Federal Court of Australia

Guss v Larkfield Industrial Estates Pty Ltd [2023] FCA 1105

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the costs of the respondent, to be assessed if not agreed.

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

REASONS FOR JUDGMENT

ROFE J:

1    This is an appeal from the judgment of a judge of the Federal Circuit and Family Court of Australia (FCFCOA) published as Guss v Larkfield Industrial Estates Pty Ltd [2023] FedCFamC2G 235 (primary judge). The primary judge dismissed Mr Guss, the appellant’s, application to set aside Bankruptcy Notice BN 256 470 issued on 26 July 2022 (the Notice) by the respondent, Larkfield Industrial Estates Pty Ltd.

2    The Notice demanded that Mr Guss pay $236,934.15 pursuant to a County Court of Victoria proceeding, and a series of associated proceedings and interlocutory orders in the County Court, Supreme Court and Court of Appeal of Victoria, for which he is either personally liable or jointly and severally liable with other parties.

3    The application to set aside the Notice under the Bankruptcy Act 1966 (Cth) was initially heard and dismissed by a registrar of this Court. The appellant sought review of that decision. On 5 April 2023, the primary judge, on a de novo review, determined that Mr Guss’s application for review be dismissed.

4    By his Notice of Appeal dated 13 April 2023, Mr Guss raises seven grounds of appeal as follows:

1.    The Learned Judge erred in finding that the bankruptcy notice BN 256 470 had not been overstated.

2.    The Learned Judge erred in finding that the respondent had properly accounted for the security for costs of $84,250 paid by the corporate plaintiffs in County Court of Victoria proceeding CI-16-02981 (the County Court proceeding) and that the respondent was not required to apply the full amount thereof to the credit of the appellant.

3.    The Learned Judge erred in finding that the respondent was not required to account for the proceeds of sale of the goods authorised by order of the order of 9 May 2018 in the County Court proceeding and accordingly what was the proper amount available to be applied to the relevant charge of $157,582.35 as set out in Order 15.2(b) of the said order.

4.    The Learned Judge erred in finding that the respondent had properly applied the $40,000 security for costs provided in Supreme Court proceeding S APCI 2018 0071 (the Supreme Court proceeding) against the costs orders in its favour therein and that there was no misstatement accordingly in the bankruptcy notice in respect thereto.

5.    The Learned Judge erred in not finding that the credit provided against the respondents claims in the bankruptcy notice was correctly stated as $118,668.70 not $164,786.19 as contended by the appellant and as a result that the respondents claim was overstated by $46,117.49

6.    The Learned Judge erred in not finding that the bankruptcy notice was misstated and should be set aside.

7.    Learned Judge erred in not finding that an abuse of the process had occurred by the respondent not having endeavoured to recover the costs claimed in the bankruptcy notice owing by the other parties to the County Court proceeding and the Supreme Court proceeding before issuing the bankruptcy notice and to endeavour to recover same against the appellant solely was improper and an abuse of the process.

5    Grounds 1 to 6 all address Mr Guss’s contention that the Notice is invalid on the grounds of misstatement under s 41(5) of the Act (misstatement grounds). Ground 7 is a separate issue concerning abuse of process. Both the misstatement grounds and abuse of process ground were broadly the same two issues raised before the primary judge. Mr Guss also seeks an extension of time in which to comply with the Notice, costs and any other orders.

6    Mr Guss is self-represented, as he was before the primary judge.

7    For the reasons below, each of Mr Guss’s grounds of appeal are not made out and the appeal should be dismissed.

Background

8    The background of the proceedings was not in issue between the parties, both having largely adopted the summary set out by the primary judge at [9]-[23] of his Honour’s reasons.

