Albarran v Wily
[2009] FMCA 982
•13 October 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALBARRAN & ANOR v WILY | [2009] FMCA 982 |
| BANKRUPTCY – Bankruptcy Notice – Application to set aside Bankruptcy Notice – whether debt payable at the time – whether applicants have a counter-claim, set-off or cross demand – whether abuse of process – comity – cost order not due and payable – Bankruptcy Notice set aside. |
| Bankruptcy Act 1966 (Cth), ss.30, 40, 41 Legal Profession Act 2004 (NSW) ss.368, 372, 373 Uniform Civil Procedure Rules 2005 (NSW) Pt 42 r.42.7 |
| Brunninghausen v Glavanics [1998] FCA 230 Maxwell-Smith v S & E Hall Pty Ltd (unreported) Federal Court of Australia, Jacobson J, 3 July 2006 Cameron v Cole (1944) 68 CLR 571 Australia and New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd (1998) 84 FCR 367 Wily v Terra [2008] NSWSC 805 In re A Bankruptcy Notice [1934] 1 Ch. 431 Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346 Minister for Immigration and Multicultural and Indigenous Affairs v SZANS [2005] FCAFC 41 Greenbushes Ltd v Casey [2002] FMCA 45 Re Gibbs; Ex parte Triscott (1995) 65 FCR 80 |
| First Applicant: | RICHARD ALBARRAN |
| Second Applicant: | GEOFFREY MCDONALD |
| Respondent: | ANDREW HUG JENNER WILY IN HIS CAPACITY AS LIQUIDATOR OF BUSINESS AUSTRALIA CAPITAL MORTGAGE PTY LTD AND BUSINESS AUSTRALIA CAPITAL FINANCE PTY LTD |
| File Number: | SYG 2603 of 2008 |
| Judgment of: | Scarlett FM |
| Hearing date: | 21 October 2008 |
| Date of Last Submission: | 21 October 2008 |
| Delivered at: | Sydney |
| Delivered on: | 13 October 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr Katekar |
| Solicitors for the Applicant: | Etienne Lawyers |
| Counsel for the Respondent: | Mr Marshall |
| Solicitors for the Respondent: | HWL Ebsworth Lawyers (Formerly M.D. Nikolaidis & Co) |
ORDERS
That time for compliance with the Bankruptcy Notice be extended with effect from 21 October 2008 until today.
That the Bankruptcy Notice of 17 September 2008 no. NN 3501 of 2008 be set aside.
The respondent pay the applicants’ costs of this application.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2603 of 2008
| RICHARD ALBARRAN |
First Applicant
| GEOFFREY MCDONALD |
Second Applicant
And
| ANDREW HUGH JENNER WILY |
Respondent
REASONS FOR JUDGMENT
Application
This is an application to set aside a Bankruptcy Notice which was issued on 17th September 2008. The applicants’ grounds for setting aside the bankruptcy Notice are:
a)That the debt which is the subject of the Bankruptcy Notice is not yet payable;
b)The applicants have a counter-claim, set-off or cross demand which exceeds the Costs Assessment; and
c)The applicants claim that the purpose of the Bankruptcy Notice is to put pressure on the applicants to pay the debt, rather than to invoke the Court’s insolvency jurisdiction, and as such it is liable to be set aside as an abuse of process.
The respondents say that the Bankruptcy Notice should not be set aside because:
a)The judgment which was relied on to found the Bankruptcy Notice is a separate case from the equity suit involving the applicants;
b)The cross-demand or cross-claim or set-off is between different parties than those to whom the Bankruptcy Notice relates; and
c)There is no evidence of an abuse of process.
Background
The Bankruptcy Notice in question was issued on 17th September 2008 by the respondent, Mr Wily, against the applicants, who are equity partners of Hall Chadwick, which operates an accounting practice and an insolvency practice.
The Bankruptcy Notice claims a total debt owing of $93,643.91, arising out of a judgment, being a costs assessment order made on 7th April 2008 in proceedings by Mr Wily as Liquidator of Business Australia Capital Mortgage Pty Limited and Business Australia Capital Finance Pty Limited as plaintiff against Terra Cresta Business Solutions Pty Ltd (in liquidation) as first defendant and the applicants, Messrs Albarran and McDonald, as the second defendants (Wily v Terra Cresta Business Solutions Pty Ltd 4200/2006).
