Canty v Agency Printing (Australia) Pty Ltd - [2010] FMCA 174

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CANTY & ANOR v AGENCY PRINTING (AUSTRALIA) PTY LTD

[2010] FMCA 174

BANKRUPTCY – Bankruptcy notice based on registered assessment of party/party costs – costs awarded in interlocutory costs order – bankruptcy notice issued before completion of principal proceedings – no leave to execute found in costs order – bankruptcy notice set aside.

Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(3)(b)
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)
Legal Profession Act 2004 (NSW), s.369
Uniform Civil Procedure Rules 2005 (NSW), r.42.7(2)

Custom Capital Pty Ltd v Thompson [2009] FMCA 337
Maher v Honeysett (2009) 222 FLR 407
Massih v Esber [2008] FCA 1452, (2008) 250 ALR 648

First Applicant:

MICHAEL GRAHAM CANTY

Second Applicant:

COLLEEN ANNE GREIG‑CANTY

Respondent:

AGENCY PRINTING (AUSTRALIA) PTY LTD

File Number:

SYG 2349 of 2009

Judgment of:

Smith FM

Hearing date:

5 March 2010

Delivered at:

Sydney

Delivered on:

5 March 2010

REPRESENTATION

Counsel for the Applicants:

Mr L Jackson

Solicitors for the Applicants:

Grech Partners

Counsel for the Respondent:

Mr B Sewell

Solicitors for the Respondent:

Sewell Lawyers

ORDERS

Bankruptcy Notice N 3993‑09 issued on 28 August 2009 is set aside.
The respondent must pay the applicants’ costs, including reserved costs, as agreed or taxed under the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
The applicants must provide a copy of this order to the Official Receiver within 2 days.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2349 of 2009

