FEDERAL COURT OF AUSTRALIA

Zakrzewski, in the matter of Zakrzewski v Rodgers [2000] FCA 1187

BANKRUPTCY – application to set aside bankruptcy notice on grounds of counter-claim or cross demand – summons for relief filed against creditor in NSW Industrial Relations Commission – debtor claims in Commission that contract unfair, harsh, unconscionable or against public interest – test as to sufficiency of debtor’s claim – evidence exists to support claim – no issue estoppel – no Anshun estoppel – possible abuse of process – no jurisdictional barrier – claim measurable in money – claim against creditors in the same right as right to debt held by creditor

Bankruptcy Act 1966 (Cth), ss 40(1)(g), 41(7)

Industrial Relations Act 1996 (NSW), ss 105, 106

Re Wakim; Ex parte McNally (1999) 163 ALR 270, applied

Commercial Bank of Australia v Amadio (1983) 151 CLR 447, cited

Re Gould; Ex parte Skinner (1983) 72 FLR 393, applied

Ebert v Union Trustee (1960) 104 CLR 346, applied

Guss v Johnstone (2000) 171 ALR 598, applied

Vogwell v Vogwell (1939) 11 ABC 83, applied

Port of Melbourne v Anshun (1981) 147 CLR 589, distinguished

Stuart v Sanderson [2000] FCA 870, applied

Re Siromath (No 1) (1991) 9 ACLC 1580, considered

Sydlow v Kotselas (1996) 144 ALR 159, applied

General Steel v Commissioner for Railways (1964) 112 CLR 125, applied

Pullen v R & C Products (1994) 60 IR 183, cited

Davies v General Transport Development (1967) AR(NSW) 371, cited

James v Abrahams (1981) 34 ALR 657, applied

IN THE MATTER OF JOHN ZAKRZEWSKI,

JOHN ZAKRZEWSKI v PETER DAVID RODGERS

N 7456 of 1999

MADGWICK J

23 AUGUST 2000

SYDNEY

THE COURT ORDERS THAT:

1.                  Bankruptcy notice 504 of 1999, served on the applicant on 14 April 1999, is set aside.

2.                  The respondent is to pay the applicant’s costs.

REASONS FOR JUDGMENT

HIS HONOUR:

1                     In this matter the applicant/debtor, Mr Zakrzewski, seeks an order setting aside a bankruptcy notice, served on him on 14 April 1999, on the grounds that he has a counter-claim or cross demand exceeding the amount due in the notice.  This matter was originally heard together with an application in Re Desaro Design Interiors Pty Limited, NG 3040 of 1992, a proceeding concerning leave sought by the applicant to institute certain proceedings against the creditor.  In light of the decision in Re Wakim; Ex parte McNally (1999) 163 ALR 270 it was subsequently ordered and declared that the Court had no jurisdiction to hear and determine those proceedings.

Factual background

2                     On 6 March 1992 the respondent/creditor, a partner of Love and Rodgers, Chartered Accountants, was appointed, by order of this Court as provisional liquidator of Desaro Designs Interiors Pty Limited (in liquidation) (“Desaro”).  As at that date, the debtor was a director and employee of Network Painting and Decorating Pty Limited (“Network”) and for all relevant practical purposes controlled Network.  It was known to all concerned that the debtor performed work for Network and was likely to be dependent in substantial part for his livelihood on Network’s income from its painting contacts.  Network was owed $32,730 by Desaro for work performed under various contracts in the previous twelve months period.  Network has not been paid any amount in respect of the pre-liquidation debt, and in fact no such payment was made to any unsecured creditors.

3                     Also on 6 March 1992 the debtor attended work for Network, pursuant to Network’s contract with Desaro, at Desaro’s job at St Martins Tower.  He was told that Desaro had gone into liquidation and that there was no more work.  Several days later the debtor returned to the St Martins Tower site to collect his tools.  He claims then to have had a conversation with Mr Paul Leroy, an employee of Love and Rodgers, to the following effect:

“Leroy:           Peter Rodgers has been appointed by the Court as provisional liquidator of Desaro. He wants you to continue the painting work on St Martins Tower and other jobs still unfinished by Desaro. However we are not responsible for jobs done before 6 March 1992 under this arrangement.

