FEDERAL COURT OF AUSTRALIA

Sutherland v Jatkar [2014] FCA 532

THE COURT ORDERS THAT:

1.    Application be dismissed.

2.    The applicants pay the respondent’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The applicants seek a declaration under the Bankruptcy Act 1966 (Cth) that their claim made against the respondent (“Dr Jatkar”) under s 23B of the Wrongs Act 1958 (Vic) in a Supreme Court of Victoria proceeding numbered SCI 5619 of 2003 for contribution was not a provable debt and, therefore, that Mr Jatkar was not released from it upon his discharge from bankruptcy. The applicants’ claim for contribution against Dr Jatkar was made during the period of Dr Jatkar’s bankruptcy but the applicants contend that it can be maintained because it was not a provable debt.

2    The applicants and Dr Jatkar were co-defendants in the proceeding in the Supreme Court which had been commenced against them by a husband and wife (“the plaintiffs”) in relation to an alleged misdiagnosis of the foetus during the wife’s pregnancy. The plaintiffs alleged in that proceeding that on 15 January 2002 the defendants (namely, the applicants and Dr Jatkar) had caused them loss and damage by misdiagnosing the conditions of the foetus. The first applicant, Dr Sutherland, had been the specialist obstetrician, the second applicant had conducted a birth centre and Dr Jatkar had been the practising radiologist who had been engaged for the purpose of undertaking the nuchal translucency screening to determine accurately the risk of the foetus having Down’s Syndrome. On 20 November 2002 Dr Jatkar was made bankrupt upon the making of a sequestration order against him. On 3 March 2003 the plaintiffs commenced the proceedings in the Supreme Court seeking damages against the applicants and Dr Jatkar alleging that the plaintiffs had suffered loss as a result of the negligence of the applicants and Dr Jatkar and, or alternatively, as a result of the breach of an implied contractual term to exercise reasonable care in connection with the medical treatment provided to the wife.

3    On 4 March 2005, before Dr Jatkar was discharged from bankruptcy, the applicants filed and served on Dr Jatkar in the Supreme Court proceedings a notice by one tortfeasor claiming contribution from Dr Jatkar under s 23B of the Wrongs Act 1958 (Vic). On 24 March 2005, also during the period of bankruptcy, Dr Jatkar filed and served a similar notice for contribution upon the applicants. The commencement of the proceedings against Dr Jatkar, and the service of notices of contribution between the potential joint tortfeasors, occurred without leave having been sought under s 58(3) of the Bankruptcy Act 1966 (Cth).

4    Dr Jatkar was discharged from bankruptcy on 28 November 2006. On 8 June 2012 the applicants settled with the plaintiffs and, on 29 June 2012, the applicants paid the settlement sum to the plaintiffs. That resulted in the discontinuation of the plaintiffs’ claim in the Supreme Court proceedings against all three defendants (including Dr Jatkar), leaving the contribution claim between Dr Jatkar and the applicants for the determination by the Supreme Court. That claim was fixed for trial before a judge and jury and was to commence on 17 June 2013 on an estimate of 20 hearing days. In May 2013 Dr Jatkar sought a stay of the contribution claim against him and the vacation of the trial date on the basis that the applicants’ contribution claim had been commenced without leave when the respondent was bankrupt and could no longer be maintained as it was a provable debt in his bankruptcy from which he has been released. On 27 June 2013 Williams J granted a temporary stay of the contribution claim upon her Honour concluding that the contribution claims were provable debts in the bankruptcy. Her Honour’s ruling was published to the parties but has not otherwise been made available publically: BA and BB v Sutherland and Others [2013] VSC 336.

5    The effect of s 153(1) is to release a bankrupt from all debts which are provable in the bankruptcy upon the bankrupt being discharged from the bankruptcy. The applicants contended, however, that their claim against Dr Jatkar for contribution was not a debt provable in his bankruptcy because, as they contended, a claim for contribution between joint tortfeasors (a) is not a provable debt within the ambit of s 82(1), and (b) is excluded from the ambit of provable debts by s 82(2). Section 82(1) provides:

Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

The applicants submitted that their claim for contribution against Dr Jatkar was not a provable debt or liability within the meaning of this section because any liability to them did not arise until their liability to the plaintiffs was ascertained. Dr Jatkar contended, in respect of s 82(1), that the claim against him was a contingent claim and, therefore, that it was provable in his bankruptcy. Section 82(2) provides:

Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.