MICHAEL GRAHAM CANTY

First Applicant

COLLEEN ANNE GREIG‑CANTY

Second Applicant

And

AGENCY PRINTING (AUSTRALIA) PTY LTD

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

Mr and Mrs Canty apply to set aside a bankruptcy notice which was issued on 28 August 2009, and served on them on 4 September 2009. It required compliance within 21 days with a demand to pay Agency Printing (Australia) Pty Ltd (“Agency Printing”) a judgment debt entered in the Local Court in the sum of $22,726.
Mr and Mrs Canty initially based their application on a contention that they had cross‑claims or counter demands exceeding the amount of the judgment debt, which they could not have set up in the Local Court proceedings, falling within s.40(1)(g) of the Bankruptcy Act 1966 (Cth). They referred to proceedings which were then on foot in the Supreme Court, in which Agency Printing was suing their company and them as guarantors, for a large amount of money alleged to be owing on a running account in relation to printing expenses. Mr and Mrs Canty were defending those proceedings, and were seeking to bring cross‑claims based on contentions that there were breaches of contract and other matters.
The Local Court judgment was entered pursuant to s.369 of the Legal Profession Act 2004 (NSW). That section provides for the registration of a cost certificate issued by a costs assessor, which upon registration “with no further action, [is] taken to be a judgment of that court for the amount of unpaid costs”. The present judgment was based upon a cost certificate issued on 14 July 2009, which assessed an amount of party/party costs which was fair and reasonable, pursuant to an order of the Supreme Court made in the course of the principal proceedings between Mr and Mrs Canty and Agency Printing.
The costs order was made by Rothman J on 20 March 2009, and as certified by the Deputy Registrar of the Supreme Court, was in the following terms:
1.The Notice of Motion for default judgment of the liquidated claim filed 23 February 2009 be dismissed.
2.The Notice of Motion to set aside the orders of Registrar Bradford made on 23 February 2009 be dismissed.
3.The defendants shall pay the costs of the plaintiff thrown away by virtue of the orders of Registrar Bradford and the need to file a further Defence, together with the costs thrown away by reason of the change in the defendants’ solicitors. Such costs to be as agreed or assessed. The costs of today and the Notices of Motion will be part of the costs thrown away and payable by the defendants in accordance with this order.
The full contents of Rothman J’s judgment explaining these orders is not available to me. However, some of the background to his Honour’s order is explained in a subsequent unreported judgment of McCallum J delivered in the same proceedings on 3 March 2010. She narrated the history of the proceedings:
1HER HONOUR: This is a claim in debt for amounts alleged to be owed to Agency Printing (Australia) Pty Limited by Quill Viscom Pty Limited under an agreement for the supply of printing services entered into in November 2005. The second and third defendants, Mr and Mrs Canty, are sued as guarantors of Quill Viscom’s obligations under that agreement.
2The terms of the agreement alleged by Agency Printing may be described as ordinary commercial terms, including an obligation on Quill Viscom to give prompt notice of its rejection of any goods delivered by Agency Printing and an obligation to pay consignment invoices within thirty days.
3The two companies operated a running account on that basis for some two years. Agency Printing alleges that, by the end of November 2007, the amount of $1,087,263.43 remained unpaid.
4The proceedings were commenced by statement of claim filed on 20 December 2007 and have had what is sometimes generously termed “an unhappy history”. The application presently before the Court is the third application made by Agency Printing to have the defence struck out for want of due despatch under rule 12.7 of the Uniform Civil Procedure Rules 2005.
5The first application under that rule was heard by Registrar Bradford on 20 February 2009. The Registrar struck out the defence that day. The defendants subsequently moved the Court to set aside the Registrar’s orders, whilst Agency Printing moved the Court for default judgment. Those two applications were heard by Rothman J on 20 March 2009 and determined that day. In his judgment, his Honour stated:
“There is little doubt on the evidence that is before this Court, at this stage, that the solicitors acting for the defendants did not act with due despatch and nothing that has been put to this Court in any way undermines the correctness or appropriateness of the order made by Registrar Bradford.”
6His Honour was not inclined, however, to grant default judgment at that stage of the proceedings, stating that “the default judgment could be set aside for proper cause, assuming the ability to file an appropriately worded defence”. His Honour dismissed both notices of motion and granted leave to the defendants to file and serve a defence within fourteen days, but ordered the defendants to pay the plaintiff’s costs thrown away, including the costs of both motions.
Her Honour’s judgment then narrated the further course of the Supreme Court proceedings, which became protracted by further defaults occurring on the part of Mr and Mrs Canty in relation to the giving of particulars, the filing of amended defences and cross‑claims, and the giving of discovery. Eventually her Honour made further default orders against them, the nature and effect of which it is unnecessary for me to examine.
If Mr and Mrs Canty have prospects of obtaining a judgment against Agency Printing in the Supreme Court proceedings exceeding the amount of these costs, either on a cross‑claim or even by way of costs on a successful defence, it is clear that such claims could not have been set up in the Local Court in answer to the registration of the costs certificate, since that proceeding did not provide any opportunity for a defence or cross‑claim to be filed in the Local Court (see Massih v Esber [2008] FCA 1452, (2008) 250 ALR 648). Whether such prospects are established on the evidence before me today has been disputed by Agency Printing. However, it is unnecessary for me to examine this issue, including the significance of the subsequent history of the Supreme Court proceedings and McCallum J’s orders on 3 March 2010.
