FEDERAL COURT OF AUSTRALIA

Slaveski v Rotstein & Associates Pty Ltd [2009] FCA 1428

BANKRUPTCY AND INSOLVENCY – bankruptcy notice – appeal from decision of Federal Magistrate refusing to sent aside a bankruptcy notice – whether appellant had a valid counterclaim – whether application for instalment order sufficient to set aside bankruptcy notice – relevant of other proceedings commenced by applicant against third parties – no counterclaim for purposes of s 40(1)(g) of the Bankruptcy Act 1966 (Cth) – no basis for setting aside bankruptcy notice – Federal Magistrate correct in refusal to set aside notice

PRACTICE AND PROCEDURE – apprehended bias – appellant engaged in other proceedings against large publicly listed company – where Federal Magistrate disclosed small shareholding in company – whether reasonable apprehension of bias – other proceedings irrelevant – no basis for Federal Magistrate to disqualify himself

Bankruptcy Act 1966 (Cth), s 40(1)(g)

Slaveski v Rotstein [2009] FMCA 443 affirmed

Slaveski v Rotstein and Associates Pty Ltd [2009] VSC 111 referred to

Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331; [2003] FCA 373 followed

LJUPCO SLAVESKI v ROTSTEIN & ASSOCIATES PTY LTD (ACN 117 539 063)

VID 417 of 2009

MARSHALL J

7 DECEMBER 2009

MELBOURNE

THE COURT ORDERS THAT:

1.         The appeal is dismissed.

2.         The appellant pay the respondent’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                          The appellant, Mr Slaveski, appeals from a judgment of Burchardt FM of the Federal Magistrates Court of Australia published on 6 May 2009. In the judgment below, his Honour dismissed Mr Slaveski’s application to set aside a bankruptcy notice served on him on behalf of the respondent company; see Slaveski v Rotstein [2009] FMCA 443.

BACKGROUND TO THE APPEAL

2                          On 1 April 2008, the Magistrates’ Court of Victoria made a costs order in favour of the respondent against Mr Slaveski in the sum of $7,115.90. On 13 May 2008, the respondent served a bankruptcy notice on Mr Slaveski in respect of the costs order. On 30 May 2008, Mr Slaveski applied to the Federal Magistrates Court for the bankruptcy notice to be set aside. On that day Registrar Luxton extended the time for compliance with the bankruptcy notice. Several further extensions of time were granted throughout 2008.

3                          On 17 November 2008, Registrar Luxton dismissed Mr Slaveski’s application to set aside the bankruptcy notice. On that day, Mr Slaveski countered with an application to set aside that dismissal. It was the rejection of that application which has led to the current appeal.

4                          The sum of $7,115.90 awarded against Mr Slaveski on 1 April 2008 was the costs ordered against him by the Magistrates’ Court of Victoria in the course of a proceeding commenced by the respondent to recover unpaid professional fees from Mr Slaveski for legal services.

5                          The costs judgment was upheld by the Supreme Court of Victoria on 3 April 2009; see Slaveski v Rotstein and Associates Pty Ltd [2009] VSC 111 (“Rotstein and Associates”).

JUDGMENT OF THE COURT BELOW

6                          The Court below observed that Mr Slaveski had on foot a proceeding against the Commonwealth Bank of Australia (“the CBA”) in which Mr Slaveski claims $3 million in damages (“the CBA proceeding”). His Honour also referred to a claim by Mr Slaveski “against Mr Rotstein” in the Victorian Civil and Administrative Tribunal (“the VCAT claim”). Mr Rotstein is the sole director of the respondent. The VCAT claim is for $98,000 for stress, including mental stress, caused allegedly by Mr Rotstein in the course of acting for Mr Slaveski.

7                          Mr Slaveski’s desire, his Honour observed, was to adjourn the proceeding concerning the bankruptcy notice until after the conclusion of the CBA proceeding and VCAT claim, but in particular the CBA proceeding.

8                          His Honour referred to three matters put by Mr Slaveski to support his application to set aside the bankruptcy notice. They were:

·          the VCAT claim for $98,000 (referred to as a “counterclaim”);

·          the application by Mr Slaveski for an instalment order in respect of the judgment sum of $7,115.90; and

·          the judgment for $7,115.90 was obtained by conspiracy.

His Honour treated the last matter as an allegation of fraud.

9                          The Court below referred to s 40(1)(g) of the Bankruptcy Act 1966 (Cth) in the context of compliance with the bankruptcy notice not being required if there exists a cross demand equal to or in excess of the judgment debt which could not have been raised in the proceeding which led to the debt. His Honour considered that the VCAT claim did not raise a tenable cross‑claim against the respondent. It now appears that, subsequent to the judgment below, the matters raised in the VCAT claim were the subject of a counterclaim filed by the appellant in the Magistrates’ Court of Victoria proceeding on 12 August 2009.