Debtor:           But liquidation means that Desaro has no money, they already owe me money. How will I be paid?

Leroy:             Listen John, stay with us. Mr Rodgers has been appointed by the Federal Court to oversee the provisional liquidation of Desaro and we guarantee you will get paid for all jobs after 6 March 1992, every cent. All works undertaken by you in this arrangement will be paid for under the provisional liquidation order. We order the work from you, and we guarantee payment. You will be preferential creditors anyway. We are looking after the money side of it now, no more Desaro, just make your invoices out to Desaro so we know what they are for, and we will look after them.”

4                     On 10 March 1992 a letter was sent from Love and Rodgers to each of Desaro’s creditors.  That letter included the following paragraph:

“We are currently conducting an investigation of the position of the company during which time we will be continuing business operations. Supplies of goods and services will be required by the company and you are advised that payment in respect of these goods and services, properly ordered, will be made under normal trading terms. Suppliers will be treated preferentially providing that the supply of goods and rendering of services by them is made only upon the receipt of an official company order signed by the Provisional Liquidator or by the persons listed hereunder.”

5                     Mr Leroy’s account of the conversation of 6 March 1997, as to future work, was to the effect that such work would have to be authorised by the provisional liquidator and that payment would be made preferentially from the assets of Desaro and from funds which

would come in during the provisional liquidation.  Soon after, Mr Leroy says that he made it clear to the debtor that “the amount you receive depends on what comes into the company”.

6                     Network was thereupon retained by Desaro to undertake further painting work at various sites on a contract basis until September 1992.  It is common ground that some payments were made to Network by Desaro in respect of some of the work performed during the provisional liquidation, however, the debtor claims that $46,773 is still owed to Network for the performance of this work.  The creditor’s case is that any amounts unpaid were either not authorised by Mr Rodger’s agents or, through poor workmanship on behalf of Network, not contractually earned.

7                     On 30 October 1997 the creditor was appointed as the liquidator of Desaro.

History of litigation

8                     The main points are these.  On 7 September 1992 Network commenced an action against the creditor personally, to recover unpaid monies for the work performed during the provisional liquidation, by way of a statement of liquidated claim filed in the Local Court.  On 6 October 1992 the creditor filed a defence and cross-claim, and on 13 November 1992 the creditor obtained a default judgment on the cross-claim, which resulted in a judgment debt against the debtor.  On 6 September 1993 the creditor filed an amended summons in the Supreme Court of New South Wales seeking the winding up of Network on the basis of the judgment debt.  This was done on 27 September 1993, by order of the Supreme Court, and a liquidator was appointed.  On 12 May 1995 the default judgment of the Local Court, dated 13 November 1992, arising from the creditor’s cross claim was set aside.  On 13 December 1995 the Local Court stayed the continuation of the proceedings pending leave of this Court being given to Network to pursue the proceedings.  That leave was granted on 16 February 1996. 

9                     The matter was therefore heard before Mr Dive, magistrate, on 6 November 1996.  It was agreed that a preliminary question to be tried was whether the creditor had, by his agent Mr Leroy, given a personal guarantee to Network during the provisional liquidation of Desaro (in a similar form to that set out in the conversation outlined in para 3).  Both the debtor and, on the creditor’s behalf, Mr Leroy gave evidence.  The learned magistrate found that Network failed to establish that such a guarantee was given and dismissed the claim.

10                  On 21 November 1997 the debtor filed an amended application in this Court seeking a review of the liquidation under s 536 of the Corporations Law.  On 21 April 1998 the matter came before Beaumont J.  The debtor sought an order to institute an inquiry into the conduct of the creditor “and in particular … to determine whether Mr Rodgers’ conduct was unconscionable, whether any false or misleading statements were made by Mr Rodgers or whether Mr Rodgers acted otherwise contrary to law” (see Zakrzewski v Rodgers [1998] FCA 670 at p 2).  Beaumont J determined that the debtor had not established a prima facie case to instigate an inquiry under the relevant section, and ordered that the application be dismissed with costs.  That order became the foundation of the debt upon which the bankruptcy notice is predicated.

