De La Vega v Aneeta Window Systems (NSW) Pty Ltd
[2012] FMCA 153
•11 May 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DE LA VEGA v ANEETA WINDOW SYSTEMS (NSW) PTY LTD | [2012] FMCA 153 |
| BANKRUPTCY – Application to set aside bankruptcy notice – whether the debtor has a cross claim against the creditor that exceeds the value of the judgment debt and which could not have been set up in the proceedings leading to the judgment debt considered – whether the judgment was stayed at the time the bankruptcy notice was issued or served considered – whether the amount claimed in the bankruptcy notice is overstated considered. |
| Bankruptcy Act 1966, ss.40, 41 Civil Procedure Act 2005 (NSW), ss.101, 107 Federal Court Rules Uniform Civil Procedure Rules |
| American Express Australia Ltd v Viscariello [2007] FMCA 1574 Jackson, in the matter of Conway v Conway [2000] FCA 1530 Wenkart v Abignano & Anor, Branson J, NG7080/1998, FCA 5 March 1998 – BC9800515 |
| Applicant: | ALEJANDRO DE LA VEGA |
| Respondent: | ANEETA WINDOW SYSTEMS (NSW) PTY LTD |
| File Number: | SYG 2960 of 2011 |
| Judgment of: | Driver FM |
| Hearing date: | 5 March 2012 |
| Delivered at: | Sydney |
| Delivered on: | 11 May 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr S Y Reuben |
| Solicitors for the Applicant: | Charles G Roth & Co Solicitors |
| Counsel for the Respondent: | Mr A DiFrancesco |
| Solicitors for the Respondent: | Lewis Holdway Lawyers |
ORDERS
Bankruptcy Notice BN8568 issued on 15 November 2011 is set aside.
The respondent shall pay the applicant’s costs and disbursements of and incidental to the application which, if not agreed, shall be assessed and, if necessary, taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2960 of 2011
| ALEJANDRO DE LA VEGA |
Applicant
And
| ANEETA WINDOW SYSTEMS (NSW) PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction and background
By application filed on 22 December 2011, the applicant (Mr De La Vega) applied for an order pursuant to s.41(7) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) that bankruptcy notice number BN8568 issued on 15 November 2011 and served on him on 1 December 2011 be set aside, plus an order for costs.
It transpired at the trial of this matter on 5 March 2012 (when the matter was transferred from the Registrar’s list) that Mr De La Vega also seeks to have the bankruptcy notice set aside on other bases, namely that the amount claimed in the bankruptcy notice is overstated (I was told that notice pursuant to s.41(5) of the Bankruptcy Act had been given) and that by reason of the operation of an instalment order made by the Local Court of NSW, a stay was in place on the judgment debt at the time the bankruptcy notice was issued or served.
Mr De La Vega is an architect and owner/builder who carried out building work at his former property located at 67 Goodhope Street, Paddington, NSW. In the course of undertaking the construction work at the property, Mr De La Vega entered into a contract with the respondent (“Aneeta”) for the supply and installation of windows.
Mr De La Vega and his wife subsequently sold the property.
Aneeta claimed moneys due to it pursuant to the contract and commenced proceedings in the Local Court at the Downing Centre. On 23 August 2010, Aneeta obtained default judgment in the Local Court in the amount of $12,470.35 inclusive of costs.
On 15 September 2011 Mr De La Vega was granted an instalment order which he claims operated as a stay pursuant to s.107(2) of the Civil Procedure Act 2005 (NSW) (“the Civil Procedure Act”). Aneeta lodged an objection to the instalment order but this was later withdrawn. On 10 November 2011 a Registrar of the Local Court purported to “confirm” the instalment order.
The bankruptcy notice the subject of these proceedings was issued on 15 November 2011 and served on 1 December 2011.
On the same day (1 December 2011) the purchaser of the property instituted proceedings in the District Court of NSW claiming compensation for defective building work, including around windows allowing water to ingress causing wood rot in window frames resulting in a need for rectification work at a cost of $96,658. The originating process was served on Mr De La Vega and his wife on 8 December 2011.
The present proceedings were instituted on 22 December 2011. On the same day a Registrar made an order extending time for compliance with the bankruptcy notice up to and including 30 January 2012. At the trial of the matter before me on 5 March 2012 I ruled that no further extension of time, pursuant to s.41(6A) of the Bankruptcy Act was required, because of the automatic extension of time applicable pursuant to s.41(7) of the Bankruptcy Act.
The evidence and submissions
Mr De La Vega relies upon three affidavits by himself filed on 22 December 2011, 7 February 2012 and 28 February 2012. Mr De La Vega was cross-examined on his affidavits.
Aneeta relies upon four affidavits:
a)the affidavit of Christopher David Morey made on 15 February 2012;
b)the affidavit of Scott Smith made on 14 February 2012;
c)the affidavit of Adam Foster made on 2 March 2012; and
d)the affidavit of Kylie Lucas made on 2 March 2012[1].
