Case: Worchild v The Drink Nightclub (Qld) Pty Ltd [2004] FCA 642
Outcome: cited
matter is complicated by the number of related claims and appeals. In summary: 1. The genesis of this matter was proceedings commenced by the appellant against the respondents in the Federal Court of Australia in November 2003. The appellant claimed contraventions of the Trade Practices Act 1975 (Cth) in respect of the respondents' alleged refusal to honour a promotional card sold to the appellant by the Queensland University of Technology Association of Law Students. Those proceedings were heard and summarily dismissed by Cooper J on 24 May 2004 ( Worchild v The Drink Nightclub (Qld) Pty Ltd [2004] FCA 642). His Honour ordered that the appellant pay the respondents' costs of and incidental to the proceedings. 2. On 20 September 2004, an estimate of the respondents' bill of costs arising out of the decision of Cooper J was made pursuant to the provisions of O 62 r 46 Federal Court Rules and allowed in the sum of $24 000.00, for which sum a Certificate of Taxation was issued on 12 October 2004. 3. On 26 November 2004 Deputy District Registrar Baldwin in the Federal Court made an order that the appellant pay the sum of $24 000.00 to the respondents. 4. Bankruptcy Notice Q/N1238/2004 ('the bankruptcy notice') identifying the appellant as the debtor was issued by the Official Receiver on 15 December 2004. The bankruptcy notice was issued in relation to the appellant's failure to pay the respondents in accordance with the costs order of Deputy District Registrar Baldwin of 26 November 2004. 5. On 21 January 2005 the respondents served the bankruptcy notice on the appellant. 6. On 13 May 2005 before Deputy District Registrar Baldwin in the Federal Court the appellant sought to have the bankruptcy notice set aside. The appellant was unsuccessful and he was ordered to pay costs in the amount of $2500. The appellant unsuccessfully appealed this decision of the Deputy District Registrar ( Worchild v The Drink Nightclub (Qld) Pty Ltd ACN 090 830 854, in the matter of Worchild [2005] FCA 863 per Dowsett J), and then again unsuccessfully to the Full Court of the Federal Court ( Worchild v The Drink Nightclub (Qld) Pty Ltd [2005] FCAFC 240). As at the date of the hearing the appellant had sought special leave to appeal to the High Court from the decision of the Full Court. (I understand that special leave to appeal was refused: Worchild v The Drink Nightclub (Qld) Pty Ltd [2006] HCA Trans 223.) 7. On 3 June 2005, the respondents filed a creditor's petition in the Federal Magistrates Court applying for a sequestration order under s 43 Bankruptcy Act 1966 (Cth) (' Bankruptcy Act ') against the estate of the appellant in respect of the debt of $24 000.00 owing to them under the order of Deputy District Registrar Baldwin in the Federal Court of 26 November 2004. The document was accompanied by an affidavit of the second respondent sworn 31 May 2005, deposing that he had access to the books and records of the first respondent, and that the appellant had not paid, nor made arrangements to the satisfaction of the respondents for the settlement of the debt claimed in the bankruptcy notice. 8. On 20 June 2005 the appellant filed and served a Notice of Intention to Oppose the Petition in the Federal Magistrates Court. 9. The petition came before District Registrar Ramsey in the Federal Magistrates Court on 24 June 2005, however the Registrar directed that the matter be adjourned for hearing before a Federal Magistrate at 10.15 am on 26 August 2005. The matter then came before Rimmer FM. On the evidence, her Honour was satisfied of all the matters in s 52(1) , and noted that the appellant had not in his evidence or submissions to the court put a case that he was solvent (par 29). Accordingly in her Honour's view the matter turned on the question whether there was other sufficient cause within the meaning of s 52(2) why a sequestration order ought not to be made, and whether her Honour should exercise her discretion to dismiss the petition. In deciding whether to exercise her discretion her Honour considered: &#8226; A potential counter-claim, set-off or cross-demand of the appellant related to the original litigation between the parties, but which her Honour considered continued to suffer from all the deficits identified by Cooper J in Worchild v The Drink Nightclub (Qld) Pty Ltd [2004] FCA 642. &#8226; A potential counter-claim, set-off or cross-demand in the appellant in that he claimed the respondents had committed contempt of court, but which her Honour considered was unlikely to have any prospects of success, and which was not a proper matter to be taken into account when exercising her discretion under s 52(2). &#8226; A potential counter-claim, set-off or cross-demand in the appellant in that he claimed