Terra Cresta Business Solutions Pty Limited appointed the applicants as receivers and managers of Business Australia Capital Mortgage Pty Limited (in liquidation) and Business Australia Capital Finance Pty Limited (in liquidation) on 4th August 2006.
The respondent is the plaintiff and the applicants are the second defendants in proceedings in the Equity Division of the Supreme Court of New South Wales. On 21st September 2006 Young CJ in Eq delivered an ex tempore judgment, in which that the charge under which they were appointed as receivers and managers of Terra Cresta Pty Limited was void, so that the applicants’ appointment as receivers and managers was invalid.
On 19th October 2006 Young CJ in Eq delivered an ex tempore judgment ordering the defendants (including the applicants in this proceeding) to pay 80% of the plaintiff’s costs.
On 7th April 2008 an assessment order was made in respect of his Honour’s order for costs, which was entered on 15th May 2008. That, of course, is the Order containing the debt which is the subject of the Bankruptcy Notice.
On 19th August 2008 made further orders, dismissing the proceedings except for the determination of an outstanding issue of the amount covered by an equitable lien over funds paid into Court as part of certain proceedings in the Federal Court.
The Orders were;
1.Order that the sum of $1,625,000 paid into Court as part of the Federal Court Proceedings No. 1159 of 2004 be paid out of Court to the plaintiff forthwith, together with accrued interest, other than the sum of $735,019.02 which is to be retained pending determination of the issue in paragraph 5 below.
2. The proceedings be dismissed except as noted in paragraph 5.
3.There be no order for costs as against the first defendant except for existing costs orders against the first defendant.
4.Note the agreement between the plaintiff and the first defendant that the plaintiff will not disburse $300,000 from the sum paid out of Court for a period of 28 days from the date hereof and within the said 28 days the plaintiff will pay the first defendant the sum of $177,902.62 or such other sum as may be agreed.
5.The outstanding issue is the amount covered by the Equitable lien in favour of the second defendants with respect to the BACF charge. This issue is referred to an Associate Judge for determination. The second defendant is to file and serve its evidence by 4.00 pm on 2 September 2008. The matter to be listed for mention before an Associate Judge on 26 September 2008.
The applicants filed their evidence in accordance with Order 5 above on 2nd September 2008. Included in that evidence is a tax invoice from Hall Chadwick to Business Australia Capital Finance Pty Limited (In Liquidation) setting out the amount claimed under the equitable lien as $761,200.50.
The Applicants’ Submissions
The applicants rely on three grounds for setting aside the Bankruptcy Notice:
a)The debt which is the subject of the Bankruptcy Notice, the costs assessment, is not yet due and payable;
b)The applicants have a counter-claim, set-off or cross demand that exceeds the costs assessment, being the claim for $761,200.50; and
c)The purpose of the Bankruptcy Notice is to put pressure on the applicants to pay the debt rather than to invoke the Court’s insolvency jurisdiction, and, as such, it is an abuse of process.
As to the applicants’ claim that the debt is not due and payable, the applicants submit that it was an interim costs order. Mr Katekar of counsel, who appeared for the applicants, referred to the decision of Young CJ in Eq on 19th October 2006, where his Honour said at [17]:
So far as the remaining costs are concerned, to date these comprise the costs of the cross claim and the costs of the interlocutory hearings before Palmer J together with the work that was done in connection with the interlocutory hearing and cross claim…
His Honour went on to say at [18]:
For the present it is appropriate that the costs of the interlocutory hearing before Palmer J and the costs of the cross claim and all future costs be reserved.
This, it was submitted, was a reservation of other costs that had already been incurred.
Further, when orders were made on 19th August 2008, it was agreed that a sum of $735,019.02 was to be retained pending determination of the issue referred to in Order 5, which related to the amount covered by the equitable lien. That issue was referred to an Associate Judge on 26th September and, he told the Court, was listed before the Registrar on 7th November 2008.
Thus, it was submitted, the proceedings were still on foot. Accordingly, the costs had not become payable under the Uniform Civil Procedure Rules, Pt 42 r 42.7, which provide:
(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including:
(a) costs that are reserved, and
(b) costs in respect of any such application or step in respect of which no order as to costs is made,
are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.
(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
The applicants rely on the affidavit of Steven John Brown, solicitor, sworn on 9th October 2008, who says at paragraph (5):
To my knowledge, no order was subsequently entered in respect of this finding and no order was made by Young CJ in Eq that those costs are payable prior to the conclusion of the Supreme Court Proceedings.
