Third Contention
46 Pursuant to s 82(2), subject to certain exceptions, demands in the nature of unliquidated damages are not provable in bankruptcy. As Murphy J explained in Polis v Zombar (2019) 134 ACSR 486 at 496-7; [2019] FCA 69:
[32] Section 82(1) of the [Act] provides a wide definition of debts provable in bankruptcy, subject to some carve-outs in following subsections. In Re Hide; Ex parte Llynvi Coal & Iron Co (1871) 7 LR Ch App 28 at 31, cited with approval in relation to s 82 in Coventry (as trustees of the Mike and Lyn Coventry Family Trust) v Charter Pacific Corporation Ltd (2005) 227 CLR 234; [[2005] HCA 67 at [37] (Gleeson CJ, Gummow, Hayne and Callinan JJ)], James LJ said in relation to an equivalent provision:
Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be … freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom [the bankrupt] is so freed are to come in with the other creditors and share in the distribution of the assets.
[33] The purpose of s 82 is to capture and have proved in the bankruptcy a broad range of debts and liabilities. It is aimed at ensuring that the assets of the bankrupt are distributed rateably among creditors, that one creditor does not obtain an undue advantage over other creditors, and at bringing about the discharge of the debtor from future liability for his or her existing debts, so that the debtor may start afresh without lingering disabilities and with the immunities achieved through bankruptcy remaining in place: [Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72-3 (Hill J)]; Official Receiver in Bankruptcy v Todd (1986) 14 FCR 177 at 188 … (Spender J).
[34] Section 82(2) provides a carve-out from the definition of provable debt. Understood in conjunction with s 82(1) it means that an unliquidated claim for damages that arises by reason of a contract, promise or breach of trust is a provable debt, and an unliquidated claim that is not by reason of a contract, promise or breach of trust is not provable. Liquidated claims for damages are provable unless such claim falls within one of the other carve-outs.
Whether the proposed claims are for unliquidated damages
[35] The distinction between liquidated and unliquidated claims was classically described by Odgers in Pleading and Practice, 12th ed, 1939, p 47-8 in the following terms, approved in Spain v Union Steamship Co of New Zealand Ltd (1923) 32 CLR 138 at 142 … (Knox CJ and Starke J):
…whenever the amount to which the plaintiff is entitled (if he is entitled to anything) can be ascertained by calculation or fixed by any scale of charges, or other positive data, it is said to be liquidated or "made clear". But an action in which the amount to be recovered depends upon all the circumstances of the case, and no one can say positively beforehand whether the plaintiff will recover a farthing, or 40 shillings, or £100, is an action for unliquidated damages.
47 Included in the material before the Court was an affidavit of Mr Kucianski, which comprehensively set out the background to the proofs of debt in this case.
48 Orders for costs are not in the nature of unliquidated damages. Although the amount may not have been calculated at the time of the order, the amount is capable of ascertainment.
49 The circumstances in which a debt arising from the making of a costs order is provable in bankruptcy were explained by Gleeson CJ, Gummow, Hayne and Crennan JJ of the High Court in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 in the following terms (at [67]):
Had the costs order … been made and taxed before the appellant's bankruptcy ensued, it would have been a provable debt. Even if the order had not been taxed before bankruptcy, it would nonetheless have been provable as a debt incurred "by reason of an obligation incurred before the date of the bankruptcy"; namely the antecedent making of the costs order.
50 AIG's proof of debt is based on the costs orders made by the Supreme Court of Victoria, the Victorian Civil and Administrative Tribunal and the Magistrates' Court of Victoria against Mr Pekar prior to his bankruptcy. Even though the amount of costs was subject to quantification at the time of the costs orders and at the date of Mr Pekar's bankruptcy, the costs orders were not in the nature of claims for unliquidated damages. The debts arose upon the making of each costs order. Provided the costs order is made before bankruptcy, the order for costs gives rise to a debt provable in bankruptcy even if it is taxed after bankruptcy: Foots 234 CLR 52 at 76 [67] (Gleeson CJ, Gummow, Hayne and Crennan JJ).
