Coshott v Shipton Lodge Cobbitty Pty Ltd
[2008] FMCA 202
•15 February 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COSHOTT v SHIPTON LODGE COBBITTY PTY LTD | [2008] FMCA 202 |
| BANKRUPTCY – Application to set aside bankruptcy notice – judgment for specified costs given in Local Court of NSW – whether judgment creditor lost its right to recover by reason of accord and satisfaction or estoppel – power of Local Court to award specified costs in matter commenced in Small Claims Division – no outstanding right to have costs assessed – application dismissed. |
Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(7)
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)
Local Courts (Civil Claims) Act 1970 (NSW), ss.12(3), 34, 69
Local Courts (Civil Claims) Rules 1988 (NSW), Pt.3 r.9, Pt.31A r.3(2)(c), Pt.31A r.12(8)
Legal Profession Act 1987 (NSW), s.202(1)
Uncollected Goods Act 1995 (NSW)
Commonwealth Bank of Australia v McDonald [1999] FCA 984
Coshott & Anor v Shipton Lodge Cobbitty Pty Ltd [2006] NSWCA 316
Coshott v Shipton Lodge Cobbitty Pty Limited [2006] NSWSC 556
Wren v Mahony (1972) 126 CLR 212
| Applicant: | ROBERT GILBERT COSHOTT |
| Respondent: | SHIPTON LODGE COBBITTY PTY LTD |
| File Number: | SYG 3992 of 2007 |
| Judgment of: | Smith FM |
| Hearing date: | 15 February 2008 |
| Delivered at: | Sydney |
| Delivered on: | 15 February 2008 |
REPRESENTATION
| Counsel for the Applicant: | Applicant in person |
| Counsel for the Respondent: | Mr S Lewis |
| Solicitors for the Respondent: | Slater & Gordon Lawyers |
ORDERS
The application is dismissed.
The applicant must pay the respondent’s costs, including reserved costs, as agreed or taxed under the Federal Magistrates Court (Bankruptcy) Rules 2006.
The respondent must provide a copy of this order to the Official Receiver within 4 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3992 of 2007
| ROBERT GILBERT COSHOTT |
Applicant
And
| SHIPTON LODGE COBBITTY PTY LTD |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This is an application to set aside Bankruptcy Notice NN4818 of 2007, which was issued at the request of Shipton Lodge Cobbitty Pty Ltd (“Shipton Lodge”) on 29 November 2007. It demanded that Mr Coshott pay the sum of $47,490.95, being the amount of a judgment entered against him in the Local Court of NSW on 25 May 2004 and accrued interest. To understand Mr Coshott’s arguments, it is necessary to summarise a history of litigation between these parties which gave rise to this judgment, and also to an earlier judgment in the same court.
Mr Coshott was respondent to an action in the Local Court of New South Wales by Shipton Lodge, which was commenced in 2000. It claimed an amount of $9,888.15 in damages, interests and costs arising from an alleged agreement under which Mr Coshott was provided with agistment for two horses, “Silver Palm” and “Dual Treasures”.
The action was extensively defended by Mr Coshott over a number of years, but his defences ultimately failed. The horses remained in the care of Shipton Lodge during the course of the proceedings, and its claim for outstanding agistment fees increased. At the start of the hearing on 3 April 2003, the learned magistrate at Campbelltown Local Court granted leave to Shipton Lodge to increase the amount of its claim to $25,529.20, and this was later increased to $27,194.32, plus interest.
After a fully contested hearing over several days, his Honour upheld the claim in contract, and on 25 July 2003 ordered judgment in the amount of $27,194.32, plus interest, court costs, and legal costs on an indemnity basis. The legal costs were subsequently quantified by his Honour himself in an order made on 26 August 2003, in the sum of $45,110.55. A total judgment was therefore entered on the claim by Shipton Lodge in the sum of $77,829.64. I shall refer to that judgment as “the first Local Court judgment”.
In the course of the proceedings, Mr Coshott filed a cross‑claim, claiming damages arising from the death in 1998 of another horse, “Silver Palm 96”, which had also been in the care of Shipton Lodge. By consent of the parties, the cross‑claim was determined separately, and subsequently, to the agistment claim.
Mr Coshott’s cross‑claim also failed. Its hearing was held on 4 August 2003, and was continued on later days. On 20 April 2004, the learned Magistrate entered a verdict for Shipton Lodge on the cross‑claim, and also gave it costs, which he specified in an order made on 25 May 2004 in the sum of $35,862.92. I shall refer to this judgment as “the second Local Court judgment”.