The submission is that:
a)The expedited hearing before Young CJ in Eq was in respect of a step in the proceedings;
b)There has been no order that those costs should be payable prior to the conclusion of those proceedings; and
c)By force of Part 42 r 42.7 the costs that are the subject of the Bankruptcy notice are not yet payable.
Accordingly, the applicants submit that the assessment order is not relevantly “final” for the purposes of s. 40(1)(g) by reason that the proceedings in the Supreme Court have not yet concluded.
The second leg of the applicants’ submission is that the applicants have a counter-claim, set-off or cross demand which exceeds the Costs Assessment. They submit that the respondent is subject to any order yet to be made in the Supreme Court by operation of order 5 made on 19th
August 2008. The amount of $735,019.02 was withheld pending determination of the amount covered by the equitable lien.
The applicants have claimed the sum of $761,200.50 in respect of their claim under the equitable lien. That, as Mr Katekar submitted, is a sum substantially in excess of the amount claimed in the Bankruptcy Notice (which is $93,643.91).
The submission is that, whilst the applicants’ counter claim, set-off or cross demand against the respondent is yet to be determined by the Supreme Court, it is one which has been set up in the proceedings in which the assessment order was made. Accordingly, it is submitted, the operation of s 40(1)(g) has not been enlivened. Further, the fact that the cross claim is yet to be determined confirms that the costs assessment order is not relevantly a final order for the purposes of s 40(1)(g).
The applicants submit, in the alternative, that the issue of the Bankruptcy Notice is an abuse of the Court’s process. This argument only arises if the Court were to find against the applicants on the earlier arguments.
They submit that the Bankruptcy notice was only issued in order to put pressure on the applicants to pay the debt, rather than to invoke the insolvency jurisdiction of the Court, which is an abuse of process that warrants setting the Bankruptcy Notice aside.
The applicants submit that they are able to meet the debt but have not paid it because they are of the view that it is not yet payable.
The Court has an inherent power to set aside a Bankruptcy Notice as an abuse of process (Brunninghausen v Glavanics[1] per Emmett J at 5). The power arises from s. 30 of the Bankruptcy Act (Maxwell-Smith v S & E Hall Pty Ltd[2] per Jacobson J at [41]).
[1] [1998] FCA 230
[2] Unreported, Federal Court of Australia, Jacobson J, 3 July 2006
The applicants contend that they are solvent and, even if the amount referred to in the assessment order is payable, the submission is that the respondent has issued the Bankruptcy Notice to put pressure on the applicants to pay the debt and not to invoke the Court’s insolvency jurisdiction.
The Respondent’s Submissions
Mr Marshall of counsel appeared for the respondent. He submitted that there were three points to make as to why the application should not be granted,
First, the judgment that was obtained is a superior court judgment of the Supreme Court. That is the judgment relied on to found the Bankruptcy Notice. It is a separate case and not the same Supreme Court matter as the equity suit currently involving the applicants.
Second, he submitted that the cross-demand or cross-claim or set-off is between different parties than that to which the bankruptcy Notice relates. Mr Wily commenced proceedings in his own name to remove the receivers because he had to do so under s. 588FF of the Corporations Act. He is the only one who has standing to set aside the receivers on the basis of their being appointed as part of the insolvent transaction. The applicants’ cross-claim is against the companies and not against Mr Wily personally.
Third, he submitted that there is no evidence of abuse of process. The only evidence is a balance sheet from an accounting firm; there is no evidence of any debts owed by either of the applicants.
As to the applicants’ first claim, that the costs order is premature and cannot be enforced, he referred the Court to s. 372 of the Legal Profession Act 2004 (NSW), which provides that a party and party costs order is final unless the parties take advantage of the relevant review or appeal provisions in ss. 373 or 368. Where the costs have not been paid, the successful applicant for costs can take the certificate that sets out the costs determination to the registry of a court having jurisdiction to order that the amount be paid, and that is taken to be a judgment of that court in the amount of the unpaid costs and interest.