9    Larkfield operates a commercial storage business. Mr Guss arranged with Larkfield to store outdoor furniture at Larkfield’s premises but, after a period of time, storage charges were due and unpaid. Larkfield then refused to release the furniture until the unpaid storage charges were paid. Scandi International Pty Ltd and Casualife Furniture International Ltd claimed to be the owners of the furniture and initiated proceedings in the County Court on 11 July 2016 to retake possession of the stored goods. Larkfield filed a counterclaim, seeking an order for the sale of the stored furniture to recover the unpaid storage charges. Mr Guss, although not initially a party to the proceedings, was joined as a third defendant to the counterclaim on 29 August 2016. A fourth defendant, now known simply as ACN 112 314 502 Pty Ltd, was also joined to the counterclaim.

10    It was common ground that Scandi and Casualife provided security for costs in the proceeding of $84,250.00.

11    The substantive trial was heard by Judge Anderson and his reasons are published as Scandi International Pty Ltd v Larkfield Industrial Estate Pty Ltd [2018] VCC 584. His Honour dismissed Scandi and Casualife’s claim and upheld Larkfield’s counterclaim, ordering judgment against each of the corporate defendants and Mr Guss personally. A declaration was made as to the sum of outstanding fees and charges being $157,582.35.

12    On 9 May 2018, Judge Anderson delivered his judgment on costs in Scandi International Pty Ltd v Larkfield Industrial Estate Pty Ltd (No 2) [2018] VCC 628 (Costs Judgment). At the costs hearing, Mr Guss submitted that Larkfield should pay his “costs of the proceeding on a standard basis including reserved costs”. Judge Anderson found against Mr Guss, observing at [10]:

Mr Guss was the central figure in this case. He arranged for the storage of goods, masking the true identity of the entity for whom he was acting. When the rental payments fell into arrears, he and the entities with which he was associated sought to recover the stored goods without paying what, at that stage, were modest arrears of rental. The orders which I propose to make simply reflect the failure of a strategy apparently devised by Mr Guss to avoid the responsibilities he undertook. Accordingly, he must have judgment against him and must share liability for the costs of the proceeding.

13    Judge Anderson made the following orders (Costs Orders) relevant to this appeal:

4. The plaintiffs, the first defendant and second defendants by counterclaim, and the third and fourth defendants by counterclaim must pay the defendants/plaintiffs by counterclaim’s costs of the proceeding including the counterclaim and all reserved costs, to be assessed by the Costs Court on a standard basis in default of agreement. The costs liability of the third defendant is limited to Larkfield’s costs incurred after 29 August 2016 and the costs liability of the fourth defendant is limited to Larkfield’s costs incurred after 10 October 2017.

5. The monies paid into Court by the plaintiffs totalling $84,500, including the sum of $7,000 paid as security for costs incurred by Larkfield in the auction of the stored furniture restrained by interlocutory injunction and two tranches of $45,000 and $32,500 paid as security for the defendant’s costs of the proceeding, shall be paid out to the Defendant’s solicitors in satisfaction of the order for costs referred to in paragraph hereof.

(Emphasis added.)

14    The defendants to the counterclaim, including Mr Guss, appealed Judge Anderson’s decisions to the Court of Appeal of Victoria but leave was refused on 14 November 2018.

15    On 16 June 2021, Judicial Registrar Gourlay in the Costs Court, a division of the Supreme Court of Victoria, taxed the bill of costs pursuant to Judge Anderson’s Costs Orders. Judicial Registrar Gourlay made two separate orders to give effect to those orders:

(a)    The first order is S ECI 2020 03562. This order taxes Larkfield’s bills of costs pursuant to interlocutory orders made by their Honours Judge Cohen on 28 July 2016, Judge Cosgrave on 10 October 2016, Judge Smith on 14 March 2017 and Judge Marks on 13 November 2017. It also taxed Larkfield’s bill of costs pursuant to Judge Anderson’s Costs Orders for the costs incurred prior to 29 August 2016, before Mr Guss was joined to the proceeding. Mr Guss was therefore not liable for any costs under this order, and the costs pursuant to this order were not included in the Notice.

