Chowdhury v Qartaba Homes Pty Ltd (in liq)

1. [1]

   This judgment involves a claim for misleading and deceptive conduct against bankrupt defendants who were directors of a company.

2. [2]

   The first and second plaintiffs are Mahbubullah Chowdhury and Refat Nasrin. The plaintiffs are husband and wife. They are represented by S. Greenwood, a solicitor. The first defendant is Qartaba Homes Pty Ltd (Qartaba). The second defendant is Kashif Aziz. The third defendant is Muhammad Khurram Jawaid. The fourth defendant is Wajahat Ali Khan Rana. The second, third and fourth defendant are directors of the first defendant. I shall refer to the second, third and fourth defendants together as the directors unless it is necessary to specify a particular party.

3. [3]

   On 17 September 2024, Qartaba and the directors filed a notice of appearance. The solicitor who filed the notice of appearance on behalf of the directors has ceased to act.

4. [4]

   On 7 April 2026 at around 8:39 pm, Muhammad Jawaid emailed my Chambers on behalf of the directors seeking an adjournment, saying they were not aware of the proceedings. On 7 April at 8:52 pm, Mr Jawaid was advised by email at that he had to appear at court on 8 April 2026 to make an application for an adjournment.

5. [5]

   On 8 April 2026 at 10:00am, the matter was called three times outside the Court before the hearing. There was no appearance of any of the defendants.

Background

1. [6]

   On about 24 October 2024, a liquidator was appointed to Qartaba. Since then, Chowdhury and Nasrin have not sought leave to proceed against Qartaba in these proceedings.

2. [7]

   The directors have not filed any defences in the proceedings.

3. [8]

   On 11 February 2025, sequestration orders were made in respect of the second defendant. On 11 March 2025, orders were made in respect of the third and fourth defendants.

4. [9]

   On 25 July 2025, the plaintiffs filed a notice of motion seeking the entry of default judgment against the directors and seeking an order that to the plaintiffs' damages be assessed by the Court at a later date.

5. [10]

   On 27 October 2025, default judgment was given against the directors and the order was made that that the plaintiffs’ claim be assessed against the directors. This hearing concerns the assessment of damages. There are two issues for determination:

   1. (1)

      whether the plaintiffs' claims against the directors are provable in their bankruptcies, because if the claims are not provable then they can be pursued notwithstanding the directors' bankruptcies; and

   2. (2)

      the correct calculation of compensation that should be assessed in respect of the plaintiffs' claims.

6. [11]

   The plaintiffs are no longer seeking compensation against the directors on the basis of a 'loss of bargain' or a similar measure. They only seek to recover what they paid under their contract of sale with Qartaba, plus interest and costs.

The pleading in the statement of claim

1. [12]

   On 26 July 2024, the plaintiffs filed a statement of claim (SOC). It relevantly pleads:

2. [13]

   As previously stated, none of the directors have filed any defences to this claim.

Whether the plaintiffs' claim against the directors is provable in bankruptcy

1. [14]

   S 58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) reads:

2. [15]

   Sections 82(1) and (2) of the Bankruptcy Act read:

3. [16]

   In order to ascertain whether the plaintiffs' claim is provable in the directors' bankruptcies, it is important to consider the precise nature of that claim as pleaded and for which default judgment was previously given:

   1. (1)

      the claim against the directors is a claim for compensation for misleading or deceptive conduct under s 236 of the Australian Consumer Law (ACL) which is found in Sch 2 of the Competition and Consumer Act 2010 (Cth) for having been misled into entering a contract with Qartaba (and the same facts are relied upon for a claim of unconscionable conduct under s 20 of the ACL);

   2. (2)

      the misleading or deceptive conduct in question was the conduct of Qartaba, consisting of a representation to the effect that the real estate project that was being proposed to the plaintiffs would be an interest-free Halal investment (SOC at [26], defined as the Representation). That was important to the plaintiffs because they are members of the Muslim community who believe that interest-based lending is unjust and forbidden under Islamic law;

   3. (3)

      the Representation induced the plaintiffs to enter into a contract with Qartaba for the acquisition of an interest in land and induced them to pay a total of $221,200.00 to Qartaba under that contract (SOC at [28]);

   4. (4)

      the Representation was false, because Qartaba could not and did not complete the project without interest-based finance (SOC at [29]), and the Representation was a representation as to future matters which was made without reasonable grounds (SOC at [30]);

   5. (5)

      in respect of that claim, the directors are liable for having been involved in that conduct of Qartaba for the purpose of s 236(1) of the ACL;

   6. (6)

      all of that conduct is also relied upon as against Qartaba as being unconscionable conduct within the meaning of that term at general law under s 20 of the ACL and, again, the directors are liable in respect of that conduct because they were involved in the conduct of Qartaba; and

   7. (7)

      an additional matter that is relied upon as constituting misleading or deceptive conduct or unconscionable conduct on the part of Qartaba, in which the directors were involved and for which they are therefore liable, is the failure by Qartaba to notify the plaintiffs of Qartaba's intention to mortgage the land which was the subject of the plaintiffs' contract, in circumstances where that contract constituted an "instalment contract" for the purpose of the Land Sales Act 1964 (NSW) (the Land Sales Act), with the consequence that Qartaba was obliged under s 14 of the Land Sales Act to give such notice. If Qartaba had given such notice, then the plaintiffs could have attempted to enforce the rights given to them under s 13 of the Land Sales Act to do all things necessary to assure the lot in question to the plaintiffs.

4. [17]

   Relevantly for present purposes, section 82(2) of the Bankruptcy Act reads: "Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy."

