Australian Litigation Fund Pty Ltd v Mearns & Anor

[2005] FMCA 1727

FEDERAL MAGISTRATES COURT OF AUSTRALIA

AUSTRALIAN LITIGATION FUND PTY LTD v MEARNS & ANOR [2005] FMCA 1727

BANKRUPTCY – Substitution of creditor to whom debt assigned after creditor’s petition filed – whether assignment by deed of assignment providing for variation of deed is absolute assignment – whether power to order substitution limited to circumstances in s.49 Bankruptcy Act 1966. 

Federal Magistrates Court Rules2001 (C’th), rr.1.06(2), 11.01(1), 11.03, 11.04, 29.01(2)
Bankruptcy Act 1924 – 1930 (C’th), s.35
Bankruptcy Act 1966 (C’th), ss.5(5), 27, 30, 30(1)(b), 49 & 52(5)
Federal Magistrates Court Act 1999 (C’th), s.15
Conveyancing Act 1919 (NSW), s.12
Judicature Act 1873 (UK), s.25(6)
Stamp Duties Act 1920 (NSW), s.74
Duties Act 1997 (NSW), ss.1A(1), 8, 11

Mearns v Willoughby Community Pre-School Inc [2004] NSWCA 382
Willoughby Community Preschool Inc v Mearns [2004] FMCA 861
Jones v Humphreys [1902] 1 KB 10
Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190
Jones v Humphreys (No.2) [1902] 1 KB 10
Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1
Tancred v Delagoa Bay & East Africa Rail Co (1889) 23 QBD 239
Global Custodians Ltd v Mesh [1999] NSWSC 624
Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423
McIntosh v Shashoua (1931) 46 CLR 494
Anning v Anning (1907) 4 CLR 1049
McNamara v Longford (1931) 45 CLR 267
Re Bilen; Ex parte Sistrom (unreported, Fed Court of Australia, Neaves J, 11 April 1985
Read v Brown (1888) 22 QBD 128
Bacon v Yatchaw Irrigation and Water Supply Trust (1898) 23 VLR 485
Carob Industries Pty Ltd (in liq) v  Simto Pty Ltd [2000] WASCA 362
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9
Re Premier Permanent Building, Land and Investment Association; Ex parte Stewart (1890) 16 VLR 20
Raymond Marshall Johnstone v Joseph Guss [1998] FCA 1658
Guss v Johnstone [2000] FCA 1455
Re Mann [1958] 1 WLR 1272
Morris Komesanoff v Law Institute of Victoria [1997] FCA 893
Hyams v Elder Smith Goldsborough Mort (1976) 133 CLR 637
General Motors Acceptance Corporation Australia v Marshall [2002] FCA 100

Applicant: AUSTRALIAN LITIGATION FUND PTY LTD

First Respondent: ROBYN HADYN MEARNS

Second Respondent: WILLOUGHBY COMMUNITY PRESCHOOL INC

File Number: SYG 2819 of 2003

Judgment of: Barnes FM

Hearing date: 17 November 2005

Delivered at: Sydney

Delivered on: 24 November 2005

REPRESENTATION

Counsel for the Applicant: Mr AT Dawson

Solicitors for the Applicant: Abbott Tout

Counsel for the Respondent: Mr R Killalea

ORDERS

1. That Australian Litigation Fund Pty Limited (ACN 078 747 092) be substituted for the petitioning creditor in creditor’s petition number SZ2819 of 2003 in the place of Willoughby Community Pre-School Inc. 

2. Leave be given to the Australian Litigation Fund Pty Limited to amend the creditor’s petition number SZ2819 of 2003 by substituting the Australian Litigation Fund Pty Limited as petitioning creditor. 

3. Service of the amended creditor’s petition on Mrs Mearns be dispensed with. 

4. That the First Respondent pay the costs of the Applicant and the Second Respondent as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2819 of 2003

AUSTRALIAN LITIGATION FUND PTY LIMITED

Applicant

And

ROBYN HADYN MEARNS

First Respondent

And

WILLOUGHBY COMMUNITY PRESCHOOL INC

Second Respondent

REASONS FOR JUDGMENT

1. This is an application by Australian Litigation Fund Pty Ltd (ALF) to be substituted as the petitioning creditor in creditor's petition number SZ2819 of 2003 in the place of Willoughby Community Preschool Inc.  The application is supported by the second respondent, Willoughby Community Preschool Inc (Willoughby), but opposed by the first respondent, Mrs Mearns. 

2. The background to this application is that on 25 August 2003 Willoughby obtained a default judgment in the District Court of New South Wales (proceedings number 2901/03) against Mrs Mearns in the sum of $431,759.86.  Mrs Mearns was served with a bankruptcy notice founded on this judgment issued at the request of Willoughby on

   
   

   16 September 2003.  On 18 December 2003 Willoughby applied to the Court for a sequestration order against the estate of Mrs Mearns pursuant to a creditor's petition claiming that Mrs Mearns had failed to comply with the bankruptcy notice on 11 November 2003. 

