Auswide Heavy Haulage Pty Ltd v Hollow Point Logistics Pty Ltd

[2015] WADC 98

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CIVIL

LOCATION:   PERTH

CITATION:   AUSWIDE HEAVY HAULAGE PTY LTD -v- HOLLOW POINT LOGISTICS PTY LTD [2015] WADC 98

CORAM:   PRINCIPAL REGISTRAR MELVILLE

HEARD:   30 JULY 2015

DELIVERED          :   18 AUGUST 2015

FILE NO/S:   CIVO 31 of 2015

BETWEEN:   AUSWIDE HEAVY HAULAGE PTY LTD

Judgment Creditor

AND

HOLLOW POINT LOGISTICS PTY LTD
Judgment Debtor

CONNECTOR DRILLING PTY LTD
Third Person

Catchwords:

Available debt - Object to debt appropriation order - Set-off - Discretion to allow objection - Civil Judgments Enforcement Act 2004 s 46, s 54, s 55(4)

Legislation:

Civil Judgments Enforcement Act 2004
Corporations Act 2001

Result:

Objection allowed

Representation:

Counsel:

Judgment Creditor       :     Mr Tedeschi

Judgment Debtor          :     No appearance

Third Person                :     Ms P A Saraceni

Solicitors:

Judgment Creditor       :     Baker Love Lawyers

Judgment Debtor          :     Not applicable

Third Person                :     Clifford Chance

Case(s) referred to in judgment(s):

Ali v Nationwide News Pty Ltd [2003] NSWCA 183

Harbeck v Vasse Dozer Hire Pty Ltd [2009] WADC 48

Re K L Tractors [1954] VLR 505

1. PRINCIPAL REGISTRAR MELVILLE:  By way of background to this matter, it is to be observed that Auswide Heavy Haulage Pty Ltd obtained a judgment against Hollow Point Logistics Pty Ltd in the amount of $88,350.50.  Hollow Point failed to pay this sum to Auswide.  Auswide subsequently discovered that Connector Drilling Pty Ltd owed Hollow Point a sum of money and obtained a debt appropriation order from this court requiring Connector Drilling to pay the money to Auswide instead.

2. Connector Drilling objects to the debt appropriation order on the basis that Hollow Point owes it an amount in the sum of $79,310.  Connector Drilling says this amount should be set off against any amounts that might otherwise be owing by Connector Drilling to Hollow Point.

3. Connector Drilling's concern in this regard is easy to understand.  Hollow Point have since gone into liquidation and it is clear that if Connector Drilling has to pay to Auswide the full amount of the debt it owes to Hollow Point and then seek to recover from the liquidator what Hollow Point owes, Connector Drilling will stand in a queue with all the other creditors of Hollow Point and most likely recover only a portion, possibly a small portion, and even possibly nothing at all, of the debt.  In other words, unless the debt appropriation order can be set aside, it faces having the prospect of having to pay, in respect of a company in liquidation, 100% of the debt it owes that company (albeit to Auswide) but only recover a fraction, if anything, of what Hollow Point owes it.

4. By the Civil Judgments Enforcement Act 2004 (the Act) s 54, Connector Drilling may object to the debt appropriation order on the basis that, among other grounds, 'the appropriated debt does not and will not exist'.

5. By s 50 of the Act, a debt appropriation order may only issue in respect of 'available debt', the expression 'available debt' being defined in s 46 to be, relevantly for current purposes, in respect of

   … any obligation on the part of a person to pay money to the debtor alone, or to the debtor jointly with another or others, which obligation, at the time a debt appropriation order is made, -

   (a)is current and unconditional, irrespective of whether the money or any part of it is payable at some future time;

   …

6. As I understand the submissions made on behalf of Connector Drilling, I should allow the objection on two grounds namely:

   (a)There was no available debt, in that there was no obligation on the part of Connector Drilling to pay the money to Hollow Point, because Connector Drilling has a set‑off against the debt owed to Hollow Point, being the money owed by Hollow Point to Connector Drilling;

   (b)Hollow Point having objected to the debt appropriation order, the court's discretion to allow or reject the objection is enlivened.  It being an unfettered discretion, the court may exercise its discretion as it considers appropriate consistently with acting in a judicial manner.  More particularly, in the circumstances of this case, the discretion should be exercised in favour of Connector Drilling, even if, strictly speaking, there is an obligation on Connector Drilling to pay Hollow Point, because to do otherwise, effectively gives Auswide, as a creditor of Hollow Point, preferential payment out of the assets of Hollow Point that should be available to all creditors of Hollow Point to share in equally.

7. In my view, it is convenient to deal with the second point first. In my view, where the court has an unfettered discretion, the manner in which that discretion is exercised is nevertheless controlled by the circumstances in which it is given. The circumstances include the legislative purpose and framework in which the discretion is found. In this case s 55(4) of the Act provides that at the hearing of the application the court may allow or reject 'the objection'.

