17
Aug 2017

Foreign Affairs: When Bankrupts have assets overseas

In the recent decision of Talacko v Bennett [2017] HCA 15, the High Court considered whether a judgment creditor of a bankrupt could apply for a certificate under section 15 Foreign Judgments Act 1991 (Cth) (FJA) with respect to a judgment against a bankrupt, for the purpose of enforcing the judgment in a foreign jurisdiction.

Background

The proceedings had a long history that related to property owned by the patriarch and matriarch of the Talacko family located in modern Czechoslovakia. The property had been seized by the Communist Czechoslovakian and East German governments following the end of World War II and a number of descendants of the Talackos sought to reclaim the seized properties following the end of Communist rule in Eastern Europe. One of the descendants, Jan Talacko, successfully claimed an interest in the properties after meeting various residency requirements. The other descendants, failing to meet these residency requirements, were unable to maintain a claim. The unsuccessful descendants claimed there was an agreement with Jan Talacko that the proceeds of the properties would be shared equally. Jan Talacko denied such an agreement and lengthy litigation ensued. At the end of the litigation the other decendants had obtained a judgment against Jan Talacko, who was subsequently made bankrupt. The other Talacko family members applied successfully to the Supreme Court of Victoria for the issue of certificates pursuant to section 15 FJA in order to enforce the judgment in Czechoslovakia.

Relevant law

Pursuant to section 15 FJA, a judgment creditor who wishes to enforce a judgment obtained in an Australian court in a foreign country can apply for a certified copy of the judgment and a certificate containing the particulars of the cause of action, the amount of the judgment and any interest payable on the judgment.

Section 15(2) FJA prevents the issuing of a certificate until the expiration of any stay or enforcement relating to the judgment sought to be enforced.

Pursuant to section 58(3) Bankruptcy Act 1966 (Cth) (Act), creditors of a bankrupt are prevented from taking any steps to enforce a remedy against the bankrupt or the bankrupt’s property, or commence or continue legal proceedings against the bankrupt without leave of a court with jurisdiction under the Act.

Therefore, the High Court was faced with answering the question – did section 58(3) of the Act create a “stay” so as to prevent the issuing of a certificate pursuant to section 15(2) FJA.

Decision

In reaching the decision that the certificates obtained by the Talackos were invalid, the High Court noted the following points:

  1. Section 58(3) of the Act operates to ensure that the property of a bankrupt vested in the Official Trustee is not depleted to the benefit of any one creditor to the disadvantage of the bankrupt’s other creditors.
  2. There are many examples of “stays” within Australian legislation that operate without the need for judicial process.
  3. The use of the word “any” in relation to “stay” is an indication, although not decisive, of a legislative intention to to comprehend any limit to enforcing a judgment.
  4. The purpose of section 15(2) FJA is to prevent enforcement of a judgment in a foreign jurisdiction that could not be enforced in Australia.
  5. The substance of section 58(3) of the Act is to prevent enforcement action being taken against the property of a bankrupt.

Take away points

The decision in Talacko is important for litigants who have commenced an action against an individual with foreign assets, who subsequently becomes bankrupt. The judgment creditor will have a “paper judgment” provable in the bankrupt’s estate, however, it will be for the trustee of the bankrupt’s estate to seek to recover those foreign assets for the benefit of creditors.