that the judgment of Cooper J had been obtained by fraud or collusion or mistake, but which her Honour considered was not supported by the evidence before her nor by the decision of Cooper J, and which was not a proper matter to be taken into account when exercising her discretion under s 52(2). &#8226; A claim described by her Honour as being essentially that an act of bankruptcy had not been committed by the appellant. Her Honour summarised this claim of the appellant as being that he should have been successful before Cooper J, the order for costs should not have been made, the appellant should not be indebted to pay those costs to the respondents, and, as a result, in not paying the debt the appellant has not committed an act of bankruptcy. Her Honour considered that the appellant had committed an act of bankruptcy, and that this was not a proper matter to be taken into account when exercising her discretion under s 52(2). &#8226; A claim by the appellant that the bill of costs produced for taxation following the decision of Cooper J included items which did not relate to the proceedings under Pt 4A Trade Practices Act 1975 (Cth). In her Honour's view, these matters should have been addressed by the appellant in the taxation process in the Federal Court of Australia, and there was no evidence before her to establish that they were raised nor what the outcome was of it being raised at the taxation. &#8226; A claim by the appellant that there were defects in the petition and/or bankruptcy notice. Her Honour considered this claim in detail, including reviewing Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34 ; (1988) 165 CLR 71 and The Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915 ; (2000) 109 FCR 33, which are the leading authorities in this area. Her Honour summarised this claim as follows: 'In this matter the debtor contends that par 1 of the petition states that the creditors are owed an amount due under the order of the Federal Court and that the bankruptcy notice fails to contain the judgment or certificate of taxation. He says that where in par 2 it says that the creditor does not hold security over the property of the debtor, that this leaves doubt as to whether the one or the other holds security over the property of the debtor. Further he contends that the petition refers to the words 'creditor' and 'creditors' including reference to the agent for the Petitioner which creates a doubt as to who the Petitioner is and whether or not there are two joint petitioners and whether or not the agent holds instructions to act on behalf of both petitioners. He says that par 4 of the Petition fails to state the date of the act of bankruptcy.' (at [69]) Her Honour was satisfied that the creditors' petition was overall compliant and in all respects clear and unequivocal, that the appellant's submissions concerning the reference to 'creditor' and 'creditors' was a spurious argument without merit, and that par 4 was compliant with the formal requirements of the prescribed Form. Her Honour carefully considered the leading authorities including Cain v Whyte [1933] HCA 6 ; (1933) 48 CLR 639 and issues relevant to the exercise of her discretion, which in the case before her Honour appeared to have been identified by the appellant as: &#8226; whether the appellant had a counter-claim against the respondents concerning the discount card &#8226; whether the appellant had a counter-claim against the respondents for an alleged contempt of court &#8226; whether the judgment of Cooper J was obtained by fraud and or collusion and or mistake &#8226; whether the respondents had acted in abuse of process &#8226; whether the appellant had actually committed an act of bankruptcy. After exhaustive consideration of these issues, her Honour concluded there was nothing in the submissions or on the evidence produced which would lead her to exercise her discretion in favour of the debtor under s 52(2)(b) of the Bankruptcy Act . The appellant is not appealing in relation to the exercise of Rimmer FM's discretion under s 52(2)(b) for the reasons found in her Honour's judgment. In his written submissions before me the appellant raised one new issue relevant to s 52(2)(b) , namely: 'The applicant is prosecuting a claim against the Law societies to recover the costs and damages in relation to the cost order.' At the hearing before me, the appellant explained that he commenced proceedings against the respondents on the basis of representations made by the Student Law Societies concerning the student discount card, and that he had commenced proceedings against the Student Law Societies on the basis of representations made by the second respondent. The essence of his submission was that, if the sequestration order were to be upheld, those proceedings would be stayed (TS p 6 ll 18-19).