8. The objection can only be made on one or more grounds set out in s 54(1). The ground in s 54(1) relied upon by Connector Drilling is that the 'appropriated debt does not and will not exist'.

9. Accordingly it is my view that the discretion reposed in the court, which is to allow or reject the objection, can only be exercised having regard to whether the ground for the objection is established.  In order to properly exercise this discretion, the court needs to determine the question of whether there is an available debt as a matter of fact.  Having determined that question, the court is then in a position to exercise its discretion.  In my view the discretion cannot be exercised in the manner suggested by counsel for Connector Drilling, that is, the objection having been lodged, the court has a discretion to allow it or disallow it quite independently of the merits of the proposition advanced that there is no available debt.

Is there an available debt?

1. Connector Drilling says there is no available debt because it has no obligation to pay Hollow Point.  The reason Connector Drilling says it has no obligation to pay Hollow Point is because Hollow Point owes it money which it is entitled to set off against any liability it might have to Hollow Point.

2. The nature of a set‑off and its relationship with an alleged debt has been considered by the Principal Registrar of this court in Harbeck v Vasse Dozer Hire Pty Ltd [2009] WADC 48. At [37] the learned principle registrar observed that the law relating to set‑offs had been summarised in B C Cairns, Australian Civil Procedure (2007, Lawbook Co).  One of the cases cited therein was Re K L Tractors [1954] VLR 505, 507. In that case it was said:

   Set-off is the creature of statute.  It is part of the law of procedure which enables a debtor in an action brought against him by his creditor to raise as a defence a cross‑debt or liquidated demand.  But a set‑off is not a denial of the debt – it is a plea against its enforcement.  It is in substance a plea in bar.  It differs in substance from a plea of payment or accord and satisfaction which in effect alleges that the claim no longer exists.  A plea of set‑off, on the other hand, in effect admits the existence of the debt, but sets up a cross‑claim as being a ground on which the person against whom the claim is brought is excused from payment and entitled to judgment on the plaintiff's claim.  Until judgment in favour of the defendant on the ground of set‑off has been given, the plaintiff's claim is not extinguished – see In Re Hiram Maxim Lamp Co, [1903] 1 Ch.70; Halsbury's Laws of England (2nd ed.), vol. 29, p. 480.  It follows that, even if the company has a right of set‑off against the Commonwealth's debt, the Commonwealth's debt is not extinguished, although it could be met in an action to enforce it, by a special plea of set‑off.

3. Connector Drilling say that the debt owed by Hollow Point can be set off against any debt it owes Hollow Point and although the set‑off does not constitute a denial of the debt, its enforcement is barred.  It extrapolates from that proposition that, the enforcement of the debt being barred, that there is no obligation on the part of Connector Drilling to pay that money to Hollow Point.

4. I agree with that contention.  The situation is analogous to pleading a limitation defence to a cause of action.  The limitation defence bars the remedy it does not deny the cause of action.  Here, the set off does not deny the debt, it bars the remedy.

5. I am further fortified in the view there is no obligation to pay having regard to the provision of s 553(c) of the Corporations Act which provides that where there are mutual debts between a party and an insolvent company being wound up the sum due from the one party is to be set off against any sum due from the other party with only the balance being admissible as proof against the company or payable to the company as the case may be.

6. The submissions made for Auswide include the proposition that until judgment in favour of the defendant on the ground of set‑off has been given, the claim (for the debt) is not extinguished.  That contention, it seems to me, is correct.  But it does not, to my mind, address the question posed in the legislation; is the third party obliged to pay it?  Hence, there remains a debt but no remedy and no obligation to pay it.

7. Auswide also queries whether there is in fact a set‑off, that is, is there in fact a debt owing by Hollow Point to Connector Drilling?  It said at par 10 of its submissions:

   Connector does not have any judgment in respect of its alleged set‑off claim.  Whether there is any substance to the set‑off claim is unlikely to ever be tested before a Court given Hollow Point is in liquidation.

8. To this proposition I disagree.  The opportunity to test that claim was here and now.  In this regard Connector Drilling's objection is supported by evidence in the form of an affidavit sworn by Nicholas James Summers who deposes, on the basis of information given to him by Connector Drilling's accountant, to a belief that Hollow Point has not paid liquidated amounts constituting debts owing pursuant to invoices raised by Connector Drilling.

9. This evidence is unchallenged.  No objection has been taken to it and the deponent has not been required by Auswide to be made available for cross‑examination where factual evidence is not cross‑examined upon, prima facie it should be accepted, being mindful of course, that the evidence need not be accepted where there is a credible body of evidence of a substantial character in direct contradiction of the non cross‑examined evidence or it is inherently implausible: Ali v Nationwide News Pty Ltd [2003] NSWCA 183 [110] – [112].

10. On the evidence before me I am satisfied there is a debt owing by Hollow Point to Connector Drilling which gives rise to a legal set‑off.

Conclusion

1. Whilst there is a debt owing by Connector Drilling to Hollow Point, there is no obligation on Connector Drilling to pay that money to Hollow Point.  Accordingly, the objection is allowed.