Young v ICM Agriculture Pty Ltd
[2008] FMCA 1038
•25 July 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| YOUNG v ICM AGRICULTURE PTY LTD | [2008] FMCA 1038 |
| BANKRUPTCY – Application to set aside a Bankruptcy Notice – liability arose from personal guarantee – earlier proceedings settled by consent subject to schedule of payments – default resulted in Bankruptcy Notice – assignment of rights under license agreement to debtor by Deed of Assignment – debtor alleges set off or cross claim against creditor on basis of the rights assigned – assignment made after earlier District Court proceedings settled – new proceedings in District Court to establish validity of assignment, proof of existence of cross-claim, set off or cross demand – Bankruptcy Notice set aside. |
| Bankruptcy Act 1966 (Cth), s.40(1)(g) Corporations Act 2001 (Cth) |
| Beatty & Humphris v Brashs Pty Ltd [1998] 2 VR 201 Comfort v Betts [1891] 1 QB 737 Fitzroy v Cave [1905] 2 KB 364 Glew v Harrowell of Hunt & Hunt Lawyers [2003] FCA 373 Guss v Johnstone [2000] HCA 26 Monk v Australia & New Zealand Banking Group Ltd (1994) 34 NSWLR 148 Patane v Austeron Life Ltd (formerly Royal & Sun Alliance Finance Services Ltd) [2004] FCA 232 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Re A Debtor [1914] 3 KB 726 Re Brink; ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390 Re Deen; ex parte Deen v Muller (1995) 58 FCR 441 Re Duncan; ex parte Modlin (1917) 17 SR (NSW) 152 Re Ling; ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 Re Timothy’s Pty Ltd v the Companies Act [1981] 2 NSWLR 706 Re Vicini; ex parte E A Sealey & Co (1982) 64 FLR 323 Redowood Pty Ltd v Link Market Services Pty Ltd [2007] NSWCA 286 Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) NSWSC 1041 Salfinger v Niugini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 Singleton v Freehill Hollingdale & Page [2000] SASC 278 Trendtex Trading Corporation v Credit Swiss [1982] AC 679 Vangale Pty Ltd (in liq) v Kumagai Gumi Co Ltd [2002] QSC 137 |
| Applicant: | DARYL WILLIAM YOUNG |
| Respondent: | ICM AGRICULTURE PTY LTD |
| File number: | SYG 3929 of 2007 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 13 March 2008 |
| Delivered at: | Sydney |
| Delivered on: | 25 July 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr N. Bilinsky |
| Solicitors for the Applicant: | The Law Company |
| Counsel for the Respondent: | Mr E.C. Muston |
| Solicitors for the Respondent: | Minter Ellison Lawyers |
ORDERS
The Bankruptcy Notice NN68 of 2007 issued by the Official Receiver on 19 November 2007 and addressed to Daryl William Young is set aside.
The respondent to this application pay the applicant’s costs to be taxed if not agreed in accordance with Order 62 of the Federal Court Rules (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3929 of 2007
| DARYL WILLIAM YOUNG |
Applicant
And
| ICM AGRICULTURE PTY LTD |
Respondent
REASONS FOR JUDGMENT
The proceedings
By an application filed on 21 December 2007, Mr Young (the applicant debtor seeks) pursuant to s.40(1)(g) of the Bankruptcy Act 1966 (Cth) to have the Bankruptcy Notice (NN68 of 2007) issued by ICM Agriculture Pty Ltd (the respondent creditor) set aside on the basis that Mr Young has a set off against ICM Agriculture which he could not raise in District Court proceedings (3126 of 2004) which resulted in a judgment debt against Mr Young.
The application is opposed by ICM Agriculture on the grounds that:
a)Mr Young’s set off could have been raised in the District Court proceedings; and
b)Mr Young does not have a prima facie counter claim or set off by reason of an invalid or ineffective assignment in law.
In response to ICM Agriculture’s grounds of opposition, Mr Young posits that he is a lawful assignee of a chose in action and that he personally has a right to sue ICM Agriculture for recovery of the debt. He asserts that he has a genuine commercial interest in the enforcement of the claim against ICM Agriculture and that this claim was not available to him at the time of the District Court proceedings.
The Bankruptcy Notice was issued on 19 November 2007 and served on 4 December 2007. ICM Agriculture claims a debt of $198,278.06 based on the District Court judgment which was made and entered on 16 October 2007. The debtor was required, within 21 days of that date, to pay the creditor the amount of the debt, or make arrangements to their satisfaction for settlement of the debt.
