The universal nature of much of insolvency law is such that many of its principles apply across jurisdictions, with a commonality of application often found. This is the case in particular with closely comparable jurisdictions, such as New Zealand, and the UK. This benefits an increasingly international focus in business and insolvency law. Where there are differences between courts, it is wise for each court to have regard to the views of the others.
Peak indebtedness
On 18 October 2022, the High Court is hearing an appeal on the peak indebtedness rule that applied in Australia up until its removal by the Full Federal Court in Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64 (10 May 2021) (austlii.edu.au) That rule had been the subject of criticism by the New Zealand Court of Appeal back in 2015 in Timberworld v Levin [2015] NZCA 111. The Full Court had regard to the reasoning of the Court of Appeal in Timberworld v Levin.
It will be interesting to see to what extent the High Court also has regard to the NZCA reasoning, in rejecting Australian law.
Examinations
The NZ Court of Appeal has also been critical of another line of Australian decisions, those that allow an examination summons to be issued to test the financial capacity of a defendant to pay a judgment sum if obtained. According to the NZCA, Australian courts are misconceived in that they have misread certain 19th century English decisions on which they rely.
“Australian courts go too far, and base their reasoning on limited authority, in contrast to the more restrained and correct approaches taken in NZ and England”.
The leading Australian case of Grosvenor Hill (Queensland) Pty Limited v Barber [1994] FCA 921 anchored its reasoning on earlier English authorities which “do not at all address the jurisdictional question of whether such powers permit an inquiry into private financial information so as to ascertain judgment worthiness”: see Finnigan v Ellis [2017] NZCA 488; [2018] 2 NZLR 123 at [42].
The Australian approach has long been established under our law and it was reaffirmed by the Full Federal Court in Pleash v Tucker [2018] FCAFC 144; (2018) 264 FCR 374 [53] referring to Grosvenor Hill. No mention was made of the New Zealand view.
Hence it was unremarkable that we have the recent decision in Pearce v Bandiera Holdings Pty Ltd [2022] FCA 876 where, as to one aspect, the Federal Court held that the liquidators were entitled to demand the production of an insolvency firm’s insurance policy to “ascertain whether it is worth pursuing”, citing Grosvenor Hill.
The NZ Court of Appeal is yet to come across the recent Australian High Court decision in Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liq) [2022] HCA 3 as to the width of an examination summons.
Costs orders as provable debts
In a similar vein, it may yet also be said that the High Court of Australia has relied upon unsound 19th century English authorities as to when a costs liability becomes a provable debt. The High Court in Foots v Southern Cross Mine Management [2007] HCA 56 has held that a costs order made after the date of bankruptcy is not a provable debt. Justice Kirby dissented, saying that the question was a matter of interpretation of Australian bankruptcy legislation and that “none of the 19th century English decisions binds this Court or controls its outcomes”.
There has not been judicial criticism of that decision; rather it has been ignored, or not been cited, both in the UK and New Zealand.
In 2014, the UK Supreme Court in Nortel rejected the old 19th and early 20th century authorities upon which English courts, and the High Court, relied in finding that a costs order after bankruptcy was not a provable debt:
“The case-law begins with In re Bluck Ex p Bluck (1887) 57 LT 419, and continues with In re British Gold Fields of West Africa [1899] 2 Ch 7, In re A Debtor (No 68 of 1911) [1911] 2 KB 652, In re Pitchford [1924] 2 Ch 260, Glenister v Rowe [2000] Ch 76. … There are a number of problems about these cases. …. They were wrongly decided”.
The Supreme Court held that by participating in litigation, a party submitted to a liability to pay costs in accordance with rules of court, contingently upon an order for costs being made; so that where proceedings were begun by or against a party before insolvency, a liability for costs under an order made after the insolvency was provable as a contingent debt. See In re Nortel GmbH (in administration); In re Lehman Brothers International (Europe) (in administration) [2014] AC 209; and also BPE Solicitors & Anor v Gabriel [2015] UKSC 39.
Soon after Nortel, the New Zealand Supreme Court in Bradbury v Commissioner of Inland Revenue [2015] NZSC 80; [2015] 1 NZLR 739 decided to follow the Nortel reasoning, rejecting the old case authorities.
Neither the UK nor the NZ Supreme Courts referred to the decision of the Australian High Court in Foots.
Foots is commonly relied upon in Australian courts, necessarily given the authority of the High Court.
It has been criticised by a respected insolvency academic Mr Mark Wellard – Has Australia been wrong ‘footed’ on the concept of a ‘provable debt’? www.arita.com.au 7 July 2017.
Foots does have the benefit of simplicity. Assessing whether a costs order might be made isn’t always so clear. As to whether certain liabilities to penalties are provable debts, the Federal Court said in one case that “(a)t most, there was a vulnerability to a determination that A4WD had breached the ACL, that [the bankrupt] had been involved in those breaches, and that the court’s discretion should be exercised in a way giving rise to monetary obligations on her part…”, citing, inter alia Foots: see Penalties and bankruptcy – Murrays Legal.
