FEDERAL COURT OF AUSTRALIA Hoop & Javelin Holdings Limited v BT Projects Pty Limited (In Liq) (No 3) [2010] FCA 191 Citation: Hoop & Javelin Holdings Limited v BT Projects Pty Limited (In Liq) (No 3) [2010] FCA 191 Parties: HOOP & JAVELIN HOLDINGS LIMITED (A COMPANY INCORPORATED IN MALTA) v BT PROJECTS PTY LIMITED (IN LIQUIDATION) (ACN 097 995 698), INTABILL, INC (A COMPANY INCORPORATED IN THE BRITISH VIRGIN ISLANDS), DANIEL KIM TZVETKOFF and SALVATORE SCIACCA File number: NSD 597 of 2009 Judge: LOGAN J Date of judgment: 23 February 2010 Catchwords: BANKRUPTCY – Proof of Debts – Provable Debts – Demands in nature of unliquidated damages arising otherwise than by reasons of a contract or promise – Statutory claim for aiding, abetting, counselling or procuring contraventions of s 52 Trade Practices Act 1974 (Cth) which induced applicant contract with third party – Bankruptcy Act 1966 (Cth) ss 60, 82 and 86 – Trade Practices Act 1974 (Cth) ss 52 and 75B – Fair Trading Act (Qld) Legislation: Bankruptcy Act 1966 (Cth) ss 60, 82, 86 Trade Practices Act 1974 (Cth) ss 52, 75B Fair Trading Act 1989 (Qld) Federal Court Rules Cases cited: Yorke v Lucas (1985) 158 CLR 661 cited Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234 followed Aliferis v Kyriacou [2000] 1 VR 447 cited Date of hearing: 23 February 2010 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 19 Solicitor for the Applicant: Norton Rose Solicitor for the Respondents: No appearance by the Respondents Counsel for Cronin Litigation (solicitor on record for the Third Respondent, Mr Tzvetkoff): Mr CD Coulsen IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 597 of 2009 BETWEEN: HOOP & JAVELIN HOLDINGS LIMITED (A COMPANY INCORPORATED IN MALTA) Applicant AND: BT PROJECTS PTY LIMITED (IN LIQUIDATION) (ACN 097 995 698) First Respondent INTABILL, INC (A COMPANY INCORPORATED IN THE BRITISH VIRGIN ISLANDS) Second Respondent DANIEL KIM TZVETKOFF Third Respondent SALVATORE SCIACCA Fourth Respondent JUDGE: LOGAN J DATE OF ORDER: 23 FEBRUARY 2010 WHERE MADE: BRISBANE THE COURT DECLARES THAT: 1. The applicant's claims against the third respondent are not provable in the bankruptcy of the third respondent within the meaning of and for the purposes of s 82(2) of the Bankruptcy Act 1966 (Cth). THE COURT ORDERS THAT: 1. Costs of and incidental to the notice of motion be the applicant's costs in the proceedings. 2. Directions in respect of the third respondent are to be returned on 5 March 2010 at 9:30am and the applicant is to file and serve the notice of motion as to these directions on the third respondent not later than Tuesday 2 March 2010. 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 Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 597 of 2009 BETWEEN: HOOP & JAVELIN HOLDINGS LIMITED (A COMPANY INCORPORATED IN MALTA) Applicant AND: BT PROJECTS PTY LIMITED (IN LIQUIDATION) (ACN 097 995 698) First Respondent INTABILL, INC (A COMPANY INCORPORATED IN THE BRITISH VIRGIN ISLANDS) Second Respondent DANIEL KIM TZVETKOFF Third Respondent SALVATORE SCIACCA Fourth Respondent JUDGE: LOGAN J DATE: 23 FEBRUARY 2010 PLACE: BRISBANE REASONS FOR JUDGMENT 1 Hoop & Javelin Holdings Limited is the Applicant in proceedings originally instituted in the New South Wales Registry of the Court, which were transferred to the Queensland Registry for cause pursuant to an order made by Foster J. Hoop & Javelin has sought, by way of notice of motion, the following orders: 1. A declaration that its claims against Mr Daniel Kim Tzvetkoff (Mr Tzvetkoff), the Third Respondent, are not provable in the bankruptcy of Mr Tzvetkoff within the meaning, and for the purposes of, s 82(2) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). 2. That it may proceed with its claims against Mr Tzvetkoff despite his bankruptcy. 2 Hoop & Javelin also seeks provision in respect of the costs of that application. 