[1] The affidavit was incorrectly dated 2 February 2012.
None of those deponents were required for cross-examination.
Mr De La Vega raises three challenges to the bankruptcy notice. First, he asserts, pursuant to ss.40(1)(g) and 41(7) of the Bankruptcy Act, that he has a counterclaim, set-off or cross demand exceeding the amount of the judgment debt which he could not have set up in the action or proceeding in which the judgment was obtained.
Mr De La Vega contends that the claim by the purchaser of the property only came to light after 1 December 2011 when he was sued for failure to obtain a home building warranty and/or defective work in respect of leaking windows at the property which caused wood rot. This component of the purchaser’s claim against him is quantified at $96,668.
The judgment obtained by Aneeta supporting the bankruptcy notice was the balance of the sum claimed for the supply and installation of the windows at the property. Mr De La Vega has claimed full indemnity by cross claim against Aneeta in respect of the asserted defects in the windows.
Mr De La Vega contends that, as a matter of law, his claim for indemnity could not have been raised prior to the commencement of the purchaser’s proceedings. He asserts that he has set out a prima facie case for indemnity against the judgment creditor for a quantifiable amount in excess of the judgment debt which has crystallised into an actual claim by his cross claim commenced on 7 February 2012 in the District Court proceedings. Mr De La Vega contends that he has a prima facie case with a fair chance of success.
Secondly, Mr De La Vega contends that he applied for and was granted a second instalment order in respect of the judgment debt on 15 September 2011. He asserts that, pursuant to s.107(2) of the Civil Procedure Act, the effect of this order was to stay the judgment. Payments were made pursuant to the instalment order. On 10 November 2011 a Registrar of the Local Court purported to “confirm” the instalment order with the asserted effect that the stay of the judgment was still in force. Mr De La Vega contends that the bankruptcy notice issued on 15 November 2011 should not have been issued because of the operation of s.41(3)(b) of the Bankruptcy Act.
Thirdly, Mr De La Vega contends that the amount claimed on the bankruptcy notice is overstated in that the bankruptcy notice claims interest upon interest.
Aneeta contends that Mr De La Vega cannot satisfy the Court that his cross claim against Aneeta in the District Court proceedings has a fair chance of success, that he knew or should have known of the defects in the windows at the time of the sale of the property and that he could have resisted the Local Court proceedings brought by Aneeta against him on the basis that the windows or installation by Aneeta were defective.
Secondly, Aneeta contends that there was no stay in operation at the time the bankruptcy notice was issued and served because Mr De La Vega was late in making payments due and hence had failed to comply with the instalment order.
Thirdly, Aneeta contends that there was no overstatement of interest in the bankruptcy notice because there was no separate judgment for costs or interest in the Local Court judgment.
Consideration
Section 40(1)(g) of the Bankruptcy Act provides that an act of bankruptcy is committed:
if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
Section 41(3)(b) of the Bankruptcy Act provides:
(3)A bankruptcy notice shall not be issued in relation to a debtor:
(b) if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed; or
Section 41(7) of the Bankruptcy Act provides:
Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
The first question to resolve is whether Mr De La Vega’s cross claim could not have been set up as a matter of law in the judgment debt proceedings.[2]
[2] Re Brink; ex parte The Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135
Mr De La Vega’s cross claim is a claim for indemnity in the proceedings instituted against him by the purchaser of the property. I accept that that claim for indemnity could not have been made as a matter of law prior to the commencement of the purchaser’s proceedings against Mr De La Vega. There is a question of fact to resolve in the District Court proceedings whether the ingress of water was the fault of Mr De La Vega, who installed wooden window frames, or Aneeta, which supplied and installed aluminium window fittings and glass. There is a question whether Mr De La Vega was at fault by not waterproofing the join between the wooden window frames and the building structure by flashing or whether Aneeta was at fault by not properly sealing the windows fitted within the frames. While the evidence relied upon by Aneeta tends to support the contention by Aneeta that it was not at fault and the fault must have been that of Mr De La Vega, I accept that the contrary argument contended for by Mr De La Vega is arguable. The issue of fact is one to be resolved by the District Court, not this Court.
Further, Mr De La Vega resisted questions put to him in cross-examination intended to extract admissions that he was aware of defects in the windows allowing for the ingress of water causing wood rot in the window frames prior to the sale of the property. He may well have been so aware if the problem was one caused by Mr De La Vega. He may not have been so aware if the problem was one caused by Aneeta. If, for example, the ingress of water has resulted from inadequate silicon sealing of the windows by Aneeta, the defect may have been latent rather than readily apparent. Mr De La Vega gave evidence that he could see wood rot in some of the window frames from the street when he observed the property following the commencement of proceedings against him by the purchaser. To that extent, I accept that the problem is an obvious one. However, I am unwilling to conclude on the evidence that Mr De La Vega was untruthful in denying that he was aware of the problem at the time of the sale of the property. I reach no conclusion whether the ingress of water causing wood rot in window frames of the property was the result of defective work by either Mr De La Vega or by Aneeta.