The claim before the Industrial Relations Commission

11                  On 5 August 1998 the debtor filed a summons for relief under s 106 of the Industrial Relations Act 1996 (NSW) in the Industrial Relations Commission of New South Wales (“the Commission”).  Section 106 of the Industrial Relations Act (“the IR Act”) provides that:

“(1)     The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2)       The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(3)       A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time.

(4)       In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5)       In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.”

“Contract” and “unfair” are given extended meanings by s 105:

“‘contract’                  means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument.

…

‘unfair contract’         means a contract:

(a)               that is unfair, harsh or unconscionable, or

(b)               that is against the public interest, or

(c)               that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or

(d)               that is designed to, or does, avoid the provisions of an industrial instrument.”

12                  Before the Commission the debtor claims that the post liquidation arrangement between the creditor and Network, whereby Network would continue to fulfil contracts for Desaro, was unfair, harsh, unconscionable and contrary to the public interest because: the debtor was not remunerated for work done; the creditor caused Network to be wound up and thus deprived the debtor of employment, and; the creditor had sworn by way of affidavit that the sale of Desaro’s assets to its directions would ensure that Desaro’s creditors would be paid in full.  The debtor seeks, amongst other things, declarations that the arrangement between Network and the creditor was unfair and that the debtor was not remunerated for work performed for the creditor acting in his role as provisional liquidator of Desaro, and an order varying the arrangement to include terms to the effect that the creditor will ensure that employees of Network are so remunerated.  Further, the debtor seeks an order that the creditor pay to the debtor any money that may be found owing under the arrangement as varied.

13                  In particular the applicant’s claim before the Commission relies upon his having been at some special disadvantage (cf Commercial Bank of Australia v Amadio (1983) 151 CLR 447), although it is clear that the statutory phrase “unfair contract” in s 105 of the IR Act is wider than the notion “harsh unfair or unconscionable” and is not limited to common law or equitable notions:  see generally The Laws of Australia, Vol 26 at [46]-[56].  The disadvantage claimed includes difficulties with the English language, a lack of commercial experience, at least as to corporate insolvency, and an absence of professional or independent advice. 

14                  It is claimed that the creditor, by himself or his agents, was or ought reasonably to have been aware of these disadvantages, and as liquidator acted unconscionably by failing to make clear the extent of the financial risk that the debtor was entering upon by continuing to perform work for Desaro.  This was said to have occurred at the time that Network was engaged by the creditor, and then to have continued over a period of time during which, it is to be inferred, the creditor’s understanding of Desaro’s financial prospects became increasingly clear.

15                  Pursuant to an application made by the creditor on 3 March 1999, Kavanagh J, a member of the Commission, stayed the application before her pending the debtor obtaining the leave of this Court (then thought to have jurisdiction) to proceed against a liquidator. 

Bankruptcy proceedings

16                  On 11 March 1999 this Court ordered the debtor to pay the creditor the sum of $17,292.44 pursuant to the costs order made by Beaumont J.  On 8 April 1999, the debtor sought leave in this Court, by way of notice of motion (in Matter No. NG 3040 of 1992), to proceed against the creditor in the Commission and, after Wakim, has sought it in the Supreme Court of New South Wales. 

17                  On 12 April 1999 the debtor was served with the bankruptcy notice for an amount arising out of the judgment debt order of Beaumont J.  The debtor now seeks to set aside the bankruptcy notice on the ground that he has a counter-claim or cross demand equal to or exceeding the amount claimed.

The Bankruptcy Act 1966

The debtor relies, of course, upon the following provisions of the Act.  Section 40(1)(g) provides that:

“A debtor commits an act of bankruptcy in each of the following cases:

            …

(g)               if a creditor who has obtained against the debtor a final judgment or final order, being a judgement or order the execution of which has not been stayed, has served on the debtor … a bankruptcy notice under this act and the debtor does not … comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained”.

Section 41(7) provides that:

“Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the grounds that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.”

Although s 41(7) does not by its terms provide a power to set aside a bankruptcy notice, where the Court is satisfied that a counter-claim, set-off or cross demand exists, of the type referred to in paragraph 40(1)(g), it is well-settled that such a power is to be implied from s 41(7) and other provisions of the Act.

Whether the debtor has a counter-claim or cross demand

18                  It was agreed between the parties that the bankruptcy debt, as required by the terms of s 40(1)(g), arose from a final judgment or order and that the supposed counter-claim or cross demand asserted by the debtor could not have been claimed in the proceedings in which the judgment was obtained:  see Re Gould; Ex parte Skinner (1983) 72 FLR 393.  However, it was submitted by the creditor that the Court ought not be satisfied that the applicant’s proceedings before the Commission constituted a counter-claim or cross demand for three reasons:  first, the debtor failed to establish that he has a prima-facie claim before the Commission; second, the counter-claim or cross demand is not measurable in money, and; third, the counter-claim or cross demand must be brought against the creditor “in the same right” as that in which the creditor holds the judgment debt against the debtor.

A prima facie case?

19                  In Ebert v Union Trustee (1960) 104 CLR 346 at 350, in relation to the Bankruptcy Act 1928 (Cth) (which was not relevantly different to the current legislation), the High Court unanimously held that:

“The [debtor] 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 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 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”. Perhaps the standard may be expressed by saying that the debtor must show that he or she has a prima facie case, even if then and there he or she does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved”.(Emphasis added).

20                  This test has recently been referred to without disapproval in a unanimous judgment of the High Court in Guss v Johnstone (2000) 171 ALR 598.  At [39] the Court further said:

“In Vogwell v Vogwell [(1939) 11 ABC 83], 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.’

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 to go ahead or requiring them to await the determination of the claim.”

To the extent that Vogwell may have stated a higher test than Ebert, I would therefore adopt the formulation in Vogwell.  In the background of these statements is that it is a very serious thing for the status of bankruptcy to be imposed upon a person.

21                  It was submitted by the creditor that the debtor’s case before the Commission is fundamentally hopeless for several reasons.  First, it was said that there is no evidence at all, only bare assertions, to demonstrate unfairness.  However, this is clearly not the case.  There is evidence to support the fact that Network has not been paid for work done for Desaro.  As to some of this work, the evidence does not clearly make out even a realistic claim by the creditor that the work was either unauthorised or of such a poor standard as not to deserve payment.  There is evidence, in the form of statements made on oath by the debtor, that he was never informed of Desaro’s financial prospects.  Further, the debtor does not appear to have been completely fluent in English, nor commercially experienced at least in relation to the insolvency of his customers.  He claims not to have received, nor sought, any independent professional advice during the time in question.  These were things of which, the Commission might reasonably conclude, the creditor’s agents were aware.

Estoppel?

22                  Second, the creditor argued that an issue estoppel operated to prevent the debtor re-litigating the facts surrounding the conversation, set out in para 3 above, in which Mr Leroy was said to have guaranteed payment for the work done for Desaro.  It was determined by Mr Dive, the magistrate, that the alleged guarantee had not been made and an attempt to re-litigate that issue would be barred in the Commission.  However, as noted by counsel for the debtor, even if the respondent’s account (that is, Mr Leroy’s account) of the conversation of 6 March 1992 be accepted, a claim related to alleged unfairness can remain.  The alleged conversation is only one element of the case before the Commission and arguably not a crucial element.  Also, as a matter of law, Network was not Mr Zakrzewski.

23                  Third, it was put by the creditor that at least an Anshun estoppel ought to operate because, in substance, the debtor has made two other litigious forays, namely the action by his corporate alter ego in the Local Court and the effort in this Court before Beaumont J to impugn Mr Rodgers’ liquidation of Desaro, to vindicate his claim directly or indirectly to be entitled to be paid by Mr Rodgers personally for the work done by Network for Desaro.  There must be an end to litigation and there ought not be any undue disruption of the administration of justice:  Port of Melbourne v Anshun (1981) 147 CLR 589 at 598 and 605, per Murphy J.  However, the ambit of the Anshun estoppel principle is not so broad as this.  Leaving aside the legal lack of identity between the debtor and Network as to the Local Court action, the doctrine requires that a party who brings an action should bring the whole case.  However, here the debtor could not have brought the proceedings that he currently wishes to present before the Commission in any other forum.  He did not have the opportunity before either Mr Dive or Beaumont J to bring the claims.  Therefore Anshun estoppel cannot operate.  The delay alone in resort to the Commission and the choices to go elsewhere would merely be matters for the Commission to take into account in its discretion.