3. Mrs Mearns has made two unsuccessful attempts to have the District Court default judgment set aside. The first of these, filed on 1 September 2003, was dismissed by the District Court on 11 September 2003 by Bowden AJ and an application for leave to appeal filed on 20 October 2003 was dismissed by the Court of Appeal on 17 December 2003.  (See Mearns v Willoughby Community Pre-School Inc [2004] NSWCA 382). A second application to set aside the default judgment filed on 27 November 2003 was dismissed by Black J of the District Court on 12 December 2003. On 29 January 2004 Willoughby’s solicitors received a draft notice of intention to oppose the creditor’s petition on the grounds that Mrs Mearns intended to seek leave to appeal the decision of Black J. However a summons in relation to the judgment of Bowden AJ was lodged in the Supreme Court on 10 February 2004 and rejected for filing on 13 February 2004 on the basis that the Court of Appeal had dealt with a summons seeking leave to appeal in the same proceedings. I am told that an application for an extension of time to apply for leave to appeal to the Supreme Court in relation to the decision of Black J was withdrawn on 1 March 2004. On 1 March 2004 Mrs Mearns initiated another motion to set aside the default judgment in the District Court. This has been adjourned pending the resolution in the Local Court of New South Wales of outstanding criminal charges against Mrs Mearns. On 3 March 2004 (in Willoughby Community Preschool Inc v Mearns [2004] FMCA 861) Raphael FM adjourned the hearing of the creditor’s petition so that the debtor could proceed in the District Court and extended the petition pursuant to s.52(5) of the Bankruptcy Act 1966 until 17 December 2005.  There have also other proceedings between Mrs Mearns and Willoughby in the Supreme Court. 

4. On 6 April 2004 Willoughby and ALF executed a deed of assignment of debt. ALF claims that the deed (of which notice was given to Mrs Mearns) constituted an absolute assignment to ALF of the judgment debt the subject of the District Court judgment and all consequent cost orders. It was contended that notice of the assignment was given to Mrs Mearns on or about 7 December 2004. Hence it was said to be appropriate to substitute ALF as the petitioning creditor in the present proceedings. It was contended that such substitution could and should properly be done by the Court pursuant to Part 11 of the Federal Magistrates Court Rules2001 consistent with the operation of s.30 of the Bankruptcy Act 1966 and s.15 of the Federal Magistrates Court Act 1999.

5. Counsel for Mrs Mearns raised a number of issues, some of which involved contentions that there had not been an effective assignment and others which were to the effect that even if there was an effective assignment the assignee could not or should not be substituted for the petitioning creditor. 

Whether the assignment was "absolute"

1. ALF contended that there was an assignment of the District Court judgment debt effective at law pursuant to s.12 of the Conveyancing Act 1919, notice having been given to Mrs Mearns of the assignment. Section 12 relevantly provides as follows:

   Any absolute assignment by writing under the hand of the assignor (not purporting to be way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor … shall be, and deemed to have been, effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: …

2. It is not in dispute that Mrs Mearns received express notice in writing of the assignment on or about 7 December 2004 in the form of a notice of assignment signed by the assignor and assignee. The precise scope of this notice is discussed further below. However the first issue that counsel for Mrs Mearns raises is a contention that the purported assignment of Willoughby's interest in the District Court judgment was not an effective assignment at law because it was not “absolute” within s.12 of the Conveyancing Act1919.  It was contended that this was so because the deed of 6 April 2004 itself provided, in clause 11.4, that it may be varied by instrument in writing signed by each of the assignor and assignee.  It was submitted that a deed could not be both an absolute assignment and an assignment subject to variation.  Support for this proposition was said to be found in Jones v Humphreys [1902] 1 KB 10 at 13 per Lord Alverstone CJ as follows:

   To satisfy the section you must be able to find in the document an intention to assign some definite sum, so that the debtor may know how much he is justified in paying to the assignee.

3. This statement was made in the context of a finding that an assignment of an undefined portion of future debts was not within s.25(6) of the Judicature Act 1873 (the English forerunner to s.12 of the Conveyancing Act1919.  It is submitted that it illustrates that it is critical for the debtor to know how much he or she owed and to whom and that this requirement is not met in this case so the assignment is not absolute.   

4. Clause 11.4 of the deed of assignment is as follows:

   11.4 Variation 

   This deed may be varied by instrument in writing executed under seal of, or signed by, in respect of the Assignor, the Assignor and, in respect of the Assignee, a duly authorised officer. 

5. Counsel for Mrs Mearns contended that, even if in the absence of clause 11.4 the deed was an absolute assignment, the fact that it was an assignment subject to variation meant that it was not absolute and hence even if notice was given it could not be effective to transfer the District Court debt and the legal right to the debt.  It was contended that a clause such as clause 11.4 meant that the deed was not absolute because it allowed the parties to the deed (who did not include the debtor) to vary its terms without notice to the debtor.  It was suggested that if the debtor was not informed of such variation she might pay one party to the deed and then face an action from the other party and hence she could not be said to know how much she owed and to whom.  It was submitted that the provision for variation in clause 11.4 was not akin to a redemption and reassignment on repayment provision which, it was conceded, would not prevent an assignment from being absolute (see Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190). Rather it was said that clause 11.4 allowed the parties to the deed without notice to the debtor to amend the deed of assignment.

6. As Mason J stated in Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at [24]:

   An “absolute assignment” in [s.12 of the Conveyancing Act] signifies one which is unconditional. Consequently, it has been held to embrace an assignment notwithstanding that the document affecting the assignment provides or implies the need for a reassignment or reconveyance on the happening of a future event.

7. As JG Starke suggested (see Assignments of Choses In Action in Australia, 1972, Butterworths at 13 – 14), an absolute assignment:

   is one whereby the entire interest of the assignor in the chose in action is, for the time being, transferred unconditionally to the assignee, and placed completely under his control. To be absolute, it is not, however, necessary that the assignment should take the form of an out and out transfer which deprives the assignor permanently of all further interest in the subject matter; for instance, an assignment of a choses in action as security for advances, with a proviso for redemption and reassignment on repayment of the loan, is an absolute assignment. 