The applicants contended that their claim for contribution against Dr Jatkar was a demand in the nature of unliquidated damages and that it arose otherwise than by reason of a contract, promise or breach of trust, namely, by way of a statutory right to contribution. Dr Jatkar contended that the demand was not for, or in the nature of, damages and that, if it was a claim for damages, it arose from the plaintiffs claim in contract. Dr Jatkar also contended that the application in this court was an abuse of process because the issue which they sought to have determined had been considered by Williams J in the Supreme Court when considering the application for those proceedings to be stayed.

6    The liability which arises between joint tortfeasors under provisions such as s 23(B) of the Wrongs Act 1958 (Vic) has been described as peculiar and anomalous: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 595-6; James Hardy v Seltsam Pty Ltd (1998) 196 CLR 53, 66; Arthur Young v Brunswick NL [1999] 1 VR 387, 396. Joint tortfeasors may not have direct claims against each other in respect of a joint liability which they may have to a person who has been wronged by them and, in such cases, the claims between the joint tortfeasors for contribution are independent from the claim of the plaintiff against them in tort or contract (Harvey v RG O’Dell Pty Ltd [1958] 2 QB 78, 107-8; WA Brown & Sons Pty Ltd [1964-5] NSWR 575, 580; Brambles Constructions Pty Ltd v Helmers (1966) 114 CLR 213, 218, 221) and do not arise until “payment of the liability to which [the right to contribution] relates and not before” (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 595; John Holland (Construction) Pty Ltd v Jordin (No 2) (1998) 79 FCR 210, 217; Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484, 490, 492) notwithstanding that “litigation on the indemnity [can] take place before there is any liability” (Anshun at 595).

7    The parties were agreed that Dr Jatkar’s obligation to the plaintiff was a provable debt in his bankruptcy and, therefore, that he was released from that liability by force of the Bankruptcy Act 1966 (Cth); but the parties were in disagreement about whether the separate and independent claim of the applicants against Dr Jatkar for contribution was similarly released. A qualifying condition for a claim for contribution under s 23B is that the joint tortfeasor against whom a claim for contribution is made is liable in respect of the damage claimed by the injured party at the time of the claim for contribution. Section 23B(1) provides:

Subject to the following provisions of this section, a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with the first-mentioned person or otherwise).

Section 23A(1) provides:

(1) For the purposes of this Part a person is liable in respect of any damage if the person who suffered that damage, or anyone representing the estate or dependents of that person, is entitled to recover compensation from the first-mentioned person in

respect of that damage whatever the legal basis of liability, whether tort, breach of contract, breach of trust or otherwise.

The ability of a tortfeasor to claim contribution under s 23B against a joint tortfeasor is thus made to depend upon a concurrent liability to the person entitled to claim for the damage. Section 23B, in other words, creates a liability between joint tortfeasors where each had a liability to the wronged party within the meaning of s 23A.

8    The claim for contribution by the applicants was made against Dr Jatkar on 4 March 2005 at a time when he was liable (as contemplated by s 23A) in respect of the claims made by the plaintiffs, but, at that time, s 58(3) of the Bankruptcy Act 1966 (Cth) prohibited commencing any legal proceedings against him in respect of a provable debt or the taking of any fresh step in any such proceeding against him without the leave of the court. The plaintiffs’ action against Dr Jatkar and the applicants’ claims for contribution against him both occurred without leave having been sought, or obtained, from the Court pursuant to s 58(3). However, at the time the claims for contribution were made, Dr Jatkar was a person liable in respect of the damage claimed by the plaintiffs against both him and the applicants. The applicants were entitled under s 23B to claim contribution from him although that entitlement was qualified by the need to seek leave under s 58(3) of the Bankruptcy Act 1966 (Cth) if the claim was a provable debt.

