Bankruptcy Act transcends borders

Section 15(1) of the Foreign Judgments Act 1991 (Cth) (Foreign Judgments Act) makes provision for obtaining a certificate from the court, on application, to have a judgment obtained in Australia, enforced in a foreign jurisdiction.  Section 15(2) of the Act however provides that an application under section 15(1) may not be made until the expiration of any stay of enforcement of the judgment in question.

Section 58(3) of the Bankruptcy Act 1966 (Cth) provides for a stay of proceedings against an bankrupt.  Once a person has become bankrupt, a creditor cannot take steps to enforce a judgment against that person or commence legal proceedings against him/her, except with the leave of the court.

The question facing the High Court in Talacko v Bennett1 was whether a certificate under section 15(1) could be obtained to enforce a judgment debt in the Czech Republic, even though the judgment could not be enforced in Australia because the judgment debtor was bankrupt.  The question was whether section 15(1) of the Foreign Judgments Act could override the purpose of section 58(3).  The High Court’s conclusion was that it could not.  The simple reason was that section 15(2) of the Foreign Judgments Act expressly forbids it.  Further, when one has regard to the text, context and purpose of the Bankruptcy Act, and, in particular to section 58(3) of that Act, allowing such a certificate to be issued would put form over substance.

Brief Facts

The basic facts were that three siblings had a feud relating to certain property in the Czech Republic.  Legal proceedings were launched and in 2001 the proceedings were compromised.  Talako however reneged on the compromise and was sued by his siblings.  Judgment was obtained against him for equitable compensation.  Talako was then made bankrupt on 7 November 2011, before the certificate was obtained under section 15(1) of the Foreign Judgments Act.  When Talako heard about the certificate, he, and then his widow (as he passed away) issued summons to set the certificate aside on the basis of section 58(3) of the Bankruptcy Act read together with section 15(2) of the Foreign Judgments Act.

Bankruptcy Act

The High Court explained that an essential feature of bankruptcy law is that the assets of the bankrupt are made available for the general body of creditors.  All creditors must be treated equally and assets must not be dissipated to give any single creditor an unfair advantage or preference over another creditor of the same kind.

The High Court Decision

The High Court would not allow the respondents to enforce a judgment in a foreign jurisdiction when that judgment could not be enforced in Australia.  The principle for this is reciprocity, as the reason for the certificate under the Foreign Judgments Act is to allow a creditor who has an enforceable Australian judgment to enforce the judgment overseas.  This would not allow a loophole to be pursued in which individual creditors can be advantaged over other creditors by obtaining a certificate to enforce a judgment which cannot be enforced in Australia, for a cogent reason, in a foreign jurisdiction.

Section 15(2) of the Foreign Judgments Act is expressed to operate, and does operate, as an absolute bar to an application for a certificate.  It neither requires nor permits the Registrar of an Australian court to undertake some assessment about the use to which the documents might be put in a foreign country by the judgment creditor, or, as occurred in this case, by the authorities in that country.

The majority of the High Court therefore allowed the appeal and set aside the orders made by the Supreme Court of Victoria.

Lavan comment

This case makes it clear that the High Court prefers substance over form.  The purpose of the Bankruptcy Act is to ensure that all creditors are treated equally and that individual creditors cannot pursue loopholes to attempt to obtain an unfair advantage over other creditors.  The text, context and purpose of the law is all-important and technicalities cannot be relied upon to get around the rule of law and the equal status of creditors under the Bankruptcy legislation.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.