I reject Aneeta’s contention that Mr De La Vega could have set up his present cross claim against it in the Local Court proceedings brought by it against Mr De La Vega. In the first place, I am not persuaded that Mr De La Vega was aware at the time of those proceedings that there was a defect in the windows of the property. Secondly, even if he had been so aware, I am unable to conclude that, at the time of those proceedings, Mr De La Vega would have been in a position to quantify any claim he may have had against Aneeta.
In my view, and consistently with the submissions of Mr De La Vega, it was not until proceedings were instituted against him by the purchaser of the property and the cost of rectification work was quantified that Mr De La Vega, as a matter of law and fact, was in a position to claim against Aneeta.
I am satisfied that the cross claim made by Mr De La Vega against Aneeta establishes a prima facie case with a fair chance of success in accordance with the test adopted in Re Brink.
It follows that I am satisfied that Mr De La Vega has established a cross demand as is referred to in s.40(1)(g) of the Bankruptcy Act and that in consequence, the bankruptcy notice should be set aside.
Although it is not strictly necessary to do so, I will deal with the other objections to the bankruptcy notice.
It appears from Aneeta’s evidence[3] that on 15 September 2011 Mr De La Vega applied for and was granted a second instalment order in respect of the subject judgment. Pursuant to s.107(2) of the Civil Procedure Act the effect of this order was to stay the judgment. That section provides:
(2) Subject to section 119, execution of a judgment for the payment of money is stayed while the judgment is the subject of an order in force under this section.
[3] Affidavit Christopher David Morey [11] and [17]
Payments were made pursuant to the order on 10 October 2011 and 3 November 2011. Aneeta objected to the instalment order but withdrew that objection. On 10 November 2011 the Registrar of the Local Court “confirmed” the instalment order such that the stay of the judgment was still in force. On 15 November 2011 the bankruptcy notice was issued on the application of Aneeta. This occurred against the express provisions of s.41(3)(b) of the Bankruptcy Act. At that time the judgment creditor could not obtain execution on the amount claimed in the notice as there was a stay then in effect and the amount claimed was not due. This has the consequence that the bankruptcy notice was invalidly issued.
It is clear on the authorities that the validity of the bankruptcy notice is to be tested as at the date of its issue[4] and that a bankruptcy notice cannot be validly issued if there is a stay on execution of the relevant judgment then in effect.[5] A stay in force at the time of the service of the notice will also make the bankruptcy notice ineffective. In other words, a stay in force either at the time of the issue or the date of service will render the notice ineffective by reference to s.40(1)(g). The decision of Federal Magistrate Barnes in American Express Australia Ltd v Viscariello[6] confirms this. The authorities in Viscariello at [22]-[24] (Walsh and Re Moss[7]) note that if at either the date of the issue or service of the bankruptcy notice, a debtor was able to show an entitlement at general law to the grant of a stay of execution of the judgment, then there was no act of bankruptcy within s.40(1)(g) of the Bankruptcy Act.[8]
[4] Walsh v Deputy Federal Commissioner of Taxation (1984) 156 CLR 337 at 340
[5] Lindholdt v Merritt Madden Printing Pty Ltd [2002] FCA 260; Wenkart v Abignano & Anor, Branson J, NG7080/1998, FCA 5 March 1998 – BC9800515; Re Moss; Ex parte Tour Finance Ltd (1968) 13 FLR 101
[6] [2007] FMCA 1574
[7] Walsh v Deputy Federal Commissioner of Taxation (1984) 156 CLR 337; Re Moss; Ex parte Tour Finance Ltd (1968) 13 FLR 101
[8] Morgensen v Conway [1998] FCA 1565 at [23]
Aneeta argues that the debtor “breached” the instalment order by making the first two payments late. Further, Aneeta asserts that even if the instalment order was confirmed on 10 November 2011 a further payment of $500 was made on 1 December 2011 instead of 30 November 2011 and thereby failed to comply with the instalment order within the meaning of Uniform Civil Procedure Rule 37.7 such that there was no stay of the judgment in force at the date of service of the bankruptcy notice. This argument fails for the following reasons:
a)the authorities clearly establish that the bankruptcy notice is invalidated if there is a stay of the judgment in force either at the date of issue or the date of service; and
b)there is no demonstrated or determined non compliance with the instalment order by the Court which issued it (cf the procedure adopted by the creditor in Lindholdt). The instalment order of 15 September 2011 did not specify a due date for the “monthly instalment”. Monthly payments were required for the months of September and October and two payments were made by the time Aneeta withdrew its objection. After the Local Court determined that the objection to the order was withdrawn on 10 November 2011 (presumably under Uniform Civil Procedure Rule 37.4(4)) the “notice of orders made” (pursuant to Uniform Civil Procