Custom Capital Pty Ltd v Thompson - [2009] FMCA 337

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CUSTOM CAPITAL PTY LTD v THOMPSON

[2009] FMCA 337

BANKRUPTCY – Creditors petition – bankruptcy notice based on registered certificate of assessment of costs ordered upon the setting aside of a default judgment – principal proceedings not yet concluded – no implicit leave to enforce costs order – automatic stay on execution under r.42.7 of the NSW Uniform Civil Procedure Rules – bankruptcy notice invalidly issued – petition dismissed.

Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(3)(b)
Uniform Civil Procedure Rules 2005 (NSW), r.42.7

Maher v Honeysett [2009] FMCA 4

Applicant:

CUSTOM CAPITAL PTY LTD

Respondent:

JACQUELINE ANN THOMPSON

File Number:

SYG 2556 of 2008

Judgment of:

Smith FM

Hearing date:

8 April 2009

Delivered at:

Sydney

Delivered on:

8 April 2009

REPRESENTATION

Counsel for the Applicant:

In Person

Counsel for the Respondent:

Mr J Baird

Solicitors for the Respondent:

Lander & Lander Pty Ltd

ORDERS

The petition 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 (Cth).
The applicant must provide a copy of this order to the Official Receiver within 2 days.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2556 of 2008

CUSTOM CAPITAL PTY LTD

Applicant

And

JACQUELINE ANN THOMPSON

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

This is a petition filed on 3 October 2008, in which Custom Capital relies upon a judgment debt for $16,529.85 together with some accrued interest under a judgment of the Local Court entered on 15 July 2008. The judgment debt arose upon the registration of a certificate of a cost assessor in relation to party-party costs under an order of the District Court made and entered on 23 March 2007.
On that occasion, the District Court considered an application by Ms Thompson to set aside a default judgment obtained by Custom Capital in proceedings against Ms Thompson. They claimed an amount of $70,386 plus interest and costs arising under an alleged agreement by her to pay a financing procurement fee. The circumstances in which the default judgment was obtained and the grounds for it being set aside are not fully shown in the material before me, but it seems that Ms Thompson persuaded the District Court judge to set aside the default judgment, although an order was also made that: “Defendant to pay the plaintiff's costs of the motion”. Leave was given to Custom Credit to file an amended statement of claim, since it appears that the originating statement of claim was inadequate.
On the material before me those principal proceedings are still on foot in the District Court, and have not been concluded. Indeed, it appears that they are still in the process of being further pleaded.
The judgment debt for costs which is relied upon in the petition was also the judgment debt upon which bankruptcy notice NN3176/08 was issued by the Official Receiver on 27 August 2008. There is an affidavit of service of that notice on Ms Thompson on 10 September 2008.
Among various grounds of opposition to the petition, Ms Thompson's affidavit raises the issue whether the bankruptcy notice was invalidly issued by reason of the effect of Rule 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 recently delivered a reserve judgment in Maher v Honeysett [2009] FMCA 4, in which I considered the effect of this rule in a situation indistinguishable from the present notice. That is, where the bankruptcy notice relied upon a judgment arising from the registration of a costs assessment certificate for costs ordered to be paid prior to the conclusion of the principal proceedings. I concluded that, absent any contrary express order of the Court making the substantive costs order, the judgment arising from the costs certificate was a judgment in relation to which execution was stayed, and was not “a judgment or order the execution of which has not been stayed” within the language of ss.40(1)(g) and 41(3)(b) of the Bankruptcy Act.
My consideration of the law in that case has not been challenged in argument before me today by the petitioner, and I do not propose to repeat my discussion in this judgment. The petitioner has endeavoured to overcome the reasoning in Maher v Honeysett by submitting:
Although it is conceded that the order of 23 March 2007 is clearly an interlocutory order in the proceedings, nevertheless it is respectfully submitted that this order was one in respect of which leave to enforce was implicitly granted. This is for the reason that the usual rule where a defendant seeks to set aside a default judgment otherwise validly entered by a plaintiff, is that the defendant is to pay the plaintiff’s costs “thrown away”.
This is reinforced by the notes to r.36.16 at [36.16.100] of Ritchie’s Uniform Civil Procedure, where it is stated:
Again, the matter is discretionary, but it is not unusual for terms to include an order that the defendant pay the costs of the application and the costs of steps rendered useless by the judgment being set aside.
That note also refers to orders that may be made by the Court in some other circumstances, including an order that the costs of the application be costs in the proceedings. The fact that such an order was not made in the present instance supports the submission that the order of 23 March 2007 was intended to recompense the plaintiff for its costs of having its judgment set aside, irrespective of the final outcome of the litigation.
It is therefore submitted that it is capable of being inferred that an order to the effect that the defendant pay the plaintiff’s costs thrown away is an order capable of immediate enforcement and of being an “otherwise order” within the meaning of r.42.7 UCPR.
However, I am not persuaded by this argument. As is plain in the terms of the costs order, it did not include the express giving of leave or other order directed at the exercise of the discretion conferred in rule 42.7(2). It made Ms Thompson liable for costs when assessed, but did not address whether payment of those costs could be enforced before the conclusion of the principal proceedings.
Moreover, I have not been taken to any surrounding circumstances in which the District Court order was made, such as the judgment or other circumstances of the application before the District Court, which would assist the implication of leave which is now argued.
In relation to the argument invoking a “usual rule” in relation to costs orders upon the setting aside of a default judgment, I am prepared to accept that such an approach would normally inform a discretion in relation to costs, absent any conduct of the judgment creditor which has improperly contributed to the procuring of a default judgment. However, that usual approach, as identified in Ritchie, does not include the usual making of an order that the costs should be immediately payable or payable before the completion of the substantive proceedings. I am aware of no authority suggesting that such an order is usually made, whether expressly or by implication. My own experience in practice would not support such an implication. Rather, in my opinion, absent any expressed order directed at the enforcement of a costs order in such circumstances, there would normally be an expectation that rule 42.7(2), or its predecessors, would take effect. This would leave enforcement of the costs order until after the final outcome of the substantive proceedings was known, when there could be an accounting between the parties in relation to the interlocutory and final costs orders obtained during the proceedings.
I therefore am not persuaded by the argument presented to me by Custom Capital. On the evidence before me, and upon my reasoning in Maher v Honeysett, I conclude that the judgment of the District Court and the consequential Local Court judgment were, at the time of the issue of the bankruptcy notice and of its service, judgments or orders the execution of which was stayed by effect of rule 42.7(2), within the language of the relevant provisions of the Bankruptcy Act.
Custom Capital concedes that if I am of that opinion, then the petition is based upon an invalidly issued bankruptcy notice and cannot otherwise survive. I therefore shall dismiss the petition.
I consider that costs should follow the event, although Ms Thompson will need to satisfy a Registrar that she has incurred taxable legal costs if they cannot be agreed.

I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Michael Abood

Date: 1 May 2009