9    The case was conducted on the basis that the failure to have obtained leave under s 58(3) was a procedural anomaly but not that the failure to have sought leave vitiated the applicants’ notice for contribution against Dr Jatkar. Indeed, Dr Jatkar had applied successfully in the Supreme Court proceedings for a stay of the contribution proceedings, but had not contended that they were invalid. It may seem curious that a discharged bankrupt’s liability to a joint tortfeasor might survive the release of primary liability by force of statute. However, in this case, the applicants’ notice of contribution was given at a time when Dr Jatkar was another person “liable” within the meaning of s 23B, and the parties did not contend that the effect of the Bankruptcy Act 1966 (Cth) was to extinguish or release Dr Jatkar’s liability for the purposes of the operation of s 23B of the Wrongs Act 1958 (Vic): cf Wintle v Stevedoring Industry Finance Committee [2003] VSC 102.

10    The applicants’ claim for contribution would have come within the ambit of s 82(1) (subject to any possible exclusion by s 82(2)) if Dr Jatkar had been subject to the claim at the date of the bankruptcy. The separate and independent liability which Dr Jatkar had to the applicants, however, did not arise until 8 June 2012 when the applicants settled with the plaintiff. The first question which arises is, therefore, whether that claim was nonetheless a contingent debt or liability within the meaning of s 82(1) and therefore whether it was provable in the bankruptcy. The object of s 82(1) is to capture and to have proved in the bankruptcy a broad range of debts and liabilities extending to past and future debts and liabilities whether certain or contingent. In Re Hide; ex parte Llynvi Coal and Iron Company (1871-2) LR 7 Ch App 28 Sir James LJ said at 31-2:

Then came the Act of Parliament, which – dealing in express terms with almost every one of the cases which had ever previously occurred, and excluding nothing but demands for damages for personal torts – provided that there should be nothing whatever for which a right to proof should not be given. Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.

The applicants contended, however, that Dr Jatkar’s liability to them was not contingent within the meaning of s 82(1) and, therefore, that it was not provable in the bankruptcy and could be maintained when it arose on 8 June 2012 after the bankruptcy. Their argument was said to be based upon the approach taken in Australian Competition and Consumer Commission v Black on White Pty Ltd [2004] FCA 363 and Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52.

11    In Black on White Spender J held that orders for compensation or damages under ss 87 and 82 of the then Trade Practices Act 1974 (Cth) were not provable debts within the meaning of s 82(1) of the Bankruptcy Act 1966 (Cth) arising from actionable representations which had been made before the date of bankruptcy. In reaching that conclusion his Honour expressed the view that the liability arising from the orders made by the court was not a contingent liability. His Honour said at [36]:

At the time Mr Poteri became bankrupt, there was no liability, actual or contingent, present or future, to which Mr Poteri was exposed as a result of the reliance of persons on representations made by Black on White Pty Ltd to them at times prior to the date of his bankruptcy. Even if there was, in my opinion his liability created by the orders made under subs 87(1B) of the Trade Practices Act on the 22 November 2001 did not exist prior to that date, and as at the time of his bankruptcy, it cannot be said that there was a liability that was contingent on the Court making the orders on 22 November 2001 that it did.

The applicants contended that the reason for his Honour’s conclusion that the liability which had been created by the orders was not contingent was that “the quantum [had been] determined only as a consequence of judicial estimation”. It is, no doubt, true that the quantum of the orders made in that case had been determined as a result of judicial estimation, but the applicants’ submission does not sufficiently reflect his Honour’s reasons. The critical aspect of his Honour’s reasons was not that quantum had not been determined until the orders were made by the Court, but that the orders were not derivative in the sense of being dependent upon the existence of any cause of action available to the party in whose favour the orders were made. His Honour said at [24]-[25]:

The amounts ordered to be paid in this case were compensatory in nature. The quantum is the amount which the court considered would compensate the person, in whole or in part, for the loss or damage suffered by those persons by conduct of a person engaged in contravention of Pt IV of the Trade Practices Act. The fact that the Court has power to make orders under s 87 of the Trade Practices Act against a person, like Mr Poteri, who was not the contravenor but was involved in contraventions of Part IV of the Trade Practices Act, draws attention to the fact that the power of the Court is not dependent on the person on whose behalf compensation is ordered having a right of action against the person ordered to pay the amount by way of compensation.