Abuse of process?

24                  More troubling is the proposition that it would necessarily be oppressive of the creditor if the Commission were now to entertain the debtor’s claims, after the creditor has been twice vexed with unsuccessful legal proceedings brought against him by the debtor or his puppet and is owed money for unpaid costs.  That the Commission should be asked to entertain actually oppressive proceedings would no doubt be an abuse of the Commission’s process.

25                  At first sight, the creditor appears to have a point.  However, there are other considerations.  Issue estoppel has no discretionary component.  Nor has Anshun estoppel where it applies unless a special circumstance exception is invoked.  I considered this matter recently in Stuart v Sanderson [2000] FCA 870.  However, whether there is an abuse of process calls for a discretionary judgment and the remedy is discretionary: ibid.  So, for example, it might be that the applicant could demonstrate a claim before the Commission to have it, in its exceptionally broad discretion, award him an amount exceeding the sum of the costs orders obtained by the creditor against Network and the debtor.  It might then reasonably seem to the Commission to be an appropriate response with regard to the position of the “thrice-vexed” respondent simply to offset the sum of those orders against any such amount that the creditor might ultimately be ordered to pay. 

26                  Further, as the abuse of process question can in fairness only be determined in the light of all the relevant circumstances, this would call for a consideration of, among other things, all the matters that the debtor wishes to have the Commission consider.  For this reason, as well as others, it is more appropriate to permit the Commission to do that than this Court, lacking as it does the ripe experience of the Commission in relation to the very broad range of matters that come before it pursuant to s 106 of the IR Act. 

27                  Again, s 106 empowers the Commission to consider whether an arrangement is against the public interest.  This case  potentially raises the following questions:  to what extent ought a liquidator, in the public interest, see to it that an unsophisticated tradesperson (including one using a two-dollar company to trade) fully and adequately understands his or her risk in continuing to perform work for the liquidator?  Should the liquidator, for instance,

seek to ensure that employees, quasi-employees and likely unsophisticated contractors have had legal advice as to the depth and range of the risks remaining to them despite their status as preferential creditors?  Or is such a proposition to invoke unwarranted paternalism and to impose too onerous a requirement on officers of the Court?  Plainly, the relevant aspects of the public interest might be neither few nor narrow.  It is not self-evident that the Commission ought to see itself as precluded from addressing this matter because the putative unsophisticate was, only late in the piece, advised as to the form and possible type of proceeding in which such questions could be litigated.  (It is true that the proceedings in the Commission as presently cast do not now obviously raise such an issue.  But where a statute commits a consideration of the public interest to a curial body, it is not uncommon for that body to perceive aspects of the public interest in ways different from or additional to those, if any, proposed by the parties in their pre-trial preparations.

28                  In any case, these matters must be considered against the debtor’s case claims that, wrongly, he (via his company Network) was not paid monies due for authorised and workmanlike work.  In relation to some of these claims, as the material before me, on a prima facie basis the debtor would appear to me to have the better of the argument.  Without investigating the debtor’s claims fully, it would or at least might be difficult to engage in the necessary discretionary exercise.  It is enough to say that the case against the debtor is not such that it must, or as a matter of very high probability would, succeed.

29                  There is in fact an application foreshadowed before the Commission to dismiss the proceedings on the grounds that they constitute an abuse of process.  The Commission, when sitting in Court Session, has, pursuant to s 152 the status of a superior court of record.  Judicial members of the Commission, such as Kavanagh J, have the same rank, title, status and precedence as a Judge of the Supreme Court:  see Sch 7, cl 7 of the Act.  Only where a debtor who is a would-be applicant before the Commission plainly has nothing of substance to say, should this Court pre-judge the merits of a discretionary issue.  This is not, in my opinion, such a case.  I should not have entered upon this realm at all except that, at first blush, it seemed to me possible that there might be an overwhelming case for the creditor.  What I have had to say is, of course, not intended to influence or embarrass the Commission if it comes to determine the strike-out application foreshadowed before it.  I should add that, although it is for the Commission to deal with the questions of delay and abuse of process, I

have had to consider, as best I can, the probable strength of these foreshadowed objections in determining that the applicant does have a prima facie case such that it is just to defer the question of his bankruptcy.