(b)    The second order is SC S ECI 2020 03558. This order taxes Larkfield’s bill of costs pursuant to Judge Anderson’s Costs Order for those costs incurred after 29 August 2016, for which Mr Guss is liable. The Judicial Registrar ordered Scandi, Casualife and Mr Guss to pay Larkfield’s costs taxed in the sum of $41,583.97 and further ordered Mr Guss personally to pay costs of $1,049.00. These costs are reflected in the Notice, as seen in the table below at [19].

16    Pursuant to Order 2(a) of Judge Anderson’s Costs Orders, Larkfield sold the items left in its possession at auction which realised the sum of $33,010.83.

17    Larkfield issued Mr Guss with a first bankruptcy notice on 30 September 2021, amended on 17 February 2022. Mr Guss challenged that notice in the FCFCOA and Registrar Edwards set aside the notice on 18 July 2022, ordering Larkfield to pay Mr Guss’s costs.

18    Larkfield then issued a second bankruptcy notice to Mr Guss (the Notice) on 28 July 2022. Mr Guss subsequently gave notice to Larkfield on 15 August 2022 that he disputed the validity of the Notice on the ground of misstatement, pursuant to s 41(5) of the Act. The grounds set out in Mr Guss’s s 41(5) notice largely reflect the grounds of review before the primary judge and those set out in the Notice of Appeal.

19    The calculation of the sum sought in the Notice was set out by Larkfield in a table in its submissions which I have produced below with some minor corrections.

20    To briefly summarise each order:

(a)    CI-16-02981 relates to the unpaid storage charges that the defendants to the counterclaim were ordered to pay pursuant to Order 2(a) of Judge Anderson’s Costs Orders;

(b)    It is unclear from the orders themselves what S ECI 2020 03560 and S ECI 2020 03561 relate to and the parties did not provide any explanation of these costs. However, that is inconsequential as Mr Guss did not challenge that he was liable to pay the costs pursuant to these orders;

(c)    S ECI 2020 03558 has been explained above and relates to Judge Anderson’s Costs Orders for the costs of the substantive County Court proceeding;

(d)    S ECI 2020 00866 relates to costs incurred with respect to the unsuccessful appeal to the Court of Appeal referred to above at [14]; and

(e)    MLG7162022 relates to costs incurred by Mr Guss in the initial FCFCOA proceedings before Registrar Edwards described above at [17].

21    It can be seen from the above table that, in calculating the amount owing, Larkfield has applied the security for costs paid by Scandi and Casualife first against the costs ordered solely against those parties, before any costs ordered for which Mr Guss was jointly liable with Scandi and Casualife. Larkfield has also deducted from the sum owing: the proceeds of sale of the furniture, the security deposit and the costs order against it in the FCFCOA.

Appeal

22    This is an appeal under s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth). It is an appeal in the strict sense and accordingly Mr Guss must identify an appealable error. At the outset, I observe that Mr Guss’s written and oral submissions essentially restate the arguments made before the primary judge and do not identify any error of law or fact in the primary judge’s reasons.

Misstatement grounds

23    The Court has power to set aside a bankruptcy notice under s 30 of the Act: Australian Securities and Investments Commission v Forge (2003) 133 FCR 487 at [26]-[27] (Emmett J). Pursuant to s 41(5) of the Act, a bankruptcy notice will be invalid and may be set aside if it misstates the amount due to the creditor, and the debtor, in the prescribed time fixed by the notice, “gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement”. Whether there is a misstatement in the bankruptcy notice is a question of fact to be determined by the Court and the onus is on the debtor to establish that the debt stated on the notice is a misstatement.

Grounds 2 and 5

24    Ground 2 challenges the primary judge’s finding that Larkfield was not required to credit the full security of costs provided by Scandi and Casualife to Mr Guss’s debt in the Notice.

25    Scandi and Casualife provided a total of $84,250 in security for costs for the proceeding in three tranches of $7,000, $45,000 and $32,250 to cover Larkfield’s costs in the proceeding. Judge Anderson ordered that these costs were to be used to satisfy the costs liability of the corporate defendants and Mr Guss arising out of Order 4 of the Costs Orders.