8. It has not been established that the fact that by variation consistent with clause 11.4 of the deed there may be some future reassignment means that for the time being there is not an unconditional and hence absolute assignment of the entire interest of the assignor in the judgment issued in the District Court of New South Wales on 25 August 2003.  (see Tancred v Delagoa Bay & East Africa Rail Co (1889) 23 QBD 239 at 242 per Denman J; Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190 at 197 per Cozens-Hardy LJ. As Mathew LJ stated in Hughes’ case at 193, in determining whether there is an absolute assignment within the meaning of a provision equivalent to s.12 of the Conveyancing Act 1919: 

   … all the terms of the instrument must be considered; and, whatever may be the phraseology adopted in some particular part of it, if, on consideration of the whole instrument, it is clear that the intention was to give a charge only, then the action must be in the name of the assignor; while, on the other hand, if it is clear from the instrument as a whole that the intention was to pass all the rights of the assignor in the debt or chose in action to the assignee, then the case will come within s.25, and the action must be brought in the name of the assignee. 

9. In that case an issue arose as to whether an assignment was absolute or by way of charge only.  If it was by way of charge the action before the Court was properly brought in the name of the assignor.  It was in that context that Mathew LJ stressed that it is necessary to look at the whole of the instrument to ascertain whether it was intended to assign the whole interest of the assignor.  His Honour distinguished Jones v Humphreys (which was relied upon by counsel for Mrs Mearns) as in that case, when the whole instrument was looked at, it appeared that what was intended was only to assign so much of a debt or chose in action as would provide security for a debt of a particular amount.  On that becoming apparent it was held that the true character of the interest given was that of a charge only. 

10. In this instance it is apparent, construing the deed as a whole, that the intention is to assign absolutely the whole of the assignor's interest in the judgment issued in the District Court of New South Wales on

    
    

    25 August 2003.

11. It is clear from the construction of all of the provisions of the deed of assignment that the deed operates as an unconditional assignment of Willoughby's interest in the judgment issued in the District Court of New South Wales in action number 2901 of 2003 on 25 August 2003 and all or any rights arising under or pursuant to that judgment.  Recital A of the deed recites that the assignor is the lawful owner of the judgment debt as a consequence of orders made in the District Court of New South Wales on 25 August 2003.  Recital B states that the assignor has agreed to ‘assign absolutely’ to the assignee all its legal and beneficial right, title and interest in the ‘Judgment Debt’ on the terms and conditions set out in the deed.  Paragraph (a) of the clause 1.1 definition of ‘Judgment Debt’ is ‘the judgment issued in the District Court of New South Wales in the Action on 25 August 2003 details of which are more particularly set out in the Certified Copy.’  By paragraph (c) the ‘Judgment Debt’ includes all or any rights arising under or pursuant to the judgment referred to in the Certified Copy as against the Debtor.  The ‘Certified Copy’ is a photocopy of the Certified Copy of the default judgment issued by the District Court contained in Schedule 3 to the Deed. 

12. Part 2 of the deed deals with assignment of the debt.  In particular clause 2.1 provides:

    In consideration of these presents and in the consideration of the payment of the Assignment Sum, the Assignor hereby transfers and assigns to the Assignee, free from all encumbrances, with effect from the Assignment Date all right, title and interest in and to the Judgment Debt. 

13. Paragraph 2.4 provides for the assignee's title and powers with effect from the assignment date: including the power to deal with the judgment debt without interruption or disturbance from the assignor; to be entitled to all rights, powers, remedies, authorities and discretions conferred by or vested in the assignor in respect of the judgment debt; to have the full power to demand, sue for, recover and receive the judgment debt; and to be entitled to give a valid and effectual receipt and discharge for the judgment debt.  The amount of the judgment issued in the District Court is specified in the certified copy of the default judgment forming Schedule 3 to the deed.  It is also referred to in the notice of assignment given to Mrs Mearns.  It is clear that in the deed there is an intention to assign a definite sum being the amount of the judgment debt in the District Court so that Mrs Mearns may know how much she is justified in paying to the assignee in relation to this debt. 

14. Moreover, unless and until she were to receive any notice of variation affecting the assignment of the judgment debt that forms the basis for the creditor's petition which is before the Court, she would have a valid discharge of the debt if she paid ALF.  If there was some reassignment of the debt without notice to her pursuant to a variation of the deed, the fact that there might be some liability as between ALF and Willoughby (because there had been an equitable assignment) would not affect her liability for the debt or her ability to know to whom and how much she should pay. 

15. All that clause 11.4 does in this respect in relation to the effectiveness of an assignment by the deed is to restate what would be the case at general law in any event, that being that the parties could, by a subsequent deed, agree to a reassignment.  There is no suggestion, nor could there be, that the parties to the deed could not by a properly executed and sealed deed executed by both parties vary what is in the deed.  Clause 11.4 in fact restricts the ability to vary the deed by making it clear that neither party can vary the deed unilaterally. 

16. Insofar as Counsel for Mrs Mearns suggests that clause 11.4 ‘infects’ the absoluteness of the assignment by providing for variation between the parties to the deed without notice to the debtor, it does not take account of the fact that if no notice was given to the debtor of any subsequent variation (for example, by way of reassignment), then such subsequent action would not be effective at law within s.12 of the Conveyancing Act 1919.  In such circumstances in the absence of notice of the variation to the debtor, the debtor would have a valid discharge for the debt if she were to repay the party to whom she had been given notice that the debt had been assigned.  Of course, upon notice of reassignment being given to the debtor, she would thus know with certainty in whom the legal right to sue her was thereafter vested.