Interference with liquidator

30                  Further, it was said that to allow the proposed proceedings to continue would interfere with the orderly administration of the liquidator’s duties.  If the debtor were successful before the Commission, it may impose an order upon an officer of the Supreme Court of New South Wales that would oblige that person to pay monies whether out of the assets of the company or otherwise other than in accordance with the Corporations Law.  Such considerations are primarily relevant to the assumed requirement that the debtor obtain leave in the Supreme Court to commence proceedings.  However, the prospects of such leave being granted are relevant to the considerations here of whether the debtor has a prima facie case or otherwise:  if leave is denied in the Supreme Court then the proceedings before the Commission will be hopeless.  The requirement to obtain leave from the Supreme Court arises from the well established principle that the Court, in order to protect its officers from undue interference in performing their duties and to promote the integrity of its processes, will not permit them to be sued in another court of tribunal without its leave:  see Re Siromath (No 1) (1991) 9 ACLC 1580 per McLelland J at 1582.  The discretion to grant leave is guided by the prospects of success of the foreshadowed litigation.  Although there is no specific threshold that may be said to be appropriate in all cases, there must be more than a mere assertion as to the claim.  It has been suggested that the discretion may be exercised on the grounds of the sufficiency of the evidence (see Sydlow v Kotselas (1996) 144 ALR 159 at 166 – 167 per Tamberlin J.  Barwick CJ drew an analogy to a strike out application in General Steel v Commissioner for Railways (1964) 112 CLR 125 which would suggest that the proceedings would need to be manifestly groundless to deny leave.  In any case the relevant test appears not to set a higher threshold than the test that is to be applied in the current application.  Again, without wishing to embarrass or to appear to pre-empt any decision of the Supreme Court, it would appear, if the above tests be correct, that if the application for leave here were to succeed, the application in the Supreme Court would be unlikely to fail.

Scope and exercise of Commission’s jurisdiction

31                  Next,it was contended by the creditor that the Commission would either not have jurisdiction to deal with the matter or would in its discretion decline to exercise it.  Counsel for the creditor argued that while the scope of s 106 of the IR Act was broad it could not have been intended to extend to cases which are essentially commercial and not industrial in nature.  In support of this position counsel cited Pullen v R & C Products (1994) 60 IR 183 at 209, per Marks J, and Davies v General Transport Development (1967) AR(NSW) 371 where at 375 Sheldon J said that the Act is not designed “to become a refuge for those who are merely disgruntled with a bargain entered into on even terms.”  However, it is beyond question that s 106 has a very wide ambit:  prima facie the Commission would appear to have ample power to deal with the matter.  It is, as the creditor suggests, very arguable that the Commission should refuse to exercise its jurisdiction.  However, it cannot be said that there is no more than a remote possibility of its entertaining the application; this is particularly so in the light of the specialist nature of the Commission's work and of the broad, public policy aims that, clearly, may permissibly guide its decision-making in s 106 cases.  It is not for this Court to pre-empt the Commission’s role or its own determination of when and how it should exercise its jurisdiction.

32                  The case put before the Commission is not of the kind most commonly brought there:  it may possibly be described as ambitious.  However, it is not shown to be mere folly.  It is by no means clear that it will not succeed, although, given some substantial hurdles that it appears to face, nobody could now say that success positively appears likely.  For this reason I am satisfied that the applicant has what may reasonably be regarded as a “prima facie case” and that it is just to require the potential bankruptcy to await the determination of the claim the debtor has sought to bring against the creditor.

Measurable in money?