The following evidence was filed in these proceedings:
a)Affidavit of Daryl William Young sworn 20 December 2007 (first affidavit of Mr Young);
b)Affidavit in support of grounds of opposition sworn by John Bede Webber, solicitor on 8 January 2008 (affidavit of Mr Webber);
c)Affidavit of Daryl William Young sworn 29 January 2008 (second affidavit of Mr Young);
d)Exhibit “A1” – Deed of Assignment;
e)Exhibit “A2” – Statement of Claim filed in the District Court proceedings 5792 of 2007 on 21 December 2007;
f)Exhibit “A3” – Annexure “A” to the second affidavit of Mr Young;
g)Exhibit “A4” – Annexure “B” to the second affidavit of Mr Young;
h)Exhibit “R1” – Email dated 3 June 2003 sent at 9.26am;
i)Exhibit “R2” – Report to creditors dated 1 August 2003 in connection with the voluntary administration of Namoi Valley Grain and Grading Co Pty Ltd;
j)Exhibit “R3” – Statement of Liquidated Claim in District Court proceedings 3126 of 2004;
k)Exhibit “R4” – Defence filed in the District Court proceedings 3126 of 2004 on 31 August 2004;
l)Exhibit “R5” – Document – resignation of Mr Beddison;
m)Exhibit “A6” – Document – sent to Kim Collins and Associates;
n)Exhibit “R5” – Australian Securities and Investments Commission (ASIC) – Change to company details – Australian Agricultural Commodities – Directors;
o)Exhibit “R6” – ASIC – Change to Company Details – Australian Agricultural Commodities – Change to register of members;
p)Exhibit “R7” – Company search – Historical Extract – Australian Agricultural Commodities Pty Ltd;
q)Exhibit “A7” – Defence filed in District Court proceedings 5792 of 2007 on 17 January 2008.
Background
I rely on the written submissions prepared by Mr Bilinksy, for the applicant, as an effective summary of the background material in these proceedings which has been supplemented by affidavits or oral to assist in the clarification of the issues in dispute.
On or about 25 May 1998, Mr Young in his capacity as a Director of a company called Australian Agriculture Commodities Pty Ltd (“AAC”) executed an exclusive market rights agreement with the New South Wales Department of Agriculture (Exhibit “A4” – Annexure “B”). Under that agreement, the Department of Agriculture granted AAC an exclusive licence to produce and market the seed of two lines of chickpeas (identification number G846-2-5 and T1315).
On or about 8 September 1998, AAC entered into a sub-licence agency agreement whereby Namoi Valley Grain and Grading Pty Ltd (trading as Namoi Rural Traders) would act as AAC’s agent in the management, marketing and trade of the seed products.
On or about 26 June 2002, Namoi Rural Traders as agent for AAC entered into a growers licence agreement (“licence agreement”) with ICM Agriculture to sell the seed of “Bumper” or “Kabuli” chickpeas (first affidavit of Mr Young, annexure “C”). Numerous terms and conditions were attached to the sale contract, including that the seed and all product derived where from must not be sold to any other party but delivered by the grower to a receiving centre nominated by the licensor (AAC) or its agent (Namoi Rural Trading). It is Mr Young’s contention that ICM Agriculture breached the terms of the license agreement causing loss to AAC, the licensor.
On 9 July 2002, Namoi Rural Trading, in its own capacity and not as agent for AAC, entered into a commercial contract (“commercial crop contract”) with ICM Agriculture whereby Namoi Rural Trading agreed to purchase a certain amount of bumper chickpea crop. ICM Agriculture sought security for the purchase and Mr Young provided a personal guarantee on behalf of Namoi Rural Trading.
In 2004, ICM Agriculture commenced proceedings in the District Court seeking payment from Mr Young under the personal guarantee. To resolve those proceedings Mr Young executed a Deed of Settlement by which he agreed to repay the debt in instalments. Mr Young also signed consent orders dated 18 April 2005 agreeing to judgment in favour of ICM Agriculture in the sum of $174,731.10.
Mr Young did not meet his obligation by not making the third instalment in 2007. As a consequence of that default, ICM Agriculture filed a Notice of Motion on 14 August 2007 in the District Court seeking that the signed consent orders be filed and judgment entered for ICM Agriculture in the sum of $135,000.00.
Mr Young in turn filed a Notice of Motion seeking that the Deed of Settlement be set aside and leave be granted for him to file a defence and cross claim. This motion was ultimately unsuccessful. On 16 October 2007 the proceedings were before McDonald JR and judgment was entered in ICM Agriculture’s favour. As a consequence of Mr Young’s non-payment of the judgment debt, ICM Agriculture caused a Bankruptcy Notice to be served upon him on 4 December 2007. Before the affixing of time for compliance with the Bankruptcy Notice, Mr Young filed an application to set the Notice aside.