5. [18]

   In Coventry v Charter Pacific Corporation Ltd (2005) 227 CLR 234; [2005] HCA 67 (Coventry) a majority of the High Court has held that although a claim for misleading or deceptive conduct by A against X for misleading A into entering a contract with X is provable against X, a claim by A against Y for misleading A into a contract with X is not provable against Y (at [5] and [71] per Gleeson CJ and Gummow, Hayne and Callinan JJ; Kirby J dissenting).

6. [19]

   The majority in Coventry accepted that that result was "anomalous" (at [7] and [72]) but held that it was an anomaly which flowed from the history of bankruptcy legislation, as construed by case law, which was reflected in the wording of s 82 of the Bankruptcy Act.

7. [20]

   The same principle applies here, namely, that if the plaintiffs' claim against Qartaba for its misleading or deceptive conduct is provable in its insolvency, the plaintiffs' claim against the directors for having been involved in that conduct (which induced them to enter their contract of sale with Qartaba) is not provable against the directors in their bankruptcies.

8. [21]

   That result ought to follow regardless of whether the claim against the directors is “direct” (as in Coventry, in the sense of relying on their own misleading or deceptive conduct) or “indirect" (as in this case, in the sense of relying on the 'involvement' provision in s 236(1) of the ACL. That is because both types of claim are not based on a contract with the bankrupt, which was the reason why the majority of the High Court in Coventry held that such claims were not provable by reason of s 82(2) of the Bankruptcy Act. For the purpose of s 82(2), they are both “Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust”.

9. [22]

   In Hoop and Javelin Holdings Ltd v BT Projects Ply Ltd (in liq) (No 3) [2010] FCA 191, Logan J applied the reasoning in Coventry to a situation of liability for being involved in a primary contravention, and held that there was no material distinction between those two categories of case. His Honour made declarations that a claim against a director who was involved in a primary contravention by a company was not provable against the director (at [16]-[18]). The same result was reached by Hely J in Reid v Interarch Australia Ply Ltd [2000] FCA 1328 at [23] prior to the decision in Coventry, and that decision, in turn, was followed and applied by Katz J in ACCC v Kritharas (2000) 105 FCR 444; [2000] FCA 1442 at [38].

10. [23]

    For those reasons, the plaintiffs submitted that their claim for misleading or deceptive conduct against the directors is not provable in their bankruptcies, and the plaintiffs may therefore proceed with that claim against them.

Measure of compensation to be awarded to the plaintiffs

1. [24]

   S 236 of the ACL reads:

2. [25]

   The usual measure of damages in claims of misleading or deceptive conduct is often referred to as a “tort measure”, or more specifically as the measure used in the tort of deceit (HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [35] per curiam; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at [6] per Gibbs CJ). However, there is no inflexible rule as to whether a “tort measure” or a “contract measure” is applied, since the fundamental issue is always to identify the loss suffered by reason of the contravening conduct, and it is misleading and inaccurate to ask whether an “expectation measure” should be applied (Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69 at [15]-[17] per Gaudron J).

3. [26]

   The High Court has made it clear that it is wrong to approach the question of compensation for misleading or deceptive conduct by starting the inquiry as an attempt to draw some analogy from general law principles (Murphy v Overton Investments Ply Ltd (2004) 216 CLR 388; [2004] HCA 3 at [44]). In some cases, the appropriate analogy may not be a tort measure, but may instead by the remedy of equitable rescission for fraudulent misrepresentation where a plaintiff has rescinded a contract, or an analogy with breaches of fiduciary duty where the allegation is a failure to disclose something (Munchies Management Ply Ltd v Belperio (1988) 58 FCR 274).

4. [27]

   Here, the plaintiffs' case is that they were misled into entering their contract with Qartaba because Qartaba represented that they were a Halal arrangement which did not involve usury (that is obtaining funds using interest as that is haram), which turned out to be false, and the directors were involved in that conduct and therefore liable for it under s 236(1) of the ACL.

5. [28]

   The plaintiffs seek repayment of the amounts paid by them to Qartaba. That is the loss that they have suffered "because of the conduct" under s 236(1) of the ACL.

6. [29]

   Having been misled into entering their contract with Qartaba and having terminated/rescinded that contract, the plaintiffs are entitled to repayment of the amounts paid by them under that contract.

7. [30]

   The plaintiffs paid a total of $221,200.00 to Qartaba under their contract. The plaintiffs have received nothing in return for those payments; to the contrary, they terminated/rescinded their contract with Qartaba. Their loss is the amount of money that they paid away under their contract. The amount of that loss can be recovered from Qartaba, or from the directors (provided that there is no double recovery), and there should be judgment entered against each of the directors jointly and severally for the amount paid by the plaintiffs, plus interest. I accept this evidence.

8. [31]

   The plaintiffs seek a judgment against the directors, jointly and severally, for the amount of $221,200.00 plus interest, and also order the directors to pay the plaintiffs’ costs.

Interest

1. [32]

   The plaintiffs have provided an up-to-date schedule of interest, calculating interest at $100,888.42 as follows:

The result

1. [33]

   The result is that Judgment is entered in favour of the plaintiffs in the sum of $221,200.00 plus $100,888.42 pre-judgment interest.

Costs

1. [34]

   Costs are discretionary. Costs usually follow the event. The second, third and fourth defendants are to pay the plaintiffs' costs of the proceedings as agreed or assessed.

Judgment

1. [35]

   The second, third and fourth defendants, are to pay the plaintiffs the sum of $221,000.00 plus $100,888.42 pre-judgment interest.

   1. (1)

      The second, third and fourth defendants are to pay the plaintiffs’ costs of the proceedings as agreed or assessed.