In my opinion, orders for the payment of money under s 87 of the Trade Practices Act are not in any sense derivative: they do not depend, particularly against the contravenor, on whether the person who suffers loss or damage would have a cause of action against the person ordered to pay compensation. In many instances, there would be some cause of action, perhaps under the Trade Practices Act, perhaps for money used and received on a total failure of consideration, or perhaps an action for damages for breach of contract. The power to make the order for compensation does not depend on the existence of any such cause of action, but on the establishment of the elements of the subsections. It is not irrelevant to note that s 87 of the Trade Practices Act is not confined to cases where loss or damage has been sustained: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 515 per McHugh, Hayne and Callinan JJ, and Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 527 per Mason CJ, Dawson, Gaudron and McHugh JJ.

His Honour was not, of course, directly considering whether the claims before him were “contingent” within the meaning of s 82(1), but his observation in [36] that the claims were not contingent reflected his Honour’s reasoning in paragraphs [24] and [25] that the court’s power to make the orders did not depend upon the person on whose behalf compensation was being ordered having a right of action against the person ordered to pay the amount and that the orders were not “in any sense derivative”. Claims for contribution under s 23B of the Wrongs Act 1958 (Vic) are different because the court’s ability to make an order under that provision derives from the concurrent liability of a joint tortfeasor to the injured party who successfully recovers from the joint tortfeasor who seeks contribution. The entitlement, as a cause of action in contribution, derives from and is contingent upon the concurrent liability owed by the joint tortfeasor to the party who has been injured.

12    Foots was concerned with whether a costs order was a provable debt within the meaning of s 82(1). The majority of the court in that case held that the risk of an order for costs being made by a court was not a contingent liability within the meaning of s 82(1) because an order to pay costs did not depend upon any liability to pay costs before the order for costs was made. Their Honours said at [36]:

The most that can be said, as Mummery LJ observed in Glenister, is that “[o]nce legal proceedings have been commenced there is always a possibility or a risk that an order for costs may be made against a party”. But that risk is not a contingent liability within the sense of s 82(1). The order for costs itself is the source of the legal liability and there is no certainty that the court in question will decide to make an order. It should be remarked that in support of his reasoning in Glenister, Mummery LJ referred to what had been said by Kitto J in Community Development Pty Ltd v Engwirda Construction Co and by Tadgell J in Federal Commissioner of Taxation v Gosstray. The first submission by the appellant should be rejected. [Citations omitted].

Foots was, therefore, a case deciding that the possibility or risk of an order for costs being made was not a contingency of the kind contemplated by the section because no liability for costs existed before the order was made. An order for costs is discretionary and there is no liability for a party to pay costs unless and until the liability is created to pay costs by the order of the court. It is unlike the ascertainment of an amount of a liability falling upon joint tortfeasors which quantifies an existing liability and upon its crystallisation enlivens a right of contribution as between the joint tortfeasors.

13    A debt or liability, to be contingent, requires that there be some existing right or liability before the contingency arises: Lyford v Carey (1985) 3 ACLC 515, 517-8. In Lofthouse v Commissioner of Taxation (2001) 164 FLR 106 Warren J, as the Chief Justice then was, held that the potential liability in the nature of a statutory indemnity arising under s 588FGA of the Corporations Law was a contingent liability arising upon the contingency of “the effectuation of a legal liability on the part of the Commissioner to pay the liquidator”: [39]. In Ansett Australia Ltd v Travel Software Solutions Pty Ltd (2007) 65 ACSR 47, Hargrave J said in relation to the existence of a contingency:

The issue arises as to what is required in order for a right or liability to “exist as contingent” at the relevant date. The effect of the cases is that a contingent right or liability will only exist where there is an existing right or obligation out of which, on the happening of a contingency (an event which may or may not occur) there will arise a right to be paid, or an obligation to pay, a sum of money, which sum of money may be liquidated or sounding only in damages.

The entitlement to contribution arising under s 23B of the Wrongs Act 1958 (Vic) is apt to be described as contingent in that sense. The right of the applicants to claim for contribution, and the corresponding liability of Dr Jatkar to pay contribution, existed because they had a right to seek from him an amount for contribution arising from their concurrent liability to the plaintiffs upon the ascertainment of the amount payable for the damage done by them jointly. The existing liability of Dr Jatkar to the plaintiffs was a qualifying condition for s 23B(1) to apply and for the contingent liability between joint tortfeasors to arise upon the occurrence of the ascertainment of the amount payable to the plaintiffs. Dr Jatkar was a person liable, as provided by s 23A(1) for the purposes of s 23B, in respect of the damage for which his joint tortfeasors were also liable: Arthur Young v Brunswick NL [1999] 1 VR 387, 388, 391, 396. There was a co-ordinate responsibility of the defendants for the loss or damage suffered by the plaintiffs. That was an existing right or obligation which predated the bankruptcy. The existing liability of the joint tortfeasors to the plaintiffs (as contemplated by s 23A(1) was the qualifying contribution for the contingent liability created by s 23B between joint tortfeasors. The applicants’ claim for contribution was, therefore a provable debt within the meaning of s 82(1).

14    The applicants next contended that Dr Jatkar’s liability was excluded from the ambit of provable debts by force of s 82(2) because the claim for contribution fell within the description of demands “in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust”. The applicants contended that a claim for contribution was a demand in the nature of unliquidated damages and that the demand did not arise by reason of a contract, promise or breach of trust. Dr Jatkar contended that the claim against him by the applicants was not for, or in the nature of, damages, and that it arose by reason of a contract.

15    A similar claim for contribution was considered by McLelland CJ in Eq in Re WA Brown & Sons Pty Ltd [1964-5] NSWR 575 not to be a claim in the nature of unliquidated damages within the meaning of the relevant section of the Bankruptcy Act 1966 (Cth). His Honour considered three counts which had been claimed in a third party notice seeking contribution from a joint tortfeasor. The plaintiff’s claim in that case against the joint tortfeasors was (like the plaintiffs’ claim against Dr Jatkar and the applicants) in the nature of unliquidated damages, but, as his Honour observed at 579, “that fact [did] not, of course, necessarily determine the nature of the applicant’s claim against the company”. His Honour went on to pose the question of whether the applicant’s claim against the company in that case fell within the description of a demand in the nature of unliquidated damages. His Honour concluded that it did not saying at 579-580:

I have read the authorities, to which I have referred, with care but they do not directly assist in deciding the particular problem here. The conclusion I have come to is that the statutory right to contribution or indemnity does not answer the description of a demand in the nature of unliquidated damages.

This accords with the view expressed by Professor Glanville Williams in his book on Joint Torts and Contributory Negligence.

At p. 173, the learned author says: “By the Bankruptcy Act 1914, s. 30, debts provable in the bankruptcy are ‘all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order’. It is submitted that the duty to pay contribution comes within these words, even though the award of contribution is a matter of judicial discretion and even though the award is not made at the date of the receiving order. The Act further provides that debts provable do not include ‘demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust’. Since a claim for contribution is not strictly a demand in the nature of unliquidated damages (though it is a claim for an unliquidated sum), it seems that it does not come within this exception although the use of the words “it seems” appears to suggest a little doubt…”

The question posed by McLelland CJ in Eq for determination may not have had an obvious answer and may, in part, be made difficult by the description of the extent of the claims which are excluded from proof in bankruptcy as claims “in the nature of” unliquidated damages. The exclusion of claims by s 82(2), however, is limited to claims for, or in the nature of, “damages”. The sum sought by a joint tortfeasor in a claim for contribution is, as his Honour observed in WA Brown, for an unliquidated “sum” but the claim for that sum was not a claim for, or in the nature of, “damages”.

16    The applicants sought to distinguish WA Brown on two bases. One basis was that his Honour’s views were obiter because his Honour said that he would have given leave for the party to proceed in any event because the party had been insured. It is unnecessary to determine whether the passages quoted above were obiter or whether they expressed the reason for his Honour’s decision, since I respectfully consider what his Honour said to be correct. The other basis upon which the applicants sought to distinguish the decision in WA Brown was that the third party in that case was a corporation rather than an individual. In that connection the applicants drew attention to a passage quoted by Morling J in Fielding v Vagrand Pty Ltd (in liq) (1992) 39 FCR 251 where his Honour said at 256:

As Professor H A J Ford observes in his Principles of Company Law (5th ed, 1990), par 2220, exclusion of unliquidated claims in tort makes more sense in bankruptcy than in company liquidations because a claimant may pursue the claim against a bankrupt after the bankrupt has been discharged, but a company ceases to exist on dissolution.

The fact that the third party in WA Brown was a corporation is not a basis for distinguishing the reasoning in WA Brown in construing the meaning of s 82(2) of the Bankruptcy Act 1966 (Cth). The passage from Professor Ford’s book which was referred to by Morling J in Fielding drew attention to a potential difference in treatment of unliquidated claims in personal bankruptcies under the Bankruptcy Act and corporate insolvency, rather than to any reason for differential treatment of individuals and corporations within the application of s 82(2) of the Bankruptcy Act 1966 (Cth). The distinction (namely, that the third party was a corporation in WA Brown) might have been a reason for his Honour reaching a different conclusion in that case given the question he posed for determination, but if his Honour’s conclusion is correct as a matter of the proper construction of s 82(2), it would apply whether the relevant third party was a company or an individual. The critical issue in WA Brown was not the nature of the legal person who was claiming in the insolvency, nor the nature of the legal person who was made insolvent, but whether the claim was a claim for “damages”. Indeed, on one view the passage from Professor Ford’s book reinforces the correctness of the conclusion in WA Brown in cases based upon the Bankruptcy Act 1966 (Cth) (as this case is), whatever might be the position under provisions dealing with corporate insolvencies.

17    Dr Jatkar’s liability for contribution to the applicants is a statutory liability and not a claim for damages, or in the nature of damages. In Official Trustee in Bankruptcy v CS & GJ Handby Pty Ltd (1989) 21 FCR 19 the Full Court held that a claim made under s 556(1) of the Companies (Tasmania) Code against a bankrupt director was a liability within the meaning of s 82(1) and not a demand in the nature of unliquidated damages in s 82(2) of the Bankruptcy Act 1966 (Cth). Section 556(1) made a director of a company liable for a debt incurred by a company when there were reasonable grounds to expect immediately before the company incurred the debt that the company would, or would if it incurred the debt, be unable to pay all of its debts as and when they became due. At 26 the Full Court posed the question whether a claim made under s 556(1) was a claim for damages and answered that question by saying:

We think not. It is a claim for money under a statute, made independently of a wrong which is a tort or a breach of contract. Unless he can exculpate himself by establishing a positive defence, a director is liable in the circumstances set out in the section, not for any defined act or omission, but by reason of his having been a director of the company. Such a claim is not an action for damages.

The court adopted with approval a passage from H McGregor, McGregor on Damages (14th ed, 1980), explaining the general position as:

Actions claiming money under statutes, where the claim is made independently of a wrong which is a tort or breach of contract, are not actions for damages.

The court went on to observe that a statutory claim for indemnity was not a demand in the nature of unliquidated damages, citing WA Brown.

18    The applicants’ claim against Dr Jatkar would not be excluded by s 82(2) even if it were one in damages, because it would not be a claim arising otherwise than by reason of contract. In Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234 the majority judgment in the High Court explained at [5]-[7]:

5    The central question in the appeal hinges on the meaning of s 82(2) of the Bankruptcy Act 1966 and, in particular, what is meant by a demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise. That expression, used to identify an exception to the definition of debts provable in bankruptcy, has been held (27) not to include a claim for unliquidated damages for fraudulent misrepresentation which induced the party misled to make a contract with the bankrupt (a “bilateral” case). That is, such a claim for damages has been held to be a debt provable in the bankruptcy, and a claim that was to be set off against a claim by the bankrupt estate. But a claim for unliquidated damages for fraudulent misrepresentations where the representations induced the claimant to make a contract with another (a “tripartite” case) has been held (28) not to be a claim provable in the bankruptcy. The bankrupt having made no contract with the party who claims damages from the bankrupt, the claim for damages for fraudulent misrepresentation has been held to be a demand arising otherwise than by reason of a contract or promise.

6    These reasons demonstrate that a statutory claim for unliquidated damages for misleading or deceptive conduct which induced the claimant to make a contract not with the bankrupt but with a third party is not a debt provable in bankruptcy. It is a demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise (29). The bankrupt is not discharged from liability. The claim may be pursued by the claimant during the bankruptcy and after discharge from bankruptcy. By contrast, a claim for unliquidated damages for misleading or deceptive conduct by the bankrupt, which induced the claimant to make a contract with the bankrupt, would be a debt provable in bankruptcy.

7    At once it must be said that to distinguish between a case where the bankrupt’s conduct induced the claimant to make a contract with the bankrupt and the tripartite case where the conduct induced the claimant to make a contract with another is anomalous. But it is a particular example of anomalies of the kind identified by the Australian Law Reform Commission as long ago as 1988 in its General Insolvency Inquiry (30). The Commission recommended changing the law governing both personal and corporate insolvency to remove anomalies of this kind. Amendments were made to Corporations legislation (31). The Commission’s recommendations about this aspect of personal insolvency law have not been carried into effect.

The claim for contribution between joint tortfeasors is not, of course, a claim in contract, but that claim did “arise from” the contract alleged against the joint tortfeasors: see also Lovell v Jenkin [2008] FCA 637 at [25]-[26]; Geor v Delany [2009] QSC 15, [13]

19    It is not necessary to decide the general claims made by Dr Jatkar that the application in this court was an abuse of process by reason that the applicants had unsuccessfully argued the same issues in the Supreme Court. The point was not raised as an objection to competency of this court, nor in a separate application for a stay of these proceedings, but was relied upon in answer to the application. Dr Jatkar had been discharged from bankruptcy on 28 November 2006 and during a mediation on 1 June 2012 the plaintiffs accepted the applicants’ offer to settle the plaintiffs claim. The trial of the contribution proceedings was then set to commence on 17 June 2013 but on 21 May 2013 Dr Jatkar issued a summons to the other defendants (the applicants in this proceeding) seeking to vacate the trial date and a stay of the contribution proceedings pursuant to ss 58(3) and 60 of the Bankruptcy Act 1966 (Cth). The hearing of the contribution proceedings was vacated, and on 11 June 2013 Williams J heard argument on whether to grant a stay. On 27 June 2013 her Honour granted the stay as the contribution proceedings had each been commenced without the requisite leave which had been required under s 58(3). In doing so her Honour had necessity to consider whether the contribution claim was provable in the bankruptcy within the meaning of s 82 of the Bankruptcy Act 1966 (Cth) in order for her Honour to determine whether the proceeding within the jurisdiction of the Supreme court ought to be stayed: a consideration of the issues raised in this court was necessary to determine whether to stay the proceedings in that court.

20    This Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy which is exclusive of the jurisdiction of all courts other than that of the High Court under s 75 of the Constitution and of the Family Court under ss 35 and 35A of the Bankruptcy Act 1966 (Cth): see also Morris v Maroudas (1986) 12 FCR 346, 352, 365, 366. “Bankruptcy” is defined in s 5 in relation to jurisdiction or proceedings to mean any jurisdiction or proceeding under or by virtue of the Bankruptcy Act 1966 (Cth).