Mr Coshott sought to challenge both of these judgments, and also another order of the Local Court, which allowed Shipton Lodge to sell “Silver Palm” under the Uncollected Goods Act 1995 (NSW). His various appeals were addressed by Johnson J in one judgment delivered on 8 June 2006 (see Coshott v Shipton Lodge Cobbitty Pty Limited [2006] NSWSC 556). All three challenges were dismissed. An appeal by Mr Coshott to the Court of Appeal was also dismissed (see Coshott & Anor v Shipton Lodge Cobbitty Pty Ltd [2006] NSWCA 316).
Shipton Lodge then attempted to extract payment of the two Local Court judgments from Mr Coshott.
It first obtained the issue of bankruptcy notice NN2695 of 2007 on 3 July 2007, which relied only upon the first judgment debt of $77,829.64. There was then correspondence about that notice between the parties, including an email sent by Mr Coshott on 2 August 2007 to Shipton Lodge’s solicitors. This referred to both of the Local Court judgments, and to the fact that neither was the subject of assessment under the Legal Profession Act. It suggested that this fact allowed him to challenge the enforcement of the costs judgments. The email concluded:
I hope the matter can be resolved by agreement between the parties. I look forward to your advices regarding your client’s instructions.
However, I conclude that no agreement was reached at that time. Instead, Shipton Lodge proceeded to serve a bankruptcy petition, which was filed on 22 August 2007 in proceeding SYG2593 of 2007 in this Court. The petition asserted:
1.The respondent debtor owes the applicant creditor the amount of $77,829.64 being a judgment of the Local Court of New South Wales in proceedings number 995 of 2000 entered on 7 June 2007.
That debt relied upon the same judgment which had been attached to the bankruptcy notice, and which certified the orders made on 26 August 2003 in the first Local Court judgment. It is clear that neither the bankruptcy notice issued on 3 July 2007, nor the petition in proceedings SYG2593 of 2007, made any claim in relation to the debt owing to Shipton Lodge under the second Local Court judgment.
Following service of the petition, Mr Coshott sent an email dated 20 September 2007 to the solicitors for Shipton Lodge which stated:
This is an open proposal.
I note that my earlier offers have been rejected and your client insisted on filing a petition. My proposals since filing the petition have also been rejected or ignored.
I can deliver to you immediately a bank cheque in the full amount claimed in the Bankruptcy Notice. Upon delivery, your client would consent to orders setting aside the Bankruptcy Notice on the basis that it was invalid and dismissing the petition on the basis that there has been no act of bankruptcy, with no order as to costs. On a without admission basis I would, upon dismissal of the petition, hand over a further cheque for $1,000.00.
If this proposal is not accepted, I shall file a Notice of Opposition opposing the petition on the grounds of solvency, invalid Bankruptcy Notice, etc. This will be supported by an affidavit showing solvency, admissions of solvency by your client, and detailing the offers/proposals made, including this proposal, as further evidence of solvency. I shall be inviting the court to go behind the “judgment”.
The offer made in this email was accepted by the solicitors for Shipton Lodge. Although the terms of their acceptance are not in evidence, the fact of acceptance is implicit in evidence showing that two bank cheques were received by them in the amounts of $77,829.64 and $1,000, and that they then undertook to have the creditors petition dismissed on the next occasion (see their letter of 2 October 2007, and their earlier letter of 27 September 2007). The solicitors then appeared before the Registrar on 5 October 2007, and mentioned the matter on behalf of Mr Coshott. The Registrar ordered that the creditor’s petition SYG2593 of 2007 be dismissed and there be no order as to costs.
Mr Coshott now asks me to find that the agreement which led to the making of the Registrar’s orders encompassed an agreement on the part of Shipton Lodge to forego its rights to enforce the second judgment in the Local Court. However, I can find no support for such a finding in the evidence before me. In my opinion, the correspondence evidencing the agreement and its execution allows only the conclusion that the parties’ agreement addressed only the debt which was the subject of the bankruptcy notice and the petition, and the issues of costs in that proceeding. In the absence of any contrary evidence, the natural inference from the correspondence is that the amount of $1,000 which was tendered by Mr Coshott was intended by him, and was understood by the solicitors for Shipton Lodge, to be addressing the petitioner’s costs in the petition, and not any other liability or potential liability faced by Mr Coshott.