10                        Next, his Honour said that the application by Mr Slaveski to pay the judgment debt of $7,115.90 by instalments constituted an acknowledgement of that debt. In addition, Burchardt FM observed that a desire to pay by instalments does not constitute a cross demand.

11                        On the issue of the judgment debt being fraudulently obtained, his Honour referred to the judgment of Smith J in Rotstein and Associates, where the Supreme Court held the costs order was reasonably open and that no error was made in its making.

12                        Federal Magistrate Burchardt considered the CBA proceeding to be extraneous to the proceeding to set aside the bankruptcy notice. His Honour said that no valid ground had been established to set aside the bankruptcy notice either by reference to ss 40(1)(g) or 41 of the Act.

13                        The Federal Magistrate dealt at [52]–[55] in his reasons for judgment with what he called the “bias issue”. His Honour referred to his disclosure to Mr Slaveski that he owned a small tranche of shares in the CBA. His Honour understood Mr Slaveski not to object to him hearing the application but said that, had the objection been pressed, he would not have disqualified himself.

THE BIAS ISSUE

14                        The transcript of the hearing before his Honour is not before the Court on this appeal. His Honour maintains that no application was made for him to disqualify himself. In any event, his Honour said he would refuse to do so if one were made. That approach was correct only for the reason that any issue concerning the CBA was irrelevant to whether there was any valid basis to set aside the bankruptcy notice. The CBA is not the respondent to this appeal or an entity which is concerned in the costs order which has given rise to the bankruptcy notice. Even if the Federal Magistrate had more than a small tranche of shares in the CBA, he would not have disqualified himself for a valid reason had he stood down from hearing the application.

15                        Mr Slaveski raises other issues in his notice of appeal which are said to relate to a denial of natural justice and bias in the Court below. None of them relate to any issue of relevance or any aspect of the judgment below which reveals any appeallable error.

THE SUBSTANTIVE ISSUE

16                        In his notice of appeal and written submissions in support of his appeal, Mr Slaveski asserted that his Honour did not take into account the VCAT claim. That is not so, as can be seen from [8]–[9] of these reasons.

17                        However, was his Honour correct in determining that the VCAT claim did not raise a tenable cross-claim against the respondent? The claim in VCAT for $98,000 was issued on 20 April 2009. Mr Slaveski has not demonstrated that the matters he sought to raise in VCAT against Mr Rotstein “could not have [been] set up in the action or proceeding in which the judgment or order was obtained”; see s 40(1)(g) of the Act.

18                        The costs order which led to the bankruptcy notice was made in a proceeding in the Magistrates’ Court of Victoria for unpaid legal fees. The VCAT claim concerned the relationship between Mr Slaveski as client and the respondent as solicitor. No explanation has been given for the failure by Mr Slaveski to bring a cross-claim in the Magistrates’ Court of Victoria proceeding, prior to 12 August 2009.

19                        Consequently s 40(1)(g) of the Act does not operate to assist Mr Slaveski to set aside the bankruptcy notice.

20                        In any event, Burchardt FM considered the VCAT claim to be untenable. His reasons for coming to that view are set out at [24] of his judgment where he recites the basis for the claim being that Mr Rotstein “caused [Mr Slaveski] to suffer a lot of stress, including mental stress”.

21                        To be a claim that may have been set up as a cross-claim, the claim must be a genuine or bona fide claim, with a fair chance of success; see Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331; [2003] FCA 373 at [9]–[11] per Lindgren J. It was open to his Honour below to make that assessment about the merits of the VCAT claim.

22                        Mr Slaveski also alleges, wrongly, that the Federal Magistrate did not take into account Mr Slaveksi’s application to pay the judgment debt in instalments. However, as his Honour observed, that application is an acknowledgement of the debt.

23                        Finally, and again incorrectly, Mr Slaveski alleges that his Honour did not take into consideration his allegations of conspiracy. These allegations were outlined at [46] of his Honour’s reasons. No issue was taken on appeal with their conclusive disposal by Smith J in the Supreme Court of Victoria.

24                        As Mr Slaveski has not demonstrated that he has a cross-claim, set off or cross demand against the respondent company and has no other valid basis upon which to apply to set aside the bankruptcy notice, the Court below was correct to dismiss his application to have it set aside.

25                        Accordingly, the appeal is dismissed. Mr Slaveski is to pay the respondent’s costs of the appeal.

Associate:

Dated:         7 December 2009