21    The declarations sought in the applicants’ claim against Dr Jatkar fall within the exclusive jurisdiction of the court but the conferral of exclusive jurisdiction in bankruptcy upon the Federal Court and the Federal Circuit Court does not deprive State, or other, courts of the ability to determine matters which are necessary to engage the jurisdiction of those courts. Greenwood J said in Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380 at [88]:

The model adopted by the Bankruptcy Act upon its commencement provided for the investing of federal jurisdiction in bankruptcy (ss 27(2) and 5) in the eight courts identified in s 27(1) of that Act rather than an exclusive vesting of jurisdiction in a federal court. It would be an odd result if the subsequent conferral of exclusive jurisdiction in bankruptcy in the terms of the current s 27 of the Bankruptcy Act deprived the several courts of the States of a jurisdiction to determine whether a plaintiff has properly engaged that court’s jurisdiction having regard to his or her standing by reason of the operation of one or more provisions of the Bankruptcy Act. There is a distinction between the exercise of a court’s jurisdiction in a proceeding that calls into question a provision of the Bankruptcy Act on the one hand and the exercise by that court of a jurisdiction under or by virtue of the Bankruptcy Act, on the other.

His Honour went on to say at [117]-[119]:

Thus, when a State court determines whether a proceeding can properly be commenced or maintained before it or whether the plaintiff has standing to engage the jurisdiction of the Court, by reason of any impediment going to the operation or application of a provision of the Bankruptcy Act, such an application is not one under or by virtue of the Bankruptcy Act. The Commission in Court Session was not exercising a jurisdiction in bankruptcy by determining the motions before it brought by Meriton and Owners.

Meriton and Owners are not content with the final orders made by the Full Bench of the Industrial Court and seek to bring a federal controversy to this Court. Prima facie, an attempt by the unsuccessful parties in the Industrial Court proceedings to enliven the original jurisdiction of this Court so as to agitate the merits of the same questions and seek to set aside and quash the orders made by that court, is an abuse of process (Hunter v Chief Constable of West Midlands Police [1982] AC 529, per Lord Diplock at 536[C], 541[BC]; Spalla v St George Motor Finance Ltd (No 6) [2004] FCA 1699 per French J at [59], [67]-[70]; Walton v Gardiner (1993) 177 CLR 378 per Mason CJ, Deane and Dawson JJ at 393).

The attempt to frame a controversy within the jurisdiction of this Court will not constitute an abuse of process if the applicants before this Court are seeking to establish jurisdictional error on the part of the Industrial Court and orders of this Court properly lie to remedy an error of jurisdiction by the Commission in Court Session. If the jurisdiction of this Court is sought to be enlivened to remedy a perceived error of that Court within jurisdiction, the bringing of these proceedings is an abuse of process in the technical sense.

The issue before her Honour in the stay application was whether the proceeding before her, and which was properly within the jurisdiction of the Supreme Court, should be stayed. That question called for her Honour to consider whether the claim made in those proceedings, which had been made under s 23B of the Wrongs Act 1958 (Vic) against Dr Jatkar, required leave under s 58(3) of the Bankruptcy Act 1966 (Cth). That question, in turn, depended upon whether the claim against Dr Jatkar for contribution was a debt or liability provable in his bankruptcy within the meaning of s 82(1) or a demand in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust within the meaning of s 82(2). The declarations sought by the applicants come within the exclusive jurisdiction of this court, but their attempts to enliven that jurisdiction in this proceeding is an abuse of process in circumstances where they fully participated in addressing the very same issues in the Supreme Court in the context of seeking to oppose Dr Jatkar’s application for a stay. There is no suggestion that they were prevented from enlivening this court’s jurisdiction before fully participating in their unsuccessful opposition to the stay application before Williams J. The applicants in this proceeding seek to challenge the basis upon which Williams J determined an application within the jurisdiction of the Supreme Court. The present application raises the same issues between the same parties and is sought for the same reason.

22    The orders will be to dismiss the application.

Associate:

Dated:    22 May 2014