on the proper conclusion of the same, White v Tyndall [1888] 8 App Cas 263. The alleged obligation on its proper construction was not several. The alleged cause of action in the statement of claim is not proceedings of the kind that meet the requirement under s 40(1)(g) of the Act in respect of a counterclaim, setoff or cross-demand.

4. Further, I accept the submissions advanced by the respondent that the consequence of the proceedings being brought, being ones for a joint liability, are lacking the necessary mutuality for the proceedings to be of the kind falling within the reference to counterclaim, setoff or cross-demand, within s 40(1)(g) of the Act. In that regard, the Court refers to Stec v Orfanos [1999] FCA 457 at [24]. The cause of action in quantum merits is also pleaded as a joint liability and given the building contract cannot be advanced as a several liability. Further the acquisition of the cause of action by assignment means there is no mutuality as required to fall within s 40(1)(g) of the Act.

5. Notwithstanding the potential breadth of meaning given to the expressions as referred to in the submissions of the applicant, it is apparent on the face of the statutory requirement by use of the words “he or she has” that it is referring to a counterclaim, setoff or cross-demand, that is of a different kind to that of a joint liability, the subject matter of the ACT proceedings. That ground advanced by the applicant to set aside the bankruptcy notice fails.

6. The next ground to set aside the bankruptcy notice is on the basis of the same allegedly being misleading to the reasonable, ordinary reader. Attention was drawn to the fact that the bankruptcy notice annexed a schedule calculating interest in the sum of $365,322.766, which was the subject of a calculation adding the same to the orders made by the Full Court of the Federal Court of Australia on 17 August 2015. It is patent, on the face of the bankruptcy notice that no amount has been claimed for post-judgment interest.

7. The bankruptcy notice is for the sum of $2,610,714.80. In the column referring to interest since date of judgment, there is a zero. It was submitted that the bankruptcy notice was misleading by reason of the attachment of the interest calculation and that a reasonable, ordinary reader would be misled as to the amount required to be paid pursuant to the bankruptcy notice. There is no substance in that proposition. The bankruptcy notice clearly identified the amount of $2,715,714.80 in respect of which there was attached the judgment, the order of Justice Jagot of 29 November 2013 for the payment of costs as agreed or taxed and a taxation certificate in the amount of $1,633,947.80.

8. There was a further order made by Justice Jagot on 6 November 2013 in respect of the indemnification obligation, which was the subject of variation by the Full Court, to the amount of $1,076,767. It is apparent that the amount the subject of the bankruptcy notice did not have added to it the interest the subject of the schedule that was annexed. The Court does not accept that a reasonable, ordinary reader would have been confused or misled as to the amount required to be paid the subject of the bankruptcy notice. The bankruptcy notice was not misleading and that basis for setting aside the same fails.

9. The third ground advanced was that the costs issue in respect of the third bankruptcy notice was still pending before the Court at the time the bankruptcy notice was issued. The issue of a bankruptcy notice is something that might have been able to be ascertained by the relevant debtor, or his solicitor, but I accept it was not in the public arena. There is however, a significant distinction between the circumstances of this case and the issue that arose in Genovese v BGC Construction Pty Ltd [2005] 215 ALR 440 (“Genovese v BGC”) as in that case the further bankruptcy notice had been served while the Court was still determining an issue of a substantive kind in respect to the bankruptcy notice.

10. There are two distinctions that arise. First, the subject matter of the proceedings were to be determined in the present case after the issue of the bankruptcy notice the subject of these proceedings was only the question of costs and no substantive question relating to the bankruptcy notice itself, as the respondent had conceded it should be set aside even before the proceedings were commenced to set aside the same and that it would not be pursued. Further, the distinction that it had not been served, in my view, means that there was no abuse of process of the kind identified in Genovese v BGC. The Court does not accept that there was in these circumstances any requirement to draw the same to the attention of the Court or the applicant.

11. This is a case where it was patent that the respondent would be seeking to pursue and enforce, by a further bankruptcy notice, the judgment the subject of the current bankruptcy notice. There was no abuse of process in circumstances where the respondent had issued that bankruptcy notice but not yet served it while the Court was still determining the cost issue, which was because of concerns the only issue for determination by the Court. Accordingly, the alleged abuse of process ground for setting aside the bankruptcy notice fails.

12. As no ground in support of setting aside the bankruptcy notice has been made out, the application to the Court is dismissed.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Judge Street

Associate:  

Date:  24 June 2019