Nor do I accept that the correspondence evidences an implicit representation on the part of Shipton Lodge that it would not enforce the second Local Court judgment. Certainly, no such representation appears with the clarity which would be required under principles of estoppel which are relied on by Mr Coshott. The “silence” of Shipton Lodge as to its understanding of the basis upon which it was accepting Mr Coshott’s offer, is sufficiently explained by his apparent intent that the cheques were offered as payment of the debt relied upon in the petition and costs. Given the previous history of Mr Coshott’s unsuccessful appeals, and the weakness of his previous contention in relation to assessment under the Legal Profession Act (as I shall explain below), I cannot regard Shipton Lodge’s acceptance of the cheques as carrying an implicit representation that it would accept them as discharge for its debt owing under the second Local Court judgment. In my opinion, Mr Coshott’s offer would have appeared only as a belated recognition of his inevitable liability under the first Local Court judgment, and an attempt to escape lightly in relation to the costs of the petition.
Nor am I satisfied, as is submitted by Mr Coshott, that he subjectively was of the belief that he was obtaining a discharge from his liabilities under the second judgment when he offered and tendered the cheques. It appears to me that the offer which he made in his email of 20 September 2007 was limited quite plainly to the proceedings which he faced in this Court at that time, which concerned the existence of the debt which had been asserted in the bankruptcy notice issued on 3 July 2007 and in the petition filed on 22 August 2007. I am unable to read his email, even in the light of his previous email, as providing any evidence that he offered the payment of “the full amount claimed in the Bankruptcy Notice” and “a further cheque for $1,000.000” in the belief that he was obtaining a discharge from any other liabilities to Shipton Lodge, including under the second Local Court judgment. I do not accept that he made payments in accordance with his offer, upon any inducement or mistake arising from conduct of Shipton Lodge’s solicitors.
Mr Coshott sought to support the findings which I have declined to make in the above three paragraphs, by reference to a paragraph of his affidavit in the present proceedings, in which he said:
5.Prior to 27th September, 2007, I reached settlement with the respondent satisfying the liabilities to the respondent. On 27th September, 2007, pursuant to that settlement, I paid $78,829.64 to the respondent and upon such payment, pursuant to the settlement, Consent Orders dismissing the Petition were executed. Those orders were made by the Court and the Petition was thereby dismissed. A copy of the Consent Orders is annexed and marked “D”.
He pointed out that he was not cross‑examined on this paragraph. However, in my opinion the paragraph carried no more weight than as a reference to the exchanges shown in the exhibits to his affidavit, which provided the best evidence of the events and agreement which explained the dismissal order made by the Registrar on 5 October 2007. I do not consider that the paragraph materially advanced his case.
My above findings in relation to the events leading to the dismissal of the petition in the previous proceeding explain my reasons for rejecting Mr Coshott’s principal contentions which seek to set aside the present bankruptcy notice. This was issued by Shipton Lodge subsequent to the dismissal of the petition relying on the first Local Court judgment, and relies upon its unsatisfied judgment debt under the second Local Court judgment.
The bankruptcy notice NN4818 of 2007 was issued on 29 November 2007, and claimed a debt owing of $47,490.95 as shown in the schedule and attached certificate of judgment. The certificate clearly reveals that the debt claimed in the bankruptcy notice concerns only the second judgment in the Local Court on 25 May 2004, in which costs were assessed and ordered in the sum of $35,862.92 in relation to Mr Coshott’s unsuccessful cross‑claim. It covers that amount, with the addition of an amount of interest accruing since the date of the order.
Mr Coshott admits being served with the bankruptcy notice on 10 December 2007.
His application which is before me today was filed on 31 December 2007, and seeks orders setting aside the bankruptcy notice on the ground that it is invalid, and also on the ground that he has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt.
In effect, the grounds of invalidity which are argued by Mr Coshott are that no debt was owing at the date of the issue of the notice and subsequently, or that he has had a greater counter‑claim since before that date. The first, second and third bases on which this is argued rely upon the events which I have described above. That is, he contends that the debt was extinguished by accord and satisfaction in the exchanges between the parties leading to the dismissal of the bankruptcy petition, or that the respondent is estopped by representation, conduct or silence from asserting the debt. Alternatively, he contends that he made payments under a mistake as to the legal effect of his agreement with the solicitors for Shipton Lodge, and that these are recoverable in a counter‑claim for an amount exceeding the amount claimed in the current bankruptcy notice.