26    Judicial Registrar Gourlay ordered that $46,117.49 of those security for costs be applied against the taxation order in S ECI 2021 03562 for which Scandi and Casualife were solely liable before applying that money to the costs that the companies were jointly liable for with Mr Guss. Order S ECI 2021 03562 taxed Larkfield’s bill of costs pursuant to the interlocutory orders of Judges Cohen, Cosgrave, Smith and Marks and the Costs Orders of Judge Anderson.

27    Mr Guss contended that this was an error because Order 5 of Judge Anderson’s Costs Orders only permitted the security for costs to be applied in satisfaction of the “costs of the proceeding” and the $46,117.49 was applied to discharge interlocutory cost orders against Scandi and Casualife, which are not “costs of the proceeding” within the meaning of the County Court Civil Procedure Rules 2018 (Vic). He therefore contended that the Notice misstates his debt by not including $46,117.49 as a credit.

28    Mr Guss relied on various parts of the Rules (including rr 1.13, 4.01, 4.02, 4.04, 4.05, 4.07, 5.01, 8.01, 8.02, 10.01, 10.02, 10.08, 24.05, 26.02, 29.01, 30.02, 31.02 and 45.01), and in particular rr 63A.20.1, 63A.22 and 63.04, to support his contention that interlocutory cost orders are “costs in a proceeding” but not “costs of the proceeding”.

29    As Mr Guss contended in oral submissions, an interlocutory application in a proceeding is not part of the proceeding and therefore not a cost of that proceeding. That contention must be rejected as, for among other reasons, the Rules do not distinguish between “costs of the proceeding” and “costs in the proceeding” and nor is there any sensible basis to distinguish between those phrases.

30    The Rules do not define “costs of the proceeding” or “costs in the proceeding”, although both phrases are used throughout the Rules. However, the meaning of “costs of the proceeding”, as used in Order 4 by Judge Anderson, can be deduced from context.

31    Rule 1.13 provides that “proceeding means any matter in the Court commenced by writ or originating motion or as otherwise provided by or under any Act or these Rules”. It is commonly understood that everything that happens between the issue of a writ or originating motion and the end of a proceeding – whether by way of final judgment, discontinuance or dismissal — is part of that proceeding, including any interlocutory proceedings.

32    An interlocutory application is filed within an existing proceeding; it is not a new proceeding commenced by writ or originating motion. This is confirmed by r 4.02 of the Rules which provides that “an interlocutory or other application in a proceeding made on notice to any person shall be by summons and, if not on notice, shall be made orally” (emphasis added.). An interlocutory proceeding is therefore sensibly described as both filed in a proceeding and subsequently part of that proceeding. Interlocutory applications, and by extension the costs of interlocutory applications, are clearly treated by r 4.02 as applications and costs “in a proceeding”.

33    Further, r 63A.13 provides that:

Subject to these Rules, a party to a proceeding shall not be entitled to recover any costs of the proceeding from any other party except by order of the Court.

34    Other rules, such as rr 63A.20, 63A.20.1 and 63A.22, also contemplate that the costs of an interlocutory application are “costs in the proceeding”. Rule 63A.20 provides, in respect of an interlocutory application, as follows:

Where an interlocutory or other application is made in a proceeding and—

(a)     no order is made on the application; or

(b)     the order made is silent as to costs—

the costs are the parties' costs in the proceeding, unless the Court otherwise orders.

35    Rule 63A.20.1 provides in relation to the taxation of costs on interlocutory application or hearing:

If an order for costs is made on an interlocutory application or hearing, the party in whose favour the order is made shall not tax those costs until the proceeding in which the order is made is completed, unless the Court orders that the costs may be taxed immediately.

36    Rule 63A.22 provides that:

Where by order of the Court the costs of any interlocutory or other application, or of any step in a proceeding, are reserved, the reserved costs are the parties' costs in the proceeding, unless the Court otherwise orders.