3 It is first necessary to state that Mr Tzvetkoff is indeed a bankrupt. The contingency that he had become a bankrupt was disclosed at an earlier directions hearing following the transfer of the case to the Queensland Registry. The evidence read today on behalf of Hoop & Javelin discloses that Mr Tzvetkoff is an undischarged bankrupt. He lodged a debtor's petition on 22 January 2010. He also filed a statement of affairs that day. Upon that contingency being raised at the previous directions hearing, and out of an abundance of caution, I directed that Hoop & Javelin give notice of its application to the trustee in bankruptcy. I am satisfied from evidence read before me today that the trustee has, had notice of the application, and of the fact that it was listed today for hearing. 4 Also at the previous directions hearing, the solicitors, then and still technically presently, on the record for Mr Tzvetkoff, Cronin Litigation, signified an intention on their part to withdraw. I drew to the attention of the solicitor concerned the requirements of the Federal Court Rules in that regard. Mr Coulsen of counsel has appeared today on behalf of that firm as a matter of courtesy to inform the Court that that process has been engaged. He also made, at my invitation and in response to an offer that he made, some helpful submissions in relation to the operation of the Bankruptcy Act. These, though, were made on an amicus basis, not, I should emphasise, on behalf of either the trustee or Mr Tzvetkoff personally. 5 Mr Tzvetkoff has been given notice of the application and of today's hearing. The application was served appropriately on the solicitors on the record. 6 A question which has troubled me is whether there is an academic quality in the relief sought by Hoop & Javelin Holdings in its interlocutory application. I do not consider that the interlocutory application has this quality. Hoop & Javelin have introduced in evidence a newspaper article, which has been published in the Courier Mail, following Mr Tzvetkoff's lodgement of a debtor's petition. The upshot of that article, it seems to me, is a view on the part of Mr Tzvetkoff that the lodgement of that debtor's petition extinguished claims against him and, in particular, that of Hoop & Javelin Holdings. Thus, whilst Mr Tzvetkoff has not personally sought to challenge the interlocutory relief sought by Hoop & Javelin, the question does not strike me as an academic one. That is so, further, even though the trustee has not appeared today and, it seems, is not disposed presently to come to a view about the question of whether Hoop & Javelin's claim is provable in bankruptcy. I do not make that observation in any critical way in relation to the trustee. 7 It is now necessary to make particular observations about the nature of the claim brought by Hoop & Javelin. The case is one on the "Fast Track" list. Thus, it is to the further amended "Fast Track" statement, as amplified by Hoop & Javelin's statement of facts, matters and circumstances constituting Mr Tzvetkoff's contravention of s 75B of the Trade Practices Act 1974 (Cth) (Trade Practices Act) that one must look, rather than to a statement of claim and particulars. Regard to the further amended "Fast Track" statement reveals that the claim is one for: (a) a debt in the amount of EUR1,843,888.79, and USD644,004.00; and (b) damages under s 82(1) and s 87(1A) of the Trade Practices Act 1974 (Cth), and s 99(1) and s 100(2) of the Fair Trading Act 1989 (Qld). I should interpolate at this point that it is not necessary to resolve the application separately to consider the provisions of the Fair Trading Act 1989 (Qld). 8 It seems to me that the question of whether or not there is to be a stay of the proceeding as against Mr Tzvetkoff is resolved by a consideration of the claim made under the Trade Practices Act. The further amended "Fast Track" statement further reveals that the dispute relates to the conduct of two named corporate respondents, BT Projects Pty Ltd (BT Projects) and Intabill Inc (Intabill), and two named individual Respondents, Mr Tzvetkoff and one Salvatore Sciacca, in relation to the supply of online billing and payment processing services. Insofar as the claim is liquidated, in other words, insofar as there is a claim for the specified Euro and United States dollar amounts, the claim is as against BT Projects and Intabill. 