Deed of Assignment
On 11 December 2007, AAC executed a Deed of Assignment in favour of Mr Young. The Deed assigns to Mr Young any cause of action AAC has against ICM Agriculture for damages for breach of contract, howsoever arising, in relation to the sub-licence agreement (see [8] above). As a consequence of the sub-licence agency agreement, Namoi Rural Trading, acting as AAC’s agent, contracted with ICM Agriculture.
Mr Young, taken as the assignee under the Deed (Exhibit “A1”), now stands in the shoes of AAC. Mr Young contends that he is owed a sum in excess of the amount under the Bankruptcy Notice by virtue of ICM Agriculture’s contractual breach under the license agreement. Up until the assignment of the cause of action in contract, Mr Young could not have raised a counter claim or set off in the District Court as a potential claim against ICM Agriculture could only be asserted by AAC at the time the assignment took effect on 11 December 2007. This was after the judgment was entered on 16 October 2007.
As a director and guarantor of AAC being summoned with a shareholders interest, Mr Young claims he has a genuine commercial interest in the enforcement of the claim of AAC. Consequently, by a statement of claim filed on 21 December 2007, Mr Young commenced proceedings in the District Court (5792 of 2007) for losses arising from ICM Agriculture’s breach under the license agreement. If successful, the proceeds of the claim will be used to meet the judgment debt in favour of ICM Agriculture which is the subject of the bankruptcy proceedings.
Mr Young’s post-assignment position
Mr Bilinsky contends that up until the assignment of the cause of action from AAC to Mr Young, only AAC had a potential cause of action in contract for damages against ICM Agriculture. However, since the execution of the Deed of Assignment, Mr Young now standing in AAC’s shoes contends he is owed in excess of the amount claimed in the Bankruptcy Notice by virtue of ICM Agriculture’s breach under the licence agreement issued under the grower’s license.
ICM Agriculture opposes that application and contends that the Deed of Assignment is invalid in law. The affidavit of Mr Webber states:
[5] I also believe that the “assignment” to which paragraph 16 of the applicant’s affidavit of 20 December 2007 refers was not valid or effective in law. The consequences of the invalid or ineffective assignment is that the applicant does not have a prima facie counter claim, set off or cross demand against the respondent within the meaning of s.40(1)(g) of the Bankruptcy Act 1966 (Cth).
Mr Muston, for the respondent, submits that to be successful, Mr Young must satisfy the Court that he has a genuine counter claim which is more than just bona fide. The Court must be satisfied that the claim has a reasonable probability of success, see Ebert v The Union Trustee Company of Australia Ltd (1960) 104 CLR 346 at [5] per Dixon CJ, McTiernan and Windeyer JJ:
Section 52 (j) makes it necessary that a debtor served with a bankruptcy notice, if he does not comply with its requirements, should satisfy the Court of Bankruptcy that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt. The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. "Cross demand" is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out. In Re Duncan; Ex parte Modlin (1917) 17 SR (NSW) 152; 34 WN 49 Street J. said that the debtor need not satisfy the Court that there are reasonable grounds for believing that he will establish his cross action, but only that he has a bona fide claim which he is fairly entitled to litigate. This perhaps is expressed too favourably to the debtor. In Re A Debtor (1958) 1 Ch 81 Roxburgh J. said: "But not every demand will suffice. A demand made in bad faith would not be good enough. The debtor must satisfy the Court that he has a genuine demand. . . . But in my opinion a demand must be more than bona fide: the Court must be satisfied that it has a reasonable probability of success" (1958) 1 Ch, at p 99. Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.
The issue which this Court must determine is whether the claim relied upon should be determined before the bankruptcy proceedings are allowed to continue, in effect, whether it is a claim which is proper and reasonable to litigate, see Vogwel v Vogwel (1939) 11 ABC 83 at 85 per Latham CJ and cited with approval in Guss v Johnstone [2000] HCA 26 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ at [38]-[40]:
[38] The nature of the exercise upon which Sundberg J was engaged is well established by a long line of authority.
[39] In Vogwell v Vogwell,5 Latham CJ said, in relation to a corresponding provision:
[T]he authorities show that the matter to which the court looks is this, — whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate.
[40] The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.
The validity of the assignment
A debt or liquidated claim under a contract is property and is assignable: Comfort v Betts [1891] 1 QB 737; Fitzroy v Cave [1905] 2 KB 364 at 373-374. The fact that the assignment is made simply to enable the assignee to sue for the purpose of achieving an ulterior end does not affect its viability. In Trendtex Trading Corporation v Credit Swiss [1982] AC 679, the House of Lords concluded that a cause of action in contract could be assigned where the assignee has a genuine and substantial, or genuine commercial, interest in the enforcement of the cause of action. In Trendtex the House of Lords held that, as a matter of English law, a purported assignment of a cause in action by the appellant was void as being champertous. In affirming the position that a bare right to litigate cannot be assigned, Lord Roskill stated at 703:
But it is today true to say that in English law in assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment in falls foul of our law of maintenance.
