Wednesday, 12 July 2017

If I can’t do it here, can I do it there?

The High Court considers whether a judgment holder can apply to enforce a judgment against an Australian bankrupt in a foreign jurisdiction.

The Talacko and Bennett families are involved in seemingly endless litigation stretching from Europe to Australia.  The breadth of the matters in dispute is as wide as the distance between the two continents.  The latest stoush resulted in the Victorian Court of Appeal (VCA) delivering a decision in the last fortnight on the tort of unlawful means of conspiracy.

That followed the recent High Court of Australia (HCA) decision in Talacko v Bennett [2017] HCA 15 which considered whether a judgment creditor of a bankrupt was prevented from obtaining a certificate under section 15(1) of the Foreign Judgments Act 1991 (Cth) (Foreign Judgments Act) to facilitate enforcement of the judgment in a foreign jurisdiction.  

A family torn apart by war
The factual circumstances of this case trace back to post World War II Czechoslovakia and East Germany, when a number of Talacko family properties were seized and subsequently vested in the state.  Following the end of Communist rule in Czechoslovakia, the three Talacko children allegedly agreed to reclaim, restore and sell their deceased parents' properties and share equally in any profit that followed.

By 1992 the properties had vested with one son, Jan Emil, who had since migrated to Australia.  A dispute arose when Jan Emil’s sister and the children of a now deceased brother commenced proceedings against Jan Emil on the basis that he had reneged on the alleged agreement to split the profits.

In 2009, the Victorian Supreme Court held that Jan Emil had reneged on an agreement with the others to share the proceeds and costs of the restoration, and ordered him to pay €10,073,818 in equitable compensation.1   On 4 November 2011, proceedings were commenced in the Czech Republic to have the compensation judgment recognised.2  On 7 November 2011, Jan Emil became bankrupt.3

Foreign Judgments Act 
In order to assist an Australian judgment creditor to prove to a court of a foreign country (where they seek to enforce the judgment) that the judgment is valid and enforceable, section 15(1) of the Foreign Judgments Act allows the judgment creditor to apply to obtain a certificate from the court that issued the judgment about its authenticity (Section 15 Certificate).  However, section 15(2) of the Foreign Judgments Act says the judgment creditor cannot apply for a Section 15 Certificate ‘until the expiration of any stay of enforcement of the judgment in question’.

Following Jan Emil’s bankruptcy, his sister and the other judgment creditors sought issuance of a certificate under section 15(1) of Foreign Judgments Act to facilitate the enforcement of the 2009 judgment against Jan Emil in the Czech Republic.4   Jan objected to the issuance of the certificate given his bankruptcy.

The dispute made its way to the VCA, which had to consider whether a ‘stay of enforcement’ of a judgment within the meaning of section 15(2) of the Foreign Judgments Act is brought about by the operation of section 58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), which provides that when a debtor has become bankrupt, it is not competent for a creditor to enforce any remedy against the person in relation to a ‘provable debt’ (i.e. a debt which is caught by the bankruptcy).  The VCA held that the bankruptcy did not preclude the issuance of a certificate under section 15(1) of Foreign Judgments Act.5

Jan Emil appealed to the High Court, submitting that the interpretation by the VCA majority of section 15(2) would circumvent the purposes of the Bankruptcy Act, because such an interpretation would mean that, upon the debtor’s bankruptcy, a judgment creditor of the bankrupt would be prohibited from enforcing the judgment in Australia, but would not be prohibited from enforcing it overseas.6

The respondent siblings contended that a ‘stay of enforcement of a judgment’ has a settled, technical legal meaning – that is, a stay ordered by a court that operates directly on an order or judgment, rather than a statutory prohibition on enforcement against the judgment debtor generally.7

High Court decision
The HCA unanimously allowed Jan Emil’s appeal.

The majority (comprised of Kiefel CJ, Bell, Keane, Gordon and Edelman JJ) evaluated the content and context of section 15(2) of the Foreign Judgments Act and held that the section prohibited the making of an application in relation to a judgment that could not, under Australian law, be enforced by execution.  The majority therefore concluded that the word ‘stay’ is not confined to stays imposed by courts, but extends to any legal impediment to execution upon the judgment.8

The majority found it ‘impossible to conceive of any good reason why a judgment that could not be executed in Australia should be capable of being enforced outside Australia at the behest of an Australian court’.9   Accordingly, there was no reason to distinguish between a court-ordered stay and a stay imposed by statute.10

When considering the operation of the Bankruptcy Act, the majority found that section 58(3) constituted a statutory stay which applied to section 15(2) of the Foreign Judgments Act.  To remove section 58(3) from the reach of section 15(2) because it does not expressly refer to a ‘stay’ would be to elevate form over substance without justification.11

This High Court decision clarifies that an Australian judgment cannot be enforced overseas where its enforcement would be prohibited in Australia by the bankruptcy of the judgment debtor.  The purpose of the Foreign Judgments Act is to provide a mechanism for the smooth transition in the enforcement of Australian judgments overseas.  It is not designed to facilitate a means of obtaining a benefit that would otherwise not be available to the judgment holder in Australia.

1  Talacko & Ors v Talacko [2009] VSC 533.
2  Bennett v Talacko [2016] VSCA 179 [4].
3  Ibid [5].
4  Ibid [27].
5  Ibid [27].
6  Talacko v Bennett [2017] HCA 15 [56]. 
7  Ibid [60]. 
8  Ibid [66]-[67]. 
9   Ibid [69]
10  Ibid [70].
11  Ibid [71].

Scott Butler

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