9 Of more particular concern today is the claim for damages under, materially, the Trade Practices Act. In that regard, the further amended "Fast Track" statement discloses that an issue likely to arise is whether BT Projects, Intabill and Mr Sciacca engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act. A further issue which is said to arise is whether Mr Tzvetkoff, Mr Sciacca, or both of them, were knowingly concerned in or parties to such contraventions for the purposes of s 75B(1) of the Trade Practices Act. There are, thus, a number of permutations in relation to the way in which the case is put as against Mr Tzvetkoff. 10 In that regard, it is sufficient, in my opinion, for present purposes, to set out the terms of paragraphs 43, 43I and 43J of the further amended fast track statement: 43. Tzvetkoff or Sciacca or both of them aided, abetted, counselled or procured the contraventions by BT Projects or, alternatively, Intabill Inc of S.52(1) of the Trade Practices Act 1974 (C'th) and were knowingly concerned in or parties to such contraventions within the meaning of S.75B(1) of the Trade Practices Act 1974 (C'th). 43I. Tzvetkoff or Sciacca or both of them aided, abetted, counselled or procured the contraventions by BT Projects or Intabill Inc of S.52(1) of the Trade Practices Act 1974 (Cth) … and were knowingly concerned in or parties to such contravention within the meaning of S.75B(1) of the Trade Practices Act 1974 (C'th). 43.J Further or in the alternative, Tzvetkoff aided, abetted, counselled or procured the contraventions by Sciacca of S.52(1) of the Trade Practices Act 1974 (C'th) … and was knowingly concerned in or a party to such contravention within the meaning of S.75B(1) of the Trade Practices Act 1974 (C'th). 11 From the further amended "Fast Track" statement, it can be seen that in one way or another Mr Tzvetkoff's liability is alleged to arise as a person "involved in a contravention" for the purposes of s 75B of the Trade Practices Act, as that particular provision, insofar as liability is concerned, was elucidated in Yorke v Lucas (1985) 158 CLR 661. 12 The question, then, of immediate concern is whether there ought to be an order, pursuant to s 60(1)(b) of the Bankruptcy Act, staying the present proceedings as against Mr Tzvetkoff on the basis that they concern the non-payment of a provable debt. That, in turn, directs attention to s 82 of the Bankruptcy Act and, in particular, s 82(1) and s 82(2), which provide: (1) 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. (2) 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. 13 In resolving the question as to whether or not there should be a stay, or, rather, a refusal to stay proceedings and grant the declaration sought, attention was necessarily focused, in submissions on behalf of Hoop & Javelin, and also in amicus submissions, on the High Court's decision in Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234 (Charter Pacific). That case arose out of a statutory claim for unliquidated damages for misleading or deceptive conduct by the bankrupt which had induced the claimant in those proceedings to make a contract with a third party. That issue was whether or not the claim was a demand at 241-242: …in the nature of unliquidated damages arising otherwise than by reason of a contract [or] promise… in terms of s 82(2) of the Bankruptcy Act. 14 At the time, that question was the subject of a degree of controversy in Australian insolvency law, particularly having regard to a decision of the Victorian Court of Appeal, Aliferis v Kyriacou [2001] 1 VR 447. In the joint judgement of Gleeson CJ and Gummow, Hayne and Callinan JJ in Charter Pacific, one finds, with respect, a searching and reflective analysis of the origins of s 82 of the Bankruptcy Act, and its relationship with the concept of set-off in bankruptcy, the concept which presently reposes in s 86 of the Bankruptcy Act. The upshot of that analysis in the joint judgment is to be found in para 70 and para 71, where it is stated (omitting footnote references to cases cited): [70] What is revealed by the analysis of decided cases recorded in the preceding pages of these reasons is that s 82(2) and its legislative predecessors stopped short of providing that "the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind" (emphasis