37    These rules make it plain that the distinction between the use of the word “in” and the use of the word “of” in the Rules is merely grammatical, not legal. That is, a judicial officer may order that certain interlocutory costs are “the parties' costs in the proceeding” (r 63A.20) and then order at the end of the proceeding, as Judge Anderson has done, that a part pay the entire “costs of the proceeding” (r 63A.13) which will include all of the “costs in the proceeding”. There is no discernible intention in the Rules for “costs of the proceeding” and “costs in the proceeding” to have any legal distinction.

38    Accordingly, I am satisfied that the interlocutory cost orders made by Judges Cohen, Cosgrove, Smith and Marks and taxed by Judicial Registrar Gourlay are “costs of the proceeding” within the meaning of Order 4 of Judge Anderson’s Costs Orders. I therefore reject Mr Guss’s contention that Judge Anderson, when referring to the “costs of the proceeding” in Order 4, had in mind that such costs were anything other than “costs in the proceedings” as used in the Rules.

39    Judicial Registrar Gourlay was therefore entitled to apply the security for costs provided by Scandi and Casualife to satisfy their liability to pay for the “costs of the proceeding” which included interlocutory cost orders. As such, the security of $46,117.49 was not required to be credited to Mr Guss’s debt in the Notice and I reject Mr Guss’s contention with respect to Ground 2 that, by accepting that interlocutory costs are “costs of the proceeding”, the primary judge erred in not finding that the Notice misstated Mr Guss’s debt. Ground 5 can also be rejected as it contends that the Notice is misstated to the extent that $46,117.49 was not credited towards Mr Guss’s total debt.

40    This conclusion makes it unnecessary to decide whether the primary judge erred in not admitting a certain affidavit of Mr Guss’s into evidence which, in any event, was not a ground of appeal.

41    As I do not consider that the relevant taxing officer in this case, Judicial Registrar Gourlay, made any error of principle in treating interlocutory costs as “costs of the proceeding”, it is also unnecessary to consider Mr Guss’s submissions regarding when it may be appropriate for a Court to look behind the decision of a taxing officer.

Ground 3

42    Ground 3 contends that the Notice misstates the amount owed by Mr Guss because Larkfield failed to account for the proceeds of the sale of goods and therefore there is no way to verify that the correct amount has been applied.

43    Mr Guss accepted that Judge Anderson’s Costs Orders authorised Larkfield to sell the goods in storage. Larkfield sold those goods for $33,010.83 and applied this as a credit to Mr Guss’s debt in the Notice. He also conceded, before the primary judge and in his written submissions on appeal, that there is nothing in the Act or Bankruptcy Regulations 2021 (Cth) which required Larkfield to provide evidence that accounted for each individual item sold. There was also no order that required Larkfield to account for the sale proceeds in this way.

44    I therefore accept the primary judge’s finding at [78] that the “respondent’s application of the net sale proceeds [of the goods] against the amount of the judgment debt was permissible and did not give rise to a misstatement of the debt actually owing”. Accordingly, Ground 3 is rejected.

Ground 4

45    Ground 4 contends that $40,000 paid as security for costs in Court of Appeal proceeding S APCI 2018 0071 should have been applied as a credit to the debt owed under the Notice. However, that amount was paid by the corporate appellants in that proceeding, Scandi, Casualife and ACN, as security for the costs of their appeal, and not by Mr Guss personally. The credit of $40,000 has also been allowed against the costs for that appeal.

46    In any event, this ground was not advanced in submissions either before the primary judge or on appeal and Mr Guss has not identified any error in the primary judge’s reasoning at [79]-[82]. Therefore, this ground is rejected.

Grounds 1 and 6

47    Grounds 1 and 6 also fail as they simply contend that the Notice was misstated which Mr Guss has failed to establish for the reasons given above in relation to Grounds 2 to 5.

Abuse of process - Ground 7

48    Mr Guss contended that issuing the Notice is an abuse of process for three reasons. First, he submitted that Scandi and Casualife were jointly and severally liable for the costs orders in the County Court proceeding and “as matter of natural justice and fairness the respondent is obligated at least to endeavour to recover these costs from the principal parties”. This submission was rejected by the primary judge at [98]-[106] and Mr Guss has not pointed to any error in that reasoning. I agree with the primary judge that, in circumstances where Scandi is deregistered and Casualife is a Hong Kong company, there is no point in attempting to recover from either of them. Further, as both companies were issued with letters of demand but did not pay, it is not an abuse of process for Larkfield to pursue Mr Guss for the entire costs of the proceeding for which he is jointly and severally liable.