Thus, a separate proceeding is commenced and a new file number issues. A judgment of the Supreme Court eventuates for the amount of the costs certificate. It is a judgment in a superior court, which is valid until it is set aside. In Cameron v Cole[3] Rich J said at 590:
It is settled by the highest authority that the decision of a superior court, even if in excess of jurisdiction, is at the worst voidable, and is valid unless and until it is set aside…[4]
[3] (1944) 68 CLR 571
[4] (1944) 68 CLR 571 at 590
Again, in Australia and New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd[5], Finkelstein J (referring to Cameron v Cole) held at 380:
Even if these provisions are ultimately declared to be unconstitutional any order made by the Federal Court in reliance on them is nevertheless a valid order unless set aside on appeal or quashed by direct review…[6]
[5] (1998) 84 FCR 367
[6] (1998) 84 FCR 367 at 380
Further, Mr Marshall referred the Court to the decision of associate Justice Macready in a related matter, Wily v Terra[7], where the respondent sought to enforce the same costs order against the other defendant, Terra Cresta Business Solutions Pty Limited. There was an application that the defendant company be wound up in insolvency, where the plaintiff, Mr Wily, relied upon the failure to comply with the statutory demand for the sum of $90, 928.12 plus interest in respect of the same costs order that is relied upon in these proceedings.
[7] [2008] NSWSC 805
In that decision, his Honour reviewed, inter alia, a claim of abuse of process and held at [30] and [31]:
The defendant only had limited success before the Chief Judge and has, as a result, suffered a costs penalty which the Court has already allowed to be enforced against him during the preparation of the cross-claim for hearing.
The prosecution of the collecting of that amount can be seen as enforcement of legitimate rights granted to the plaintiff and sanctioned by order of the Court. It may be that the purpose of Mr Wily in pursuing that approach was for the ulterior purpose of preventing the hearing going ahead, but the problem for the defendant is that it points to no evidence that could found such a conclusion. No relevant paperwork has been produced and Mr Wily gave no evidence and was not cross-examined. None of his staff who gave the formal evidence were cross-examined.[8]
[8] [2008] NSWSC 805 at [30]-[31]
It was submitted that the Court has to take judicial notice of that judgment.
As to the applicant’s second ground, Mr Marshall referred the court to the invoice from Hall Chadwick, which is addressed to the company, Business Australia Capital finance Pty Ltd (in Liquidation), not Mr Wily. He pointed out that Young CJ in Eq had referred to parts of the Corporations Act dealing with voidable insolvent transactions. In the proceedings in the Supreme Court, it was Mr Wily personally who was successful against both Terra Cresta and the applicants in these proceedings. Thus, it is analogous to a privity point in a contract case.
Further, Mr Marshall referred to the situation where someone has a claim to a charge, analogous to an equitable lien, over a fund. This has been held not to be cross-demand for the purposes of the Bankruptcy Act (see In re a Bankruptcy Notice[9] per Lord Hanworth MR at 436-438; Romer LJ at 439).
[9] [1934] 1 Ch. 431
Counsel for the respondent then referred to the High Court decision of Ebert v The Union Trustee Company of Australia Limited[10] per Dixon CJ, McTiernan and Windeyer JJ, at 351:
The judgment for costs is against the appellant and creates a debt to the respondent which so far as the appellant is concerned is owing to the respondent in its own personal right.[11]
[10] (1960) 104 CLR 346
[11] (1960) 104 CLR 346 at 351
Thus, the claim by Mr Wily is a claim by him personally.
As to the applicants’ point about abuse of process, Mr Marshall submitted that the judgment is against two individuals who are partners in the firm of Hall Chadwick and not against the firm of Hall Chadwick itself. The Court, he submitted, does not have evidence as to what the applicants’ personal circumstances are beyond a set of accounts of an accountancy firm in which they are partners.
Submissions in Reply
In reply, Mr Katekar submitted that:
a)The costs assessment has been issued but, by the force of the Rules, even where that has occurred, unless there is an order which says that the amount is payable forthwith, the amount is not payable until the conclusion of the proceedings;
b)He conceded that Associate Justice Macready came to a different conclusion in Wily v Terra[12], but
i)The applicants were not party to those proceedings and are not bound by that decision; and
ii)The judgement does not indicate that any such submission was advanced
c)The decisions of In re a Bankruptcy Notice[13] and Ebert v The Union Trustee Company[14] are distinguishable;
d)The cross-demand in this case is not resolved and is squarely in issue. The very fact that the cross-demand is in existence goes back to the claim that the proceedings are still on foot; it is not a separate claim; and
e)As to the asset position of the applicants, the question of solvency is a question of whether an individual can pay his or her debts as and when they come due and there is uncontested evidence in the affidavit of Mr Elliott that the debt is a partnership debt and Hall Chadwick is able to pay it.