added). Some claims stand outside the reach of the statute. Although consideration of the application of the set-off provision required the inclusion, within the class of debts provable in bankruptcy, of those claims for unliquidated damages for fraudulent misrepresentation which had induced the making of a contract between the bankrupt and the claimant, the words of the section were not and are not to be stretched to encompass every other kind of claim which a person may have against the bankrupt. [71] The claim in the present matter was a statutory claim. The relevant question is whether that claim is a demand arising "otherwise than by reason of a contract [or] promise". What the fraudulent misrepresentation cases of Jack v Kipping and Re Giles show is that claims of the kind made in this case (for unliquidated damages for misleading or deceptive conduct which induced the party misled to make a contract with a party other than the bankrupt) are claims arising otherwise than by reason of a contract. They are claims of a kind which s 82(2) provides are not provable. By contrast, however, claims for unliquidated damages for misleading or deceptive conduct inducing the making of a contract with the bankrupt are claims arising by reason of a contract. They are provable. To the extent to which Aliferis held to the contrary, it should be overruled. (footnotes omitted) 15 It seems to me, having regard to Charter Pacific, that the question for resolution is whether the present can be said to be a case which is for unliquidated damages for misleading or deceptive conduct, which induced the party misled to make a contract with a party other than the bankrupt. If the present is such a case, then Charter Pacific dictates that the claim is one otherwise than by reason of a contract, and thus of a kind which s 82(2) provides are not provable. 16 A point of distinction noted in the course of submissions as between Charter Pacific and the present is that, in Charter Pacific, the alleged liability arising in respect of the claim under the Trade Practices Act was direct, ie, that of a principal rather than accessorial, ie, that arising pursuant to s 75B of the Act. Irrespective of whether the involvement of Mr Tzvetkoff is either aiding and abetting Mr Sciacca in his own right, or aiding in abetting one or the other or each of the named corporate Respondents, it seems to me that this distinction is a distinction without a difference so far as the application in the present case of the elucidation of s 82 in Charter Pacific is concerned. 17 This is but another example of a claim which stands outside the reach of the Bankruptcy Act in terms of not giving rise to a claim which is provable in bankruptcy. In that regard, there is an evident misapprehension on Mr Tzvetkoff's part insofar as the newspaper article might be thought to reveal otherwise. One way of testing that is in the same way that the High Court tested the reach of s 82 by reference to set-off provisions. Here, there is no occasion giving rise to a course of mutual dealings between Mr Tzvetkoff and Hoop & Javelin. That aside and in terms of para 71 of Charter Pacific, the alleged involvement in misleading or deceptive conduct was conduct which, if proved, induced Charter Pacific to make a contract with a party other than Mr Tzvetkoff. 18 For these reasons I declare that Hoop & Javelin's claims against Mr Tzvetkoff are not provable in his bankruptcy within the meaning and for the purpose of s 82(2) of the Bankruptcy Act. 19 It seems to me unnecessary to make an order granting leave to Hoop & Javelin to proceed with its claims against Mr Tzvetkoff, despite his bankruptcy. Rather, s 60 of the Bankruptcy Act seems to be posited on the basis that, in the event there is a claim provable in bankruptcy, the Court may order a stay. There being, in my opinion, there is no occasion to make an order under s 60 of the Bankruptcy Act. I therefore content myself with making the declaration sought in para 1. As to costs, the order which I propose to make is that the costs of and incidental to the application be Hoop & Javelin's costs in the proceedings. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 5 March 2010