51 Although the Respondents may have intended not to admit proof of the AIG claim absent certificates of taxation, rather than pursuing a formal taxation of costs, the Respondents obtained independent costs assessments for the costs underpinning AIG's proof. The Respondents' sworn evidence was that the independent costs assessments determined that, if the costs were to be taxed, the sum of $45,414.77 would likely be allowed. The Respondents admitted AIG's claim in this amount and rejected the balance. Because there were no formal certificates of taxation, no claim for interest was admitted. There is nothing before the Court to suggest that the claim ought not to have been admitted on that basis.
52 Some of Mr Pekar's submissions made at the hearing relating to the AIG debt were fanciful. He submitted that the AIG debt was the product of a conspiracy. He had never heard from AIG prior to his bankruptcy and had had nothing to do with them.
53 Mr Pekar has failed to understand the basis for AIG's claim. As Snaden J explained in Pekar [2021] FCA 141 at [14], Mr Pekar's proceedings appear to hark back to a property dispute that he (and possibly also his wife) had with Gough Partners Pty Ltd. That dispute appears to have spawned proceedings in 2008 in the Supreme Court of Victoria and at least eight other suits in the Magistrates' Court and the Victorian Civil and Administrative Tribunal. Those proceedings (or some of them) resulted in a number of costs orders being made against Mr Pekar, some on an indemnity basis. AIG's proof of debt related to costs orders against Mr Pekar granted in favour of Gough Partners Pty Ltd (which held a professional liability policy with AIG).
54 AIG's claim against the estate of Mr Pekar arose by reason of AIG's rights of subrogation because AIG had paid Gough Partners' legal costs under the professional liability policy. As was explained by Mason J (as he then was) in the decision of the High Court in A.F.G. Insurances Ltd v City of Brighton (1972) 126 CLR 655 at 663, "[t]he doctrine [of subrogation] comes into operation when the insurer meets his liability under the policy by making payment to the insured in respect of his loss. The insurer is then subrogated to the relevant rights of the insured".
55 It is not surprising that Mr Pekar had not had any dealings with AIG prior to the claim made by AIG, as that claim arose by reason of an insurance policy to which Mr Pekar was not a party. There is no basis on which an inference might be drawn that there is any conspiracy by AIG against Mr Pekar or his estate or that AIG's claim lacked legitimacy.
56 Based on the material before the Court, there can be no suggestion that the Katz claim or the Rickards Legal claim are claims in the nature of unliquidated damages.
(1) The Katz claim is based on a fixed sum costs order with interest calculated up to the date of bankruptcy. Her claim exceeds the quantum of her taxed costs because of the interest to which she is entitled. Contrary to the assertions of Mr Pekar, it is not to be inferred from the fact that Ms Katz lodged an amended proof of debt with the Respondents that she perpetuated or attempted to perpetuate any fraud on Mr Pekar's estate.
(2) The Rickards Legal proof of debt is based on a costs order for which certificates of taxation were obtained. Rickards Legal originally lodged proofs totalling over $51,000, in respect of nine costs orders granted in its favour against Mr Pekar. Each was supported by a certificate of taxation. Although some of the costs orders were made after the commencement of Mr Pekar's bankruptcy, the orders provided for the costs to be payable out of the bankrupt estate. This latter category of costs are not provable debts. The costs orders that constituted provable debts totalled approximately $19,477 plus interest to the date of bankruptcy of approximately $805. Contrary to the assertions of Mr Pekar, it is not to be inferred from the fact that the Respondents received an amended proof of debt from Rickards Legal containing only the provable portion of the claim that Rickards Legal perpetuated or attempted to perpetuate any fraud on Mr Pekar's estate.
57 There is nothing in the material before the Court to support a conclusion that Mr Pekar has any arguable claim for review under s 104 of the Act.