17. It has not been established that clause 11.4 of the deed of assignment means that the assignment was not “absolute” within s.12 of the Conveyancing Act 1919. 

Whether assignment ineffective because uncertain

1. Counsel for Mrs Mearns contended in the alternative that the deed of

   
   

   6 April 2004 was ineffective to assign the right to the judgment issued in the District Court on 25 August 2003 because it purported to assign other rights and interests which were not sufficiently identified and in relation to which there were unascertained amounts.  Hence it was contended that it was not an assignment of a definite and ascertained amount and thus not ‘absolute’. 

2. Mrs Mearns also relies on the authority of Jones v Humphreys (No.2) [1902] 1 KB 10 in support of this contention. It is contended that, reading the deed as a whole, it cannot be said that the deed assigns a definite and ascertained amount insofar as it deals with rights and interests other than the judgment issued in the District Court of New South Wales on 25 August 2003. There is no suggestion that the amount due under the District Court judgment is not definite or ascertained. Rather it is said that because the deed also purports to assign the interest of the assignor in other actions in relation to which there is no certainty, then the deed is ineffective to assign not only those other interests and rights but also the judgment issued in the District Court of New South Wales on 25 August 2003 and all or any rights arising under or pursuant to that judgment.

1. It is pointed out that the deed purports to assign all right, title and interest in and to the ‘Judgment Debt’ and that ‘Judgment Debt’ is defined in clause 1.1 to mean not only the judgment issued in the District Court of New South Wales (paragraph (a)) and rights arising under or pursuant to that judgment (paragraph (c)), but also:

   (b) all right, title and interest of the Assignor in the Action and the choses in action and other rights and claims against the debtor (and where applicable Edwin Richard Mearns) referred to in or being the basis of the Action and all and any costs orders issued in respect of the Action; and also

   (d) all right, title and interest of the Assignor to defend, prosecute or otherwise pursue the Action and the application referred to in clause 3(d)(i).

2. ‘Action’ is defined in clause 1.1 of the deed of assignment of debt to mean ‘all and each of’ six different court actions including not only action number 2901/03 in the District Court, but also three specified actions in the Supreme Court of New South Wales, an ‘Action’ in the Federal Magistrates Court and also the creditor's petition action in this Court, as well as ‘appeals from the foregoing Actions’.  It is said that as all these matters (including appeals) are included in the notion of ‘Judgment Debt’ which is purportedly assigned, one cannot say with certainty what comprises the ‘Judgment Debt’ and that this is contrary to the notion expressed in Jones v Humphreys that the debtor should know how much he or she is justified in paying to the assignee.

3. However, what is in issue in the present proceedings is whether there has been an effective assignment of the judgment debt consisting of the judgment issued in the District Court of New South Wales on 25 August 2003 which is the basis for the creditor's petition filed on 18 December 2003 by Willoughby.  What needs to be established for present purposes is that there has been an absolute assignment of that debt of which express notice in writing has been given to Mrs Mearns. 

4. The applicant for substitution contends that the judgment debt for $431,759.86 obtained by Willoughby in the District Court on 25 August 2003 (together with rights arising under or pursuant to the judgment) was assigned to ALF by an absolute assignment which was effective because express notice in writing of the assignment of that particular judgment debt had been given to Mrs Mearns.  I agree with this contention.  Merely because the deed of assignment of debt deals not only with this debt but also with other interests does not establish that it is not effective to assign the particular judgment debt in issue.  There is no uncertainty as to the identification or amount of the debt arising from the judgment issued in the District Court of New South Wales on 25 August 2003 in the manner in which it is described in the deed of assignment of debt or in the notice of assignment.  

5. Paragraph (a) of the definition of ‘Judgment Debt’ (which deals with this item) refers specifically to the certified copy of the default judgment annexed as Schedule 3 to the deed.  There the amount is specified.  Moreover, and critically, the notice of assignment in Schedule 1 to the deed, which it is accepted was given to Mrs Mearns on or about 7 December 2004, recites that it is a Schedule to a deed between Willoughby as assignor and ALF as assignee and then states:

   The debt referred to in this Notice of Assignment arises from the orders of the District Court of New South Wales made on

   
   

   25 August 2003.  On that day it was ordered by the Court that you are to pay to Willoughby Community Preschool Inc, the sum of $431,759.86.  Annexure 1 to the Deed (attached) is a copy of the judgment dated 25 August 2003. 

   NOW TAKE NOTICE that Willoughby Community Preschool Inc has, under the Deed, assigned and transferred to Australian Litigation Fund Pty Ltd, all right, title and interest in and to the Judgment Debt, together with your indebtedness to pay under the Judgment Debt (being the sum of $431,759.86 plus interest accruing from the date of 25 August 2003 and costs) and you are irrevocably directed to pay those amounts to Australian Litigation Fund Pty Ltd or as it may otherwise direct. 

   TAKE FURTHER NOTICE that only Australian Litigation Fund Pty Ltd can give a good and valid discharge of the Judgment Debt. 