49    The second reason advanced by Mr Guss is that issuing the Notice, in of itself, is an abuse of process. The primary judge dealt with this submission at [103]-[104] where he set out the relevant principles:

The bar to proving an abuse of process in bankruptcy cases is set high. In considering whether the issuance of a bankruptcy notice is an abuse of process, it must be borne in mind that an express object of a bankruptcy notice is to persuade the debtor to pay the debt the subject of the notice. Issuing a bankruptcy notice as a means to secure payment, or with an intention or hope that the debt will be paid, is not an abuse of process where sequestration proceedings are intended to be invoked in the event of noncompliance.

If the purpose of a bankruptcy notice is simply to put pressure on a debtor to pay a debt rather than to invoke a Court’s jurisdiction in relation to insolvency, then the filing of a bankruptcy notice may be an abuse of process. However, it is not an abuse of process if a creditor genuinely intends to pursue the matter if there is default in complying with the notice and there is no evidence of collateral purpose or undue pressure.

(Citations omitted.)

50    Mr Guss has failed to identify any error in that reasoning. I also accept Larkfield’s submission that it has not issued the bankruptcy notice simply to put pressure on Mr Guss to pay his debt. Rather, it has issued the Notice in good faith after making a demand for payment, and it has now applied for a sequestration order as a consequence of Mr Guss’s non-compliance with the Notice. In these circumstances, issuing the Notice is not an abuse of process but an attempt to invoke the Court’s jurisdiction in relation to insolvency.

51    Mr Guss raised a third ground of abuse of process, which was not raised before the primary judge. This related to the fact that the material provided by Larkfield to the Official Receiver before the Notice was issued did not contain any information concerning whether the interlocutory costs order of $46,117.49 should have been included as a credit.

52    There is no legislative or regulatory requirement that a party applying for a bankruptcy notice provide an account of all and any amounts not included as a credit in that notice or to provide a calculation of the various credits or debits that make up the total debt amount in the notice. Nor is there any such requirement in the relevant authorities, including Lindholdt v Merritt Madden Printing Pty Ltd [2002] FCA 260 at [45]-[47] (Weinberg J) which was relied upon by Mr Guss.

53    Accordingly, Ground 7 is rejected.

Extension of time for compliance

54    Mr Guss made oral and written submissions challenging the primary judge’s refusal to extend the time for compliance with the Notice and grant a stay of his orders until the hearing and determination of the current appeal. Although Mr Guss sought an order to this effect in his Notice of Appeal, the grounds of appeal are silent as to the extension. No application for an extension of time had been made by the date of hearing and nor was leave sought to amend the Notice of Appeal.

55    The Court has the power under s 41(6A)(a) of the Act to extend the time for compliance with a bankruptcy notice where “proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor”. However, a jurisdictional pre-requisite to making such an order is that the proceeding be instituted “before the expiration of the time fixed for compliance with a bankruptcy notice”: see, eg, Re Riordan; Ex parte Riordan v Direct Acceptance Corp Ltd (1995) 63 FCR 147 at 148-149 (Foster J). The primary judge ordered that the time for compliance with the Notice was 5 April 2023. Mr Guss lodged his Notice of Appeal on 13 April 2023. Therefore, he did not institute this appeal before the expiration of the time fixed for compliance with the Notice and I do not have jurisdiction to grant an extension of time, even if I was otherwise minded to grant such an extension.

56    In any event, Mr Guss has not provided any reason why I should depart from the primary judge’s determination to refuse an extension of time.

Conclusion

57    Accordingly, the appeal is dismissed with costs pursuant to s 32 of the Act.

Associate:

Dated:    15 September 2023