I consider that all three contentions should not be accepted, by reason of my findings on the evidence which I have made above. The general principles of contract and equity law to which I was referred by Mr Coshott, do not, in my opinion, apply in the circumstances which I have found above.
Mr Coshott’s other contentions seeking to establish that the bankruptcy notice was invalid, or that he has a counter‑claim exceeding the amount demanded, argue that the learned Magistrate exceeded his powers when making his costs orders in both the first and second Local Court judgments, and that both judgments were invalidly entered. He submits that the Court should go behind the apparent legality and effectiveness of the judgment relied upon under the bankruptcy notice, to arrive at that conclusion and to set aside the bankruptcy notice.
I was referred by Mr Coshott to the general principle in relation to the power of a bankruptcy court to go behind judgment debts, which was explained in Commonwealth Bank of Australia v McDonald [1999] FCA 984 at [5]. This allows a bankruptcy court to consider whether “there is in truth and reality a debt owing to the creditor”. Whether the Court will engage in an exercise of going behind a judgment debt is sometimes described as raising a “discretion”, but this is possibly a misnomer (see Wren v Mahony (1972) 126 CLR 212 at 224). However, it is correct to recognise that the bankruptcy court must be satisfied as to a reason of substance for questioning whether there is in truth and reality a debt owing to the creditor. In circumstances where a judgment of another court appears on its face to have been regularly entered after a contested hearing, and where all avenues of appeal have been pursued and exhausted, a bankruptcy court may be very reluctant to look behind the judgment.
In the present case, both of the costs orders made in the Local Court appear, from the judgment of Johnson J, to have been made in judgments which carry a strong implication of regularity. Moreover, Mr Coshott has already challenged both judgments in his appeals to the Supreme Court. I accept that in those proceedings he was faced with a bar under s.69 of the Local Courts (Civil Claims) Act 1970 (NSW) (“the Local Courts (Civil Claims) Act”) which required him to obtain leave before being allowed to appeal from a costs order. However, in my opinion, he had the opportunity to present the same arguments concerning the validity of the costs orders to Johnson J and to the Court of Appeal, which he now presents to this Court. That fact would be enough, in my opinion, to cause me to decline to look behind the second Local Court judgment upon which the bankruptcy notice relies, and to give any substance to his contended counter‑claim arising from his payments in respect of the first Local Court judgment.
However, I also consider that there is no merit in his arguments that the learned Magistrate had no power to specify the amounts of costs ordered in each of the Local Court judgments.
The starting point for Mr Coshott’s argument was that the action originally brought by Shipton Lodge was commenced in the Small Claims Division of the Local Court, and that special limits on the power to order costs arose under Pt.31A r.12(8) of the Local Courts (Civil Claims) Rules 1988 (NSW) (“the Local Courts (Civil Claims) Rules”). That rule provided at the relevant time:
(1)Costs may not be awarded, and are not recoverable, in a court’s Small Claims Division except as provided by this rule.
(2)The costs (including professional costs) of:
(a)issuing a statement of claim, and
(b)entering a default judgment, and
(c)obtaining an order for judgment, and
(d)enforcing a judgment,
in relation to an action in a court’s Small Claims Division are recoverable as if the action were in the court’s General Division.
(3)If a court gives judgment in its Small Claims Division, it may award costs to a party against another party.
(4)…
(5)…
(6)…
(7)…
(8)The costs that may be awarded to a party under subrule (3), (4), (5) or (7) may include the party’s disbursements properly incurred and may also include:
(a)an amount in respect of the party’s loss of earnings in attending the court for a hearing or pre‑trial review, or both, not exceeding the amount that would have been payable to the party as witness’ expenses had the party been a witness in the action, and
(b)if the party appeared by a solicitor or barrister‑such professional costs as would have been recoverable by the plaintiff had default judgment been entered in the action,
but may not include any other costs.
(9)In exercising its discretion under section 34 of the Act in respect of an action in its General Division, a court must consider whether or not the action should have been heard and determined in the court’s Small Claims Division.
There are several reasons why I do not accept that this rule confined the powers of the Local Court to make the costs orders which were in the first and second judgments.
First, I am not satisfied that the costs orders which were ultimately made against Mr Coshott were, in fact, orders made by the Local Court in the Small Claims Division. As the facts narrated by Johnson J reveal, leave was given by the presiding Magistrate to allow Shipton Lodge’s claim to be pursued in an amount exceeding the $10,000 limit on matters in the Small Claims Division (see s.12(3) of the Local Courts (Civil Claims) Act). The exact terms in which that leave was sought and given do not appear in the evidence before me, but it is reasonable to conclude that the “leave” was, or included, an order under Pt.3 r.9 of the Local Courts (Civil Claims) Rules which had the effect that the action ceased to be conducted in the Local Court in that Division.