6. It is clear from the notice of assignment given to Mrs Mearns that such notice relates to the judgment debt arising from the orders of the District Court of New South Wales made on 25 August 2003. It is the assignment of that debt that is in issue. Such assignment was legally effective, being an absolute assignment by writing under the hand of the assignor of which express notice in writing was given to the debtor. There is no contention by ALF in these proceedings that there has been an assignment of any other debt or legal chose in action that is effective in law under s.12 of the Conveyancing Act 1919. It is not necessary for the purposes of determining the application for substitution to determine whether or not any other debts or rights referred to in the definition of ‘Judgment Debt’ in the deed of assignment of debt have been effectively assigned either in equity or at law under s.12. There is no uncertainty as to the assignment of the judgment debt arising from the orders of the District Court made on 25 August 2003. Thus it is not necessary in these proceedings to determine the effect of the fact that in October 2005 a copy of the deed of assignment itself was provided to Mrs Mearns in connection with proceedings between Willoughby and Mrs Mearns in the Supreme Court.

Whether assignment ineffective because other elements purportedly assigned are not assignable

1. Associated with this argument is a contention by counsel for Mrs Mearns that, save for the judgment debt referred to in the certified copy of the default judgment, the other elements in the definition of ‘Judgment Debt’ under the deed are mere bare rights of action which are not assignable (see Global Custodians Ltd v Mesh [1999] NSWSC 624 at [47] per Young J). It was contended that as elements (b), (c) and (d) within the definition of ‘Judgment Debt’ in clause 1.1 of the deed are not assignable and element (a) of the definition of ‘Judgment Debt’ is a compendious element of the defined judgment debt which is the subject of assignment, the deed is ineffective to effect the assignment of any of the elements of paragraphs (a) to (d) of the definition of ‘Judgment Debt’.

2. The short answer to this contention is that even if there were elements in paragraphs (b), (c) or (d) of the definition of ‘Judgment Debt’ in the deed which were not capable of assignment, such items are severable. Indeed, (other than item (c) which in oral submissions Mr Killalea conceded related to the District Court debt referred to in paragraph (a)) they are not addressed in the notice of assignment given to Mrs Mearns on or about 7 December 2004. The mere fact that the notice of assignment uses the expression ‘Judgment Debt’ does not mean that it constitutes notification of a purported assignment of all of the items referred to in the definition of ‘Judgment Debt’ in clause1.1 of the deed of assignment of debt. In this respect it is notable that under s.12 there must be express notice in writing, not merely for the protection of the assignee, but as an essential element in vesting title in the assignee under s.12, although the absence of express notice in writing does not prevent the assignment from being effective in equity as between the assignor and assignee.

3. It is relevant to have regard to what Dixon and Evatt JJ stated in Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439:

   The object of the requirement made by the words "of which express notice in writing shall have been given" is, we think, correctly stated in Warren's Choses in Action (1899), at pp 177, 178.  The term "express notice" is doubtlessly employed by way of opposition to notice arising by implication or operation of law, and to what was known in equity as constructive notice.  It means a notice which indicates an express intention - a direct and definite statement of a thing, as distinguished from supplying materials from which the existence of such a thing may be inferred.   The purpose is to make essential actual notice that the debt has been assigned.  "One of the objects of the giving of notice to the debtor is that he shall know with certainty in whom the legal right to sue him is vested."  (McIntosh v Shashoua (1931) 46 CLR 494 at 515 per Evatt J). The purpose does not extend to giving the debtor particulars of the assignment. The assignment must be by writing, but, if it is in writing, then notice to the debtor is necessary only to acquaint him with the fact that the debt is payable to the assignee and the statute requires that he shall be expressly notified.

4. The notice, while it need not be formal, should be addressed to and intended to be retained by the debtor and should expressly, or by implication, call the debtor's attention specifically to the fact of the assignment (Anning v Anning (1907) 4 CLR 1049 at 1060 – 1078).

5. In this instance the debt referred to in the notice of assignment is the debt arising from the orders of the District Court of 25 August 2003.  This is a clear statement.  It gives an actual notice of assignment of that debt.  The debtor is acquainted with the fact that that debt is payable to ALF as assignee.  The notice cannot be said to indicate an express intention to notify the debtor (in the sense of a direct and definite statement) of assignment of any other rights or choses in action.  I note in this respect that it has also been held that the statutory requirement of express notice in writing is not satisfied merely by showing the instrument of assignment to the debtor or producing it to him for perusal or inspection (Anning v Anning).  The fact that the deed (the mechanism in writing by which the assignment of the particular debt in issue is achieved) also deals with other items (which may or may not be assignable) does not mean that the assignment of the debt arising out of the District Court judgment is ineffective where it has been assigned absolutely by the deed and clear notice of such assignment has been given to the debtor.  Whatever the effect of the subsequent provision of the copy of the deed of assignment to Mrs Mearns in October 2005 might be, if it is the case (which it is not necessary to determine) that certain matters purportedly assigned in the deed of assignment are not assignable, that does not ‘infect’ or defeat the absolute nature of the assignment of the debt arising from the District Court judgment which is in issue in the present proceedings.    

Whether Stamp Duty issue

1. In written submissions, counsel for Mrs Mearns contended that the deed of assignment may not be able to be relied upon in the absence of relevant stamp duty having been paid.  He foreshadowed possible reliance on such a ground. 

2. Counsel for ALF and Willoughby contended that if Mrs Mearns did seek to rely on such ground it would not succeed as the Stamp Duties Act 1920 ceased to apply to deeds of assignment after the introduction of the Duties Act 1997 on 1 July 1998 (see s.1A(1)), which, it was said, had the effect that s.74 of the Stamp Duties Act1920 (dealing with duty on certain deeds of assignment) does not apply to the deed in question as it was executed on or after 1 July 1998. It was conceded that had s.74 applied it would have imposed stamp duty on the deed. It was also contended that the Duties Act 1997 did not apply to deeds of assignment such as that under consideration (see ss.8 and 11). It is not necessary for the Court to determine these issues as Counsel for Mrs Mearns indicated that this ground was not pressed.

Whether debt to assignee had to be in existence at time of act of bankruptcy

1. The next matter raised by counsel for Mrs Mearns is expressed as an objection to the assignment although it is an objection to substitution of ALF as petitioning creditor even if the assignment was effective. 

2. Counsel for Mrs Mearns contended that as the debt relied upon by ALF only came into existence vis-a-vis ALF on the date on which the judgment debt was assigned to ALF it is not open for ALF to be substituted for Willoughby because a creditor who seeks to be substituted as a petitioning creditor must be a person whose debt was in existence at the time of the act of bankruptcy alleged in the petition.

3. The relevant act of bankruptcy relied upon is a failure to comply with a bankruptcy notice on 11 November 2003.  The assignment of the judgment debt took effect, if at all, on 7 December 2004.  It was noted that while Mrs Mearns had filed a notice of motion on 7 April 2005 and a supporting affidavit seeking dismissal of the creditor's position (on the basis that there had been an assignment of the debt) at that time ALF had filed no proceedings in the Court.  It filed the present application for substitution on 6 May 2005.  

4. It was contended that McNamara v Longford (1931) 45 CLR 267 is authority for the proposition that a creditor who seeks to be substituted as a petitioning creditor must be a person whose debt was in existence at the time of the act of bankruptcy alleged in the petition and that in this instance it was manifestly not the case as the debt to ALF only arose, if at all, on the giving of notice of assignment on 7 December 2004.

5. McNamara v Longford concerned the interpretation of s.35 of the Bankruptcy Act 1924 – 1930, the predecessor to s.49 of the Bankruptcy Act 1966, which is as follows:

   Where a creditor’s petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor.

6. In that context, where a second creditor whose debt was not in existence at the time of the act of bankruptcy alleged in the petition sought to be substituted for the creditor who was the petitioning creditor, Gavin Duffy CJ stated that:

   The Court is of the opinion that the person substituted under section 35 must be a person whose debt was in existence at the time of the act of bankruptcy alleged in the petition.

7. Before considering this argument I note the other ground of opposition raised and consider the source of the Court’s power to order substitution. 

Whether it is ‘too late’ to order substitution

1. Associated with this issue is a further ground of opposition to the application for substitution which was raised in a letter from Mrs Mearns to the solicitors for ALF and Willoughby dated 14 November 2005.  It is contended that it is too late to substitute ALF for Willoughby because Willoughby's petition lapsed on or about 7 December 2004 when notice was given to Mrs Mearns of the assignment to ALF.  ALF’s application for substitution was not made until 6 May 2005.   

Source of power to order substitution

1. Mr Dawson for the petitioning creditor (and also for ALF) pointed out that the basis on which substitution was sought in this instance was pursuant to Pt 11 of the Federal Magistrates Court Rules 2001 read together with s.15 of the Federal Magistrates Court Act 1999 and s.30 of the Bankruptcy Act 1966. Hence it was submitted that even if there had to be a debt to ALF at the time of the act of bankruptcy for s.49 to apply (which was not conceded) it was proper for ALF to be joined as a party and Willoughby removed as a party under the Federal Magistrates Court Rules 2001. The restrictions suggested for Mrs Mearns would not apply in this context. 

2. It was contended for ALF that the better view was that it was not necessary or appropriate to rely s.49 of the Bankruptcy Act 1966 in the present case, which was not a situation where there were two creditors in relation to two separate debts, but rather one where there had been an assignment of the one debt.  In the alternative, if s.49 was the only applicable source of power to substitute the fact that the debt was not in ALF's name at the time of the act of bankruptcy should not be a bar to substitution as the debt itself was in existence at the relevant time and the assignment had validly passed all legal and other remedies and rights in relation to the same debt.  It was also contended that McNamara v Longford said nothing about the situation before the Court, where there had been a change in who was entitled to the legal right to the debt and all legal and other remedies for the debt. 

3. However, it was conceded that s.49 had been interpreted in the manner contended for by the debtor in McNamara v Longford to require the substituted creditor to have a debt owed to him or her at the time of the act of bankruptcy.  It was also conceded that it might be said that the application of s.49 in the present situation involved some artificiality, as it refers to substitution of ‘another’ creditor to whom the debtor is indebted.  In any event, it was submitted that the appropriate power to be exercised by the Court in this case was that under the Rules to add a party whose participation was necessary or appropriate and to remove parties. 

4. There are two possible sources of a power to order substitution: under s.49 of the Bankruptcy Act 1966 and under Part 11 of the Federal Magistrates Court Rules 2001. In the circumstances of this case, whether or not s.49 of the Bankruptcy Act 1966 is applicable, I consider that the Court has the power to order that a party be included as a party and another party be removed as a party pursuant to Part 11 of the Federal Magistrates Court Rules 2001.  There are a number of reasons for this conclusion. 

5. First, these are proceedings under the Bankruptcy Act 1966. The Court has power under s.30(1)(b) of the Bankruptcy Act 1966 to make such orders as the Court considers necessary for the purposes of carrying out or giving effect to the Act.  This provision does not limit the Court's jurisdiction, but rather gives it full power (within the limits of its jurisdiction) to make such orders as it considers should be made in order to carry out and give effect to the Bankruptcy Act1966 (see Re Bilen; Ex parte Sistrom (unreported, Fed Court of Australia, Neaves J, 11 April 1985).