This is because Mr and Mrs Canty today rely only upon one contention, which is that the bankruptcy notice was invalid as issued and served, on the ground that the Local Court judgment was not “a judgment or order the execution of which has not been stayed”, within the language of s.40(1)(g) and s.41(3)(b) of the Bankruptcy Act. In support of that contention they rely upon the provisions of r.42.7(2) of the Uniform Civil Procedure Rules 2005 (NSW). This rule provides that “the costs of any application or other step in any proceedings” “do not become payable until the conclusion of the proceedings” “unless the court orders otherwise”.
I have considered the effect of this rule in relation to bankruptcy notices in a similar situation in Custom Capital Pty Ltd v Thompson [2009] FMCA 337, where I followed my earlier reserved judgment in Maher v Honeysett (2009) 222 FLR 407. I was not invited today to reconsider my reasoning in those cases, in so far as it decided that a stay on execution arising under r.42.7(2) in relation to an interlocutory costs order made in Supreme Court proceedings gives rise to a stay on execution of a registered costs assessment certificate for the purposes of ss.40(1)(g) and 41(3)(b) the Bankruptcy Act.
It was conceded by Agency Printing that Rothman J’s order in the present case was an interlocutory order of the character subject to r.42.7(2), and that at the time that the bankruptcy notice was issued and served, and when time for compliance expired, the principal proceedings in which the costs order had been made had not reached their conclusion.
Agency Printing’s submissions were directed to whether Rothman J’s order should be construed as containing an order “otherwise” making the costs ordered immediately payable, in the sense of able to be the immediate subject of processes of execution.
In my opinion, no such order should be identified as having been expressly made in order 3 set out above. As I suggested in Custom Capital Pty Ltd v Thompson (supra) at [10], the policy of r.42.7(2) is well understood. It means that, although interlocutory costs orders are made in terms which create an immediate liability, and although that liability can be immediately quantified by way of an assessment under the Legal Profession Act, and can give rise to a liquidated judgment being entered in another court by registration of a costs certificate, all execution upon the costs judgment is stayed or will not be enforceable until the conclusion of the principal proceedings, absent any express order to the contrary.
This is a clear policy reflected in r.42.7(2) which, from the perspective of the bankruptcy court, I would endorse. There is a prima facie unfairness and misuse of public resources, for a debtor to be pursued in two courts by a creditor in relation to the same underlying dispute, so as to be obliged to present its defences and cross‑claims in two forums simultaneously. Whatever the debtor’s defaults in the course of the principal proceedings, and even if they justify the imposition of costs penalties, it is appropriate that the court with the supervision and management of the principal proceeding should make very clear in its orders if it intends that an interlocutory costs order should become immediately executable, so as to expose the litigant to bankruptcy proceedings and possible insolvency administration during the pendency of the principal proceedings. In that context, it is in my experience unusual for a judge to give leave under r.42.7(2) without any specific application for this at the time of the interlocutory costs order, and without that application being addressed in a judgment and reflected expressly in an additional order attaching to the interlocutory costs order. Frequently such applications are not made because it is accepted that all costs orders in the proceedings will ultimately be adjusted at their conclusion, or because the necessity for them is overlooked. However, this does not justify making implications of leave being given under r.42.7(2) in the absence of clear evidence that this was intended by the judge making the costs order.
In the present case, although it appears that Rothman J gave ex tempore reasons for his orders, they have not been shown to me. There is nothing in McCallum J’s extract from Rothman J’s judgment to suggest that his Honour was ever asked to apply his mind to the question of immediate enforceability. There is no other extrinsic evidence before me showing that an application for leave under r.42.7(2) was made to his Honour, or was adverted to by his Honour in the course of the proceedings before his Honour, or in his judgment.
Agency Printing today relies only upon the language of order 3 set out above. It was argued that the reference to “payable” in the last sentence of order 3 implied an order that all the costs awarded should be immediately subject to execution upon assessment and registration of a costs certificate. However, I am unable to give this word that meaning in its context.
It is clear that the last sentence of order 3 dealt with only one part of the costs that his Honour was awarding, and not all of the costs awarded. This appears to be its purpose, rather than that of a grant of leave to enforce all costs awarded. The first sentence of order 3 identified other costs which his Honour thought appropriate to award against Mr and Mrs Canty. Those costs were ordered to be “as agreed or assessed”. Those words in themselves indicated no more than that a liability was being imposed, and they certainly did not indicate an intent that leave to execute immediately on that liability was being given. The last sentence then dealt with a second species of costs, and his Honour indicated that they would be “part of the costs thrown away”. These words indicated, in a sense, his Honour’s separate dealing with costs awarded against the successful applicant in the motion, that is, Mr and Mrs Canty’s motion to be allowed to defend the proceedings. I accept that the sentence’s further words “and payable by the defendants in accordance with this order”, have some ambiguity. However, in context, in my opinion his Honour was saying no more than that those costs also were to be “as agreed or assessed”, and to be so agreed or assessed as part of all the costs thrown away.
Read in its entirety, in my opinion, order 3 made it clear that one costs order was being made in relation to all the costs that his Honour regarded as having been thrown away by the previous defaults of Mr and Mrs Canty, and was making an interlocutory order for all those costs in favour of Agency Printing. I conclude that the order did not contain a grant of leave allowing immediate execution, by exercise of the Supreme Court’s power under r.42.7(2).
The consequence is that the bankruptcy notice, the subject of the present proceedings, was invalidly issued, and it is appropriate to make an order setting it aside. Costs should follow the event.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Lilian Khaw

Date: 22 March 2010