Similarly, his Lordship stated at 702:
…[I]t is clear, when one looks at the cases upon maintenance in this century and indeed toward the end of the last, that the courts have adopted an infinitely more liberal attitude towards the supporting of litigation by a third party than had previously been the case.
The decisions that support the adoption of the Trendtex principle in Australia include Re Timothy’s Pty Ltd v the Companies Act [1981] 2 NSWLR 706 per Needham J; Re Daley; ex parte National Australia Bank (1992) 37 FCR 390 per Heerey J; Monk v Australia & New Zealand Banking Group Ltd (1994) 34 NSWLR 148 per Cohen J; Beatty & Humphris v Brashs Pty Ltd [1998] 2 VR 201 per Smith J; Singleton v Freehill Hollingdale & Page [2000] SASC 278 per Olsen J; Vangale Pty Ltd (in liq) v Kumagai Gumi Co Ltd [2002] QSC 137 per Mullans J; Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) NSWSC 1041 per McDougall J.
Mr Bilinsky submits that applying the Trendtex test Mr Young has a clear and genuine commercial interest in the enforcement of the claim against ICM Agriculture. Mr Young has a shareholder interest in AAC, the assignor of the claim, and has personally guaranteed the liability of AAC under the Commercial Crop Agreement.
In support of that contention, Mr Bilinsky relies on Re Daley where Heerey J held that a debtor, assigned a cause of action by a company of which he was a shareholder and guarantor, could rely upon and assert the validity of the assigned right as a set off exceeding the amount of judgment debt upon which a Bankruptcy Notice had been founded. He submits that the situation in Re Daley was an analogous to this matter as the debtor was assigned a cause of action by the company when he was a shareholder and a guarantor. In Re Daley, Heerey J concluded that the debtor was able to rely upon and assert validity of the assigned rights as a set off.
Mr Muston submits that any claim which AAC has against ICM Agriculture has not been validly assigned to Mr Young. In making that submission, Mr Muston contends that:
a)The Court cannot be satisfied on the evidence that there has been a valid assignment;
b)The Court cannot be satisfied that any purported assignment has not been procured contrary to the fiduciary duties owed by the applicant to AAC: Re Daley;
c)Mr Young does not have a genuine commercial interest in the enforcement of the claim such as to enable a valid assignment: Salfinger v Niugini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [108]-[124] and the cases referred to therein; Monk v Australia and New Zealand Banking Group Ltd.
Mr Muston also notes that the allegation of breach now relied upon by Mr Young in relation to the “assigned claim” is identical to allegations of breach maintained by Mr Young in the District Court proceedings leading to the judgment that is the subject of the Bankruptcy Notice. Although AAC was not a party to those proceedings, Mr Muston notes that at all material times Mr Young was the Director of AAC.
Mr Muston contends that Annexure “P” to Mr Young’s first affidavit indicates the debt that was guaranteed was owed by Namoi Rural Traders and not by AAC. However, a more fundamental problem from a fiduciary duty point of view is that the company search (Exhibit “R7”) shows that there were four shareholders of AAC at the time the assignment was said to have taken place. One of those shareholders was a corporate entity and there is no evidence that Mr Young was acting in the interest of the other shareholders. Mr Muston submits that in Exhibit “A1” Mr Young appears to have assigned to himself, in his capacity as Director of AAC, for zero consideration and then asserted a claim worth more than $175,000.
Mr Muston submits in the absence of written consent or written board minutes from each of the corporate shareholders confirming their approval, the transfer is entirely contrary to Mr Young’s fiduciary duties owed to shareholders and the company generally. Mr Muston contends that this Court should infer that the other shareholders’ consent was not obtained and the assignment for zero consideration was a fundamental breach in Mr Young’s fiduciary duties.
I note that the Deed of Assignment (Exhibit “A1”) has been signed by Mr Young in his capacity as a Director of AAC and in his personal capacity. Effectively Mr Young has assigned the debt to himself and I have been asked to infer that he did this without regard to the interests of the shareholders of the company. I note that there is debate about who were the Directors of the company at the relevant time. The ASIC records show that there were two other Directors who could have made a decision independently of Mr Young whether or not it was in the interests of shareholders to effect the transaction. The ASIC Change to Company Details Form 484 (Exhibits “R5” and “R6”) lodged by Mr Young on 10 January 2008 indicates that there were two other Directors available to make and participate in the decision.