6. This Court has jurisdiction under the Bankruptcy Act 1966 (see s.5(5) and s.27). Under s.15 of the Federal Magistrates Court Act 1999 the Court has power in relation to matters in which it has jurisdiction to make orders of such kinds, including interlocutory orders, as the Federal Magistrates Court thinks appropriate.  While the Federal Magistrates Court Rules2001 contain provisions which apply specifically to bankruptcy proceedings (in Chapter 4) it is notable that Rule 29.01(2) also provides that Chapters 1 and 3 of the Rules apply so far as they are relevant and not inconsistent with Chapter 4 to a proceeding to which the Bankruptcy Act 1966 applies. There is nothing in Chapter 4 of the Rules that is said to be inconsistent with Part 11 of the Rules (which is in Chapter 1) Rule 11.01(1) provides that subject to any order of the Court a person whose participation is necessary for the Court to completely and finally determine all matters in dispute in a proceeding must be included as a party in the proceeding. Rule 11.03 (which ALF relies on) allows a party to apply to be included as a party and Rule 11.04 allows a party to apply to the Court to be removed as a party. ALF and Willoughby respectively seek such orders. In light of the nature of the precise order sought by ALF (an order for substitution in place of Willoughby) it is also relevant to have regard to Rule 1.06 which enables the Court in the interests of justice to dispense with compliance or full compliance with any of the Rules at any time. Rule 1.06(2) provides that if in a proceeding the Court gives a direction or makes an order that is inconsistent with any of these Rules, the direction or order of the Court prevails in that proceeding.

Whether substitution should be ordered

1. In considering whether substitution should be ordered it is relevant to have regard to the effect of an assignment operating under s.12 of the Conveyancing Act 1919.  In Read v Brown (1888) 22 QBD 128 at 131 Lord Esher MR said of the English predecessor to s.12 of the Conveyancing Act1919 (s.25(6) of the Judicature Act 1873) that it gave to the assignee of a debt:

   ...more than the mere right to sue for it; it gives him the debt and the legal right to the debt, and it follows from that that he would have had a legal right to sue for and recover it, even had the section not contained the words 'and all legal and other remedies for the same'.

2. At page 132 his Lordship said that in construing this provision it was necessary to adopt the ordinary rule of construction, giving if possible a meaning to each word, and, on that basis:

   ... the words mean what they say; they transfer the legal right to the debt as well as the legal remedies for its recovery.  The debt is transferred to the assignee and becomes as though it had been his from the beginning; it is no longer to be the debt of the assignor at all, who cannot sue for it, the right to sue being taken from him; the assignee becomes the assignee of a legal debt and is not merely an assignee in equity, and the debt being his, he can sue for it, and sue in his own name.

3. Also see Bacon v Yatchaw Irrigation and Water Supply Trust (1898) 23 VLR 485 and Carob Industries Pty Ltd(in liq) vSimto Pty Ltd [2000] WASCA 362 at [27] per Malcolm CJ with whom Kennedy and Pidgeon JJ agreed.

4. I am satisfied that the assignment was an absolute assignment and the deed, coupled with the giving of notice to Mrs Mearns, had the effect contemplated by s.12 of the Conveyancing Act 1919.  Hence the assignment operated to transfer to ALF the legal right to the debt constituted by the judgment obtained by Willoughby in the District Court on 25 August 2003 against Mrs Mearns or any rights arising under or pursuant to the judgment.  As a matter of general law, from the date of the notice (which is conceded to be on or about 7 December 2004) the assignee ALF had the power to give a good discharge for the debt without the concurrence of Willoughby, the assignor.  The assignment also passed all legal and other remedies for the debt assigned.

5. The transfer of remedies under an assignment which is valid under s.12 of the Conveyancing Act1919 means at general law that the assignee can bring an action in his own name (Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 27 although see the qualifications discussed in Starke at 48). Relevantly there is authority that the assignee can present a petition in bankruptcy, without joining the assignor, because as the assignment is absolute no beneficial interest has been retained by the assignor (see McIntosh v Shashoua (1931) 46 CLR 494 at 507 per Starke J and note that there is no suggestion that the assignee is only a trustee so that the person beneficially entitled ought to be joined in the petition). Similarly, it has been held that since provisions equivalent to s.12 of the Conveyancing Act 1919 pass all remedies, and the power to petition for a winding up of a company is in effect a remedy available to the creditor to enforce (among other things) recourse to uncalled capital for the payment of the company's debts, the assignee of a debt is entitled to present such a petition (Re Premier Permanent Building, Land and Investment Association; Ex parte Stewart (1890) 16 VLR 20 at 24).

6. In this instance the assignee is not seeking to present a petition in bankruptcy.  Rather it seeks to be substituted for the petitioning creditor.  Nonetheless such authorities are relevant to a consideration of what parties are necessary or appropriate to be included or not included as a party to proceedings.   

7. Neither of the objections to substitution raised by the debtor are such as to persuade me either that there is no power to make the order sought or that the order sought should not be made.  First, the objection that the debt to the assignee was not in existence at the time of the act of bankruptcy is a technical objection taken to substitution under s.49 based, as it is, on the authority of McNamara and Longford.  McNamara v Longford is not entirely in point in the circumstances of this particular case as it involved two debts.  I do not consider that it is necessary that a creditor who seeks to be substituted as petitioning creditor as an assignee of the debt on which the creditor’s petition was based must be a person to whom the debt (or some other debt) was owed at the time of the act of bankruptcy alleged in the petition.  The debt relied on by ALF is the same debt as was relied on by the petitioning creditor in the creditor’s petition.  The debt cannot be said not to have been in existence.  There is nothing in McNamara v Longford, or in what was said by counsel for Mrs Mearns that has persuaded me that a creditor who seeks to be substituted as assignee of a debt from the petitioning creditor must at the same time have been owed a separate debt at the time of the act of bankruptcy. 

8. The other objection to substitution is that it is too late to substitute ALF as Willoughby’s petition lapsed when the notice of assignment became effective on or about 7 December 2004.  No authority is cited in support of this proposition.  It is not consistent with the practice in bankruptcy of permitting substitution because a debtor has reached an accommodation or settlement with the petitioning creditor (see McNamara v Longford and Raymond Marshall Johnstone v Joseph Guss [1998] FCA 1658 and Guss v Johnstone [2000] FCA 1455). Indeed it has been held, in Re Mann [1958] 1 WLR 1272 at 1274, that a creditor’s petition remains on foot until it is dismissed or withdrawn by leave of the Court, notwithstanding that the original petitioning creditor has been paid out by the debtor and has sought to withdraw and that it is still open to the Court to allow another creditor to be substituted under s.49 in these circumstances. Consistent with such authorities it cannot be said that Willoughby’s petition ‘lapsed’ on or about

   
   

   7 December 2004 or at any subsequent time.  I am not persuaded that it is too late to substitute ALF for Willoughby. 

9. At the conclusion of oral submissions counsel for Mrs Mearns also submitted that the specific provision for substitution in s.49 of the Bankruptcy Act 1966 prevails and that there cannot be reliance on more general provisions in relation to the addition of parties. However I am not persuaded by this submission. It is entirely consistent to read ss.30 and 49 together. The general provision in s.30, as it were, fills in the gaps which s.49 leaves. There is nothing to suggest that s.49 necessarily covers the field. It is not expressed in exclusive terms and the Court has power to grant the procedural relief sought to ensure that the issue is determined between the parties to the dispute.

10. These findings mean that it is not, strictly speaking, necessary to determine the precise scope of s.49 and whether it could be applied in the present situation.  The more appropriate power is that contained in the Federal Magistrates Court Rules 2001 by virtue of the operation of s.30 of the Bankruptcy Act 1966 and s.15 of the Federal Magistrates Court Act 1999. However if I am wrong and s.49 is the applicable source of power I consider that it would allow for the substitution sought and that substitution should be ordered under s.49 on the basis that it is proper to do so in circumstances where there has been an absolute assignment under s.12 of the Conveyancing Act 1919 as the debt relied on was in existence at the time of the act of bankruptcy, albeit owed at that time to the assignor.  

11. McNamara v Longford relates to a situation where at the time of the application for substitution the creditor seeking to be substituted could not establish that the debt owed to that creditor was in existence in any form at the time of the act of bankruptcy.  I agree with the reasoning of Heerey J in Morris Komesanoff v Law Institute of Victoria [1997] FCA 893. In that case Heerey J granted an application for substitution of Victorian Lawyers RPA Ltd as petitioning creditor in circumstances where a debt was owed to the Law Institute of Victoria which had filed a creditor’s petition. Subsequently a Victorian statute abolished the Law Institute of Victoria and substituted a new corporate entity – Victorian Lawyers RPA Limited. In granting leave to amend the title of the creditor’s petition his Honour stated that it was “not to the point … that the substituted petitioning creditor was not in existence at the date of the act of bankruptcy, or indeed at the date of the petition”. His Honour was satisfied that the debt was in existence and owed by the debtor and became payable to Victorian Lawyers RPA Limited after the filing of the creditor’s petition. Relevantly, he continued:

    “It is the debt which must be owed at the date of the petition: McNamara v Longford (1935) 45 CLR 267, Hyams v Elder Smith Goldsborough Mort Limited (1976) 133 CLR 637 at 639. But the debt need not necessarily be owed then to the party who has sought to be substituted as petitioning creditor.

    Also see General Motors Acceptance Corporation Australia v Marshall [2002] FCA 100 (reversed on appeal for other reasons) at [32] per Gyles J pointing out that “section 49 speaks in the present tense and the requirement is that the substituted petitioner be a creditor in sufficient amount at the time of substitution”.

12. Moreover the fact that s.49 refers to substitution of ‘another’ creditor has not prevented substitution in circumstances where a creditor has been paid out by the debtor and hence is no longer a creditor.  I also note that there is authority that a substituted petitioning creditor need not prove the matters relating to its debt at the time of substitution unless there is material to suggest a defect with the debt would make it impossible for the substituted creditor to obtain a sequestration order (see Hyams v Elder Smith Goldsborough Mort (1976) 133 CLR 637 at 639 per Barwick CJ).

13. In this instance, given the consequences of an effective assignment of the debt which forms the basis for the creditor’s petition it is proper, in order to determine the dispute between the appropriate parties (who are now ALF and Mearns), to order substitution in the terms sought by ALF.  Such order while not precisely in the terms provided for in Rules 11.03 and 11.04 is consistent with what would be achieved by two orders, one adding ALF as an applicant and the other removing Willoughby as an applicant (see Rule 1.06).  In those circumstances I consider it is appropriate to make the order for substitution sought by ALF and Willoughby.  To ensure that such substitution is effective, leave is granted to amend the creditor’s petition by substituting ALF as petitioning creditor.  Service of the amended petition on Mrs Mearns is dispensed with.  It is appropriate that Ms Mearns meet the costs of ALF and Willoughby in relation to the application for substitution. 

I certify that the preceding sixty-four (64) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  24 November 2005.