[12] supra
[13] supra
[14] supra
Conclusions
The applicants claim that the Bankruptcy Notice should be set aside, first of all, because the proceedings are still on foot and the costs are not yet due to be paid, relying on Part 42 r 42.7 of the Uniform Civil Procedure Rules 2005.
The respondent has referred the Court to the decision of Associate Justice Macready in Wily v Terra[15], where his Honour found that the same costs order could be enforced against Terra Cresta, the other defendant in the same proceedings. I am conscious of the principle of judicial comity, whereby a judgment of another court ought to be followed unless it is plainly wrong (see Minister for Immigration and Multicultural and Indigenous Affairs v SZANS[16] at [38]).
[15] supra
[16] [2005] FCAFC 41
At first glance, it can be said that the decision in Wily v Terra is clearly relevant to this application. However, it is clear from a reading of the decision that the point that the applicants seek to make about the debt not yet being due and payable was never argued before his Honour. The issues are clearly set out in paragraph [2] of the decision:
The defendant raised the following matters during the hearing:
1. A defect in the demand;
2. Ineffective service of the statutory demand;
3. An abuse of process resulting from the commencement of these proceedings while other proceedings to wind up the plaintiff were still current;
4. An abuse of process said to be an attempt to obtain a collateral advantage in proceedings 4200 2006 in this Court between the same parties; and
5. The defendant’s solvency.[17]
[17] [2008] NSWSC 805 at [2]
As to the third issue, his Honour held:
There was no explanation from the plaintiff as to why these proceedings were brought forward when the other proceedings were already in progress. If this application had been dealt with earlier it might have been possible in the absence of an explanation to have formed the view that there is an abuse. Given what has happened to the earlier proceedings, namely their dismissal, I would not conclude that the continuance of the present proceedings is an abuse. Indeed, to now dismiss them because at their initiation it may have been an abuse denies the present proper purpose of this type of proceeding.[18]
[18] [2008] NSWSC at [19]
In my view, this particular point was never raised before his Honour and thus his Honour had no opportunity to rule on it. For that reason, I am satisfied that the decision in Wily v Terra should be distinguished on that point.
In my view, the proceedings were still on foot and the costs order made by Young CJ in Eq had not fallen due for payment. No order had been made that the costs should be paid at an earlier date than the conclusion of the proceedings.
The reference to s 372 of the Legal Profession Act is, with respect, not useful, as it is clear that the section refers to the finality of a costs assessor’s determination of an application which is binding on all parties to the application. It is not the case here that there is any challenge to the validity of the determination as to costs, only as to when the order falls due for payment.
In this case, it is clear that an order for costs is final, provided it forms part of a judgment which is itself final. As Bryant CFM[19] pointed out in Greenbushes Ltd v Casey[20]:
However, a closer reading reveals that the actual Rules of the court which has made the costs determination will be crucial.[21]
[19] As her Honour then was
[20] [2002] FMCA 45
[21] [2002] FMCA 45 at [41]
A costs order only becomes capable of enforcement by execution once the costs have been quantified in accordance with the rules of the Court in which the costs order was made (Re Gibbs; Ex parte Triscott[22]). However, it must be an order that has become due for payment.
[22] (1995) 65 FCR 80
In my view, as the costs order was an interim order in proceedings which were not finalised, Part 42 r 42.7 applies and the costs order was not due for payment when the Bankruptcy Notice was issued. Consequently, it will be set aside.
In the circumstances, it is not necessary to consider the applicants’ second point about a counter-claim, set-off or cross demand.
I will, however, consider the applicants’ alternative point about abuse of process, although that was only argued in the alternative. In my view, the affidavit of Robert Elliott sworn on 9th October 2008, provides evidence that the applicants were in a position to pay the costs assessment. Mr Elliott was not required for cross-examination on his affidavit, so his evidence is unchallenged. It was not necessary to provide full details of the applicants’ debts and assets, because Mr Elliott’s affidavit makes it clear that the equity partners of Hall Chadwick were liable to indemnify the applicants in respect of any net liability that may have arisen by reason of the costs assessment. There was evidence that the net assets of Hall Chadwick stood at $1,381,379 as at 30th June 2008.
The application to set aside the Bankruptcy Notice will be granted with costs.
I certify that the preceding fifty-seven (57) paragraphs are a true copy of the reasons for judgment of Scarlett FM
Associate:
Date:
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