Mr Muston submits that whether it was poor corporate management of the proper records as to who was or was not an officer of AAC, or an error on Mr Young’s part when he completed the ASIC form, does not alter the fact that Mr Young owes a fiduciary duty to the shareholders, individuals and corporation. If in fact he was the sole Director, he would be still be accountable to the shareholders and the corporation and must obtain their consent before he gives effect to a transaction which is in his own interest and contrary to the interests of the company: Re Daley.
Re Daley concerned the breach of fiduciary duty which was held to be a discretionary matter. Mr Muston submits that a breach of fiduciary duty allows this Court to exercise its discretion against Mr Young. Mr Muston concedes that in Re Daley, Heerey J found in materially different circumstances that there was no breach of a fiduciary duty. However he requests this Court to take from that decision that if Heerey J had found a breach, His Honour would have thought it appropriate to exercise his discretion not to set aside the Bankruptcy Notice on the basis of the assignment.
Mr Muston argues that contrary to Mr Young’s claim, this matter is a bare cause of action for a breach of contract resulting in damages. Mr Muston argues that this matter does not fall squarely within the Trendtex line of authorities unless Mr Young can demonstrate that he has a genuine commercial interest in the claim.
Mr Muston relies on Monk v Australia & New Zealand Banking Group Ltd at 152:
It is known that he is a director of Coutts Morgan and I assume from the minutes of the meeting approving the assignment that he may also be a shareholder, although that is not clear from the evidence. It was submitted on his behalfthat he has a genuine commercial interest, namely that obtaining a judgment (1994) 34 NSWLR 148 at 153 in his favour will enable him to satisfy the debt upon which the bankruptcy notice is based.
In my opinion that is not a genuine commercial interest in the way that the phrase has been used in the judgments. Examples may be given from the facts in the various cases concerned. For instance it was held that there was such an interest where the assignee was already a substantial creditor of the assignor with a right to enforce the debt (Trendtex, Re Timothy's) or where the assignee was the sole shareholder who was a guarantor of the overdraft of the assignor (Re Daley) or where the assignee was a debenture holder with an interest in protecting the value of its security (First City Corporation).
The plaintiff’s only apparent interest is in the possibility of his becoming a creditor of the bank. That is, his interest is in using the debt which might arise from the cause of action for his personal benefit. That no doubt is the interest of any assignee. The using of the debt as a set off against the judgment debt is merely an example of attaining some personal benefits. In that regard the plaintiff is in no stronger position than he would be if he had obtained an assignment of a cause of action for negligence by a customer of the bank who claims to have suffered injuries arising from unsafe premises.
Mr Muston submits that this matter falls squarely within that case because it is not dealing with an assignment from the company whose debts he guarantees. In this matter there is an assignment of a bare cause of action from another company and in the circumstances the sole purpose of the assignment was an attempt by Mr Young to defeat the Bankruptcy Notice which was served upon him. Mr Muston argues that that of itself does not amount to a genuine commercial interest of the type required to properly give effect to the assignment of a cause of action.
Clause 1.1(b) of the Deed of Assignment (Exhibit “A1”) contains the definition of “cause of action” and Mr Young seeks to characterise the assignment to be one a debt arising under a contract:
1.1 In this deed, unless otherwise indicated by the context:
a)..
b) “cause of action” means any cause of action or claim for damages that the assignor has in contract, court or otherwise against ICM Agriculture Pty Ltd ACN0060777765 or any account whatsoever or howsoever arising, including but not limited to any action for damages for breach of contract in relation to a sub-license agreement dated 8 September 1998 (“cause of action”).
I am satisfied that the sub-license agreement dated 8 September 1998 is not a contractual agreement which is said to have been breached by ICM Agriculture.
Raising the counter claim in the District Court proceedings
ICM Agriculture pleaded in opposition to this application that Mr Young could have raised his counter claim or set off in the original proceedings in the District Court (3126 of 2004). The judgment which was made and entered on 16 October 2007 is the basis of the Bankruptcy Notice. Mr Bilinksy contends that the counter claim could not have been set up in those proceedings because it was only the result of an assignment which occurred after the service of the Bankruptcy Notice and the conclusion of those proceedings.
In support, Mr Bilinsky referred to Re A Debtor [1914] 3 KB 726 where the Divisional Court, under a provision similar to s.40(1)(g) of the Act, held that even accepting that the debtor could have, had he so chosen, obtain an assignment in time to set up a counter claim in the action, the Bankruptcy Notice still had to be set aside as the debtor had no legal entitlement to set up a counter claim in that action before judgment. In Re Vicini; ex parte E A Sealey & Co (1982) 64 FLR 323 at 326, Fisher J stated that he regarded Re A Debtor as stating a principle applicable to proceedings under Australian legislation. This was affirmed in Re Deen; ex parte Deen v Muller (1995) 58 FCR 441at 442 and in Re Brink; ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 139. Justice Lockhardt stated in Re Brink that the words “that he could not have set up” meant “which he could not by law set up in the action”.
Mr Bilinsky submits that it is not a matter of practicality whether Mr Young could have raised the action in the earlier proceedings but a matter of legal consequence. He submits that the facts are that Mr Young could not by law set up a case for breach of contract against ICM Agriculture prior to the assignment which was not affected by the company until 11 December 2007, almost two months after the date that the judgment was made and entered. Mr Bilinksy relies on the decision in Re Ling; ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 at 132 where Hill J states:
That is not a question to be determined by reference to practicalities; it is a question to be answered by reference to legal considerations: Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 ; 44 FLR 135; Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 ; 123 ALR 342; Walton v National Mutual Life Association of Australasia Ltd (1994) 49 FCR 406 at 408 Scott v Beneficial Finance Ltd (Einfeld J, 4 October 1994, unreported); Re Martinovic (Kiefel J, 23 June 1995, unreported). Thus the mere fact that there was an excuse as to why the cross-claim was not brought will not avail a debtor seeking to come within s 41(7) of the Act, if a cross-claim could legally have been brought.
Mr Bilinsky further submits that based on the above authorities and the prevailing circumstances as chronologically set out in the first affidavit of Mr Young, it is apparent that Mr Young’s set off claim could not legally have been brought until after the Bankruptcy Notice was issued and the Deed of Assignment effected. Up until the execution of the assignment to Mr Young the chose an action and the contract to recover losses from ICM Agriculture was in favour of AAC, not Mr Young. Mr Bilinsky further submits that it irrelevant that the assignment in favour of Mr Young was not affected until after service of the Bankruptcy Notice. Even if Mr Young could have obtained the assignment from AAC earlier, the policy inherent in s.40(1)(g) is for a debtor to be allowed to challenge a Bankruptcy Notice based on a judgment obtained, see Re Ling at 135:
The policy inherent in the section would seem to be that a debtor should be allowed to challenge a bankruptcy notice based upon a judgment obtained, so long as the debtor had prima facie a counter-claim etc of a value at least as great as the judgment obtained which he could bring against the judgment creditor. Conversely, however, the debtor could not challenge the bankruptcy notice if the debtor could have brought the counter-claim in a timely way at the same time as the proceedings brought against him, but failed to do so. The section could on its face have no application if the debtor had brought the counter-claim in the proceedings and was either successful or unsuccessful with that counter-claim.
Mr Muston submits that the failure of Mr Young to either procure the assignment at the time of the District Court proceedings or, alternatively, to join AAC as a party and raise the breach on its behalf in those proceedings, is unreasonable. His reliance upon this claim in the present case amounts to an abuse of process.
Mr Muston relies on Redowood Pty Ltd v Link Market Services Pty Ltd [2007] NSWCA 286 at [45] per Hodgson JA:
[45] In cases where the earlier proceedings and the later proceedings are between the same parties, as in Anshun itself, a finding of unreasonableness in not raising a matter in the earlier proceedings would almost inevitably mean that the later proceedings were oppressive and an abuse of process. Where the parties are different, the test of unreasonableness is still relevant; but in my opinion it must either be considered not conclusive, or else must be understood as involving unreasonableness of such a nature that the later proceedings against different parties are an abuse of process.
Mr Muston submits that:
a)Mr Young was a party to the earlier District Court proceedings;
b)At the relevant time Mr Young was a Director of AAC;
c)Mr Young gave evidence that he gave careful consideration to what he wished to rely upon in defending the claim;
d)One of the matters which Mr Young stated that he had given careful consideration and sought legal advice on was the breach of the agreement by ICM Agriculture;
e)The breach by ICM Agriculture is not relied upon by Mr Young in these proceedings.
Mr Muston submits that to allow Mr Young to rely on the very same breach in order to set aside this Bankruptcy Notice would constitute an abuse of process, in that the unreasonableness of him not raising it in the earlier proceedings is so extreme as to bring it outside the scope of the ordinary case.
Mr Muston argues that the earlier District Court proceedings were compromised because ICM Agriculture has a judgment for the full sum claimed in the event that instalments were not met. ICM Agriculture has the benefit of the judgment for the unpaid portion of the full sum claimed. It is submitted that if the case had run, findings would have been made, both factual and legal, as to whether or not certain events happened and constituted a breach of the contract. If there were such a finding, the value of the loss and the consequences of the breach would have been made.
Mr Muston argues that now that Mr Young has assigned himself the debt from AAC, the District Court will be required to reconsider the same issues.
Mr Muston contends that particularly given that it was at all times open to Mr Young as Director to join AAC as a party to the proceedings, his actions constitute an abuse of process.
Does the applicant have a prima facie case?
Mr Bilinsky refers to Re Duncan; ex parte Modlin (1917) 17 SR (NSW) 152, Street J said that a debtor need not satisfy the Court that there are reasonable grounds that he will establish his counter-claim but only that he has a bona fide claim which he is fairly entitled to litigate. However, in Re Brink; ex parte Commercial Banking Co of Sydney Ltd, Lockhardt J regarded this as being too favourable to a debtor and instead chose to follow Ebert v The Union Trust Company of Australia Ltd. That case stands for the proposition that a debtor must show the Court that he has a prima facie case but at the same time his Honour Lockhardt J concluded that the Court must not undertake a preliminary trial of the counter-claim: Re Brink at 141.
Mr Bilinksy submits that Mr Young has a sufficient prima facie case against ICM Agriculture for losses arising out of a breach of contract. In the second affidavit of Mr Young are annexed “Contract Confirmations” forms for the sale of chickpeas between ICM Agriculture and entities other than AAC or its nominees. Mr Young relies on clauses 8 and 9 of the license agreement:
8. All of the seed and product shall be levied by the Growers to the nominated and advised receiver centre as the licensor or the agent shall direct from time to time. The grower has the option to store on farm if acceptable to both parties (see section 12 of the Commercial Contract).
The grower shall not sell the said seed or product therefore to any other party and shall not have title thereto.
9. The licensor or their agent shall sell the said seed and product delivered to it by the grower (or otherwise subject to this agreement) via the payment schedule as per attachment.
Mr Young asserts that the breaches have caused loss in damage in the form of depletion of AAC’s seed stock and that the losses are particularised in the Statement of Claim (Exhibit “A2”):
Relief claimed
ICM actions of not delivering the seed and production under the License Agreement signed on the26the June 2002 meant that AAC had no access to buy seed from its agent to carry on its business. AAC had to go back to prebasic seed stocks and grow seed lines out in 2003/04 and 2004/05 to build up seek stocks again to a level where the business could commercial contract seed again. Losses of seed sales where a minimum of 75m/t per year x 2 years = 150 m/t seed sales at an average price of $1350 /mt = $202,500.
1. Royalties due and payable as per the license agreement between AAC and its agent. $15/m for tonnes produced.
a. 957 m/t @ $15.00/mt = $14,355
b. Production from 75 m/t seed x 2 yrs = 2700 m/t x $15/mt = $40,500
TOTAL Loss = $257,355.00
Amount of clam $257355.00
Interest $102,942.00
Filing fees $360.00
Service fees $25
Solicitors feels $
TOTAL $360,682.00
Mr Bilinksy submits that Mr Young adequately satisfies the threshold requirement for showing a prima facie case. In the proceedings now initiated by Mr Young in the District Court, ICM Agriculture has filed a defence and joined issue with Mr Young but no attempt has been made to strike out Mr Young’s pleading on the basis that it does not disclose a reasonable cause of action.
Mr Muston submits that the claim by Mr Young to have been assigned to him by AAC is insufficient for the Court to be able to reach the requisite level of satisfaction that Mr Young has a prima facie case.
Consideration
In the resolution of this application I am guided by the decision in Glew v Harrowell of Hunt & Hunt Lawyers [2003] FCA 373 at [8]-[9] per Lindgren J:
[8] In order to avoid committing the act of bankruptcy identified in para40(1)(g) of the Act, [Young] must satisfy the Court that they have a counter-claim, set-off or cross demand against Hunts of the kind described in that paragraph. What they must do in order to "satisfy the Court" for the purposes of para40(1)(g) of the Act that they have the asserted counter-claim, set-off or cross demand has been variously described. The descriptions do not necessarily purport to be comprehensive definitions. To state that a debtor in receipt of a bankruptcy notice must show X does not necessarily imply that he or she need not also show Y, or that he or she will not be defeated if the creditor shows Z.
[9] There are authorities suggesting that [Young] must satisfy me of the following interrelated and sometimes overlapping matters:
• that they have a "prima facie case", even if they do not adduce evidence which would be admissible on a final hearing making out that case (Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 ("Ebert") at 350; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 ("Brink") at 141; Gomez v State Bank of NSW Ltd [2002] FCAFC 101 at [17], [18]);
• that they have "a fair chance of success" or are "fairly entitled to litigate" the claim: Brink at 141; Re Gould; Gould v Day [1999] FCA 1650 at [27], [28]; Re Capsanis; Capsanis v The Owners - Strata Plan 11727 [2000] FCA 1262 at [11]); and
• that they are advancing a "genuine" or "bona fide" claim (Re Capsanis; Capsanis v The Owners - Strata Plan 11727 [2000] FCA 1262 at [11]).
It may be that the first and second formulations are intended to cover the same ground. In Brink Lockhart J treated (at 141) the reference to a "prima facie case" in Ebert as a reference to "a fair chance of success".
There is a requirement for a preliminary assessment but the issue of the cross claim, set off or cross demand does not require final determination. Central to the issue before this Court is the assignment to Mr Young of any cause of action AAC has against ICM Agriculture for damages for breach of contract arising in relation to the sub-license agreement which AAC entered into with Namoi Rural Traders who acted as AAC’s agent in the management, marketing and trade of the chickpea products. I acknowledge that there are a number of aspects of this assignment which are clearly in issue. It is immediately apparent that the administration and secretarial practice of the companies that are associated with Mr Young do not strictly comply with the requirements of the Corporations Act 2001 (Cth) nor is it clear that Mr Young has complied with his fiduciary duties as a Director of those corporate bodies.
However, the ultimate validity of the assignment and whether Mr Young can assert and maintain that he has a viable cross claim, set off or counter demand against ICM Agriculture needs to be fully ventilated and judicially decided. A preliminary assessment on the material before this Court raises doubts, but I am not satisfied that there is sufficient evidence to make a final decision on the validity of the assignment or whether Mr Young can show the necessary elements to maintain his claim.
An essential issue in the District Court pleadings filed on 21 December 2007 centres on clause 7 of the license agreement signed on 26 June 2002 between AAC and ICM Agriculture:
On 11 December 2007 Australian Agricultural Commodities assigned its right under this license agreement to Daryl William Young by way of deed of assignment.
For Mr Young to succeed in his claim for damages, interests and costs in relation to the Deed of Assignment, he needs to establish that the Deed was valid. Secondly, that the interest claimed to be transferred was affected in that transaction and that Mr Young is the valid holder of those interests.
There have been a number of submissions made which question the validity of the transfer under the Deed and those concerns are set out above. Shareholder representatives and directors were not called as witnesses to give evidence in respect of the intention of the parties concerning these transactions. I was invited to make inferences on a number of aspects central to the transaction. I acknowledge that many proprietary companies operating without trained administrative and secretarial staff may not comply with the correct procedures required for administration. Despite this possible defect in administration, it may have been the clear intention of the interested parties to enter into these arrangements. That evidence is not before this Court and needs to be fully ventilated in a hearing. As all these issues will be an essential part of the proceedings in the District Court, I believe that the circumstances of the assignment are appropriately ventilated in that forum. I am guided by Patane v Austeron Life Ltd (formerly Royal & Sun Alliance Finance Services Ltd) [2004] FCA 232 at [85] per Lander J:
[85] In my opinion therefore, the time at which the quantum of the counter-claim, set-off or cross demand should be determined is at the first hearing of the proceeding to set aside the bankruptcy notice, which in this case was before the registrar. Sometimes that first hearing might be before a magistrate or a judge but the principle is the same. The time to ascertain whether a counter-claim, set-off or cross demand exists, and if it exists the quantum, is at that first hearing.
It was claimed at the hearing that the counter claim, set off or counter demand should have been mounted in the earlier District Court proceedings (3126 of 2004). I noted that at that time, Mr Young had not entered into the Deed of Assignment and the damages he now claims as the basis of the set-off could not have been mounted by him in defence of those proceedings. Although I have been encouraged to draw certain inferences from those circumstances I am satisfied that the basis of the set-off or counter claim did not exist at that time. I note that there is a line of authorities which supports the view that an assignment of this nature has been accepted by the Courts. I have considered these above.
As per Glew the essential element that I am required to be satisfied of is that there is a prima facie case. Before that can be established it will be necessary for a final determination as to the validity of the Deed of Assignment as the total claim depends on that effective transfer to Mr Young to enable him to mount his cross-claim. If the deed of assignment is found to be defective, Mr Young has not provided a second or alternative basis for a counter claim or set off. If the secondary claim did exist independent of the Deed then the failure to raise that claim in the District Court may be estopped by the principles in the Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. If the Deed is found to be valid and effective then the “Contract Confirmations” annexed to the second affidavit of Mr Young indicates that ICM Agriculture and entities other than AAC or its nominees have breached the licence agreement. As there has been no challenge as to the admissibility of those documents I am satisfied that a claim would exist and that Mr Young has a prima facie case for damages.
In the circumstances I believe that the Bankruptcy Notice issued on 19 November 2007 should be set aside.
I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Associate:
Date: 25 July 2008
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