Moreover, the second judgment, upon which the bankruptcy notice is based, was given in a cross‑claim filed on 17 January 2003, with leave granted on 7 February 2003, in an amount of $21,535.57, which clearly exceeded the limit for matters conducted in the Small Claims Division. I am therefore not satisfied that when this cross‑claim was heard and determined by the learned Magistrate, his judgment was made in the Small Claims Division of the Local Court, and I would infer that it probably was not.
Moreover, even if the whole matter, including the cross‑claim, remained in the Small Claims Division, I would not construe Pt.31A r.12(8) as confining the powers of the Local Court to award costs to a successful party in a fully contested proceeding to only those disbursements by way of professional costs which would have been recoverable “had default judgment been entered in the action”. The contrary intention is, in my opinion, clearly shown in the opening words: “may include the party’s disbursements properly incurred”, with the following words not being restrictive as shown by the words: “and may also include” (emphasis added). The items of costs described in paragraphs (a) and (b) are, therefore, by way of amplification of the power, not restriction. Nor, in my opinion, can the closing words “but may not include any other costs” be read as confining the “disbursements” which are covered by the opening words. On this construction, I am not satisfied that the learned Magistrate could not have had power to order legal costs, including counsel’s fees, on a party‑party basis as assessed by him in the amount shown in the judgment which is relied upon in the present bankruptcy notice. I am similarly not persuaded that he lacked power to include in his first judgment an order for legal costs in the amount of $45,110.55 in relation to the agistment action.
A further contention by Mr Coshott was that the learned Magistrate had no power to assess the costs in a fixed amount, but was required to refer the costs he awarded for assessment under the Legal Profession Act. This contention requires the reading down of the general discretion in the Local Court to award costs under s.34 of the Local Courts (Civil Claims) Act and under Pt.31A r.3(2)(c) of the Local Courts (Civil Claims) Rules, which appear plainly to include a power to specify an amount of costs in lieu of an order for assessment.
However, Mr Coshott submitted that this was inconsistent with a practice note issued by the Chief Magistrate in the Local Court on 22 May 2000 concerning “Legal Costs”. The practice note suggested that the Court would not normally engage in taxing a claim for costs, but would refer costs for assessment under the Legal Profession Act 1987 (NSW) (“the Legal Profession Act 1987”). However, the note also said: “legal costs always remain at the discretion of the Court”. I cannot read it as carrying any implication that it was intended to prevent Magistrates of the Local Court from exercising their discretion to award costs in a determined amount. Moreover, if the practice note did have that intent, it would probably have been ineffective in the face of the discretion conferred by the Act and Rules. I therefore am not persuaded that there was any obligation on the Magistrate when determining costs in the second judgment to refer costs for assessment.
I therefore also reject Mr Coshott’s claim that he has an outstanding right to have Shipton Lodge’s costs assessed. The assessment procedures under the Legal Profession Act 1987, now repeated in the present legislation, quite plainly do not allow an application for assessment where the amount of costs has been determined in the order itself. This appears from s.202(1) of the 1987 Act, which gave the right to apply for assessment only to a person: “… who is … liable to pay … costs as a result of an order for the payment of an unspecified amount of costs made by a court …” (emphasis added).
In my opinion, there is no substance in Mr Coshott’s contention that he has a cross‑claim that could not have been set up in relation to the assessment of his costs in the Local Court, being his right to have costs assessed under the Legal Profession Act. As I have indicated, the form of the costs orders made in the Local Court removed his rights to apply for such assessments. Presumably, the quantum of the costs orders were fully argued before the learned Magistrate, before those orders were made. Certainly, this was a right which could have been exercised “in the action or proceeding in which the judgment or order was obtained” (cf. s.40(1)(g) of the Bankruptcy Act 1966 (Cth)). Any challenge which is now sought to be made to the quantum of the costs orders cannot, therefore, provide a ground for setting aside the bankruptcy notice under s.41(7) of the Bankruptcy Act.
For all the above reasons, I am not persuaded by any of the arguments which have been presented to me today in support of the application to set aside the present bankruptcy notice. I must therefore dismiss the application.
I certify that the preceding thirty‑eight (38) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 29 February 2008
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