33                  A further matter put forward by the applicant was that the debtor was unable to satisfy the Court of the existence of a counter demand or cross-claim, because the claim does not sound in money.  In James v Abrahams 34 ALR 657, at 664 Deane and Lockhart JJ endorse the view of Latham CJ in Vogwell at 85, in respect of the corresponding provision of the Bankruptcy Act 1928,that:

“The words of the section are that the debtor must satisfy the court that he has a ‘counter-claim … which equals or exceeds the amount of the judgment debt’. In the first place it is accordingly clear that the counter-claim … must be something sounding in money.”

34                  The creditor argues that the claim before the Commission is not one sounding in money, but is a claim akin to the rectification of a contract.  However, the debtor seeks, among other things, an order that the creditor pay to the debtor any money that may be found owing under the arrangement as varied by the Commission and his claim is that the amount Network sued for in the Local Court plus interest at something like commercial rates should be found to be owing.  If successful, this would amount to a direct order for money and the Commission clearly has the power to make such an award.  The other remedies sought are, in a practical sense, subsidiary to that claim.  Therefore, this objection to the application must fail.

A personal claim?  A claim in the same right?

35                  Finally, the creditor submits that the debtor’s application is not a claim in the same right as the judgment debt.  In Ebert at 350 the High Court said:

“The judgment for costs is against the appellant and creates a debt to the respondent [the creditor] which so far as the appellant is concerned is owing to the respondent in its own personal right… if any liability could be imposed upon the respondent trustee company to make good the amount of the deceased’s estate which ex hypothesi had been erroneously distributed by it as administrator under the now existing grant, it would not be an immediate liability to the appellant but a liability to make good the amount to the estate, a liability she could only enforce indirectly or circuitously.  These considerations are enough to show in detail why it is that the appellant debtor does not possess a cross demand”.

36                  A similar approach was taken by Fisher J in dissent in Abrahams at 666:

“It is my opinion that the more satisfactory ground upon which to base our decision is that the creditor is not under a personal liability to meet the debtor’s claim. Such a personal obligation is, in my view essential in that the debtor’s liability is to her personally.  Her obligation to the debtor, if established, is so to administer the property subject to the constructive trust as to provide from such property or the proceeds of sale thereof, to the extent

possible, the amount of the debtor’s claim. She is under no personal liability if there be a shortfall.”

37                  In the proceedings before the Commission, the debtor is the applicant, not Network.  There is no problem about, as it were, that side of the record.  The argument is as to the position of the creditor. 

38                  The costs order which constitutes the “final order” for the purposes of the bankruptcy notice was given in proceedings NG 3231 of 1997 in this Court.  Those proceedings were entitled so as to show the debtor as applicant.  The respondent was designated, as Beaumont J’s reasons for judgment show, “Peter Rodgers as Provisional Liquidator of Desaro Design Interiors Pty Limited (In Liquidation)”.  However, in the proceedings on foot in theCommission, the respondent is styled simply “Peter David Rodgers”.  On the face of things, this suggests that the debtor is indebted to the creditor only insofar as the creditor is as liquidator the agent of Desaro, whereas the debtor seeks to say that he has a cross-claim or cross demand against the creditor personally.

39                  Despite the title of the proceedings, the reality is otherwise.  The creditor’s own conduct was sought to be impugned in the proceeding that gave rise to the costs order.  The very purpose of the inquiry brought under s 536 of the Corporations Law sought was to assist the debtor to obtain practical remedies against the creditor personally.  Had the debtor succeeded in the s 536 proceedings and obtained a costs order against the respondent to those proceedings, it can hardly be doubted that he could have enforced the order against the creditor personally and not been limited to Desaro’s own assets, if any.  Likewise, assume that the respondent had used (and, for the sake of the argument, that he was entitled to use) funds of Desaro in his defence to the s 536 proceedings.  If he should recover from the debtor those costs, he would be entitled to keep any excess over the amount that came from Desaro’s funds.  Thus, in substance, the order founding the bankruptcy notice was obtained by the creditor in his own personal right.  That is, he obtained it in the same right as that in which the applicant now seeks to sue him in the Commission.  This objection too is without substance.

Disposition

40                  For these reasons bankruptcy notice 504 of 1999, served on the applicant on 14 April 1999, is set aside and the respondent is to pay the applicant’s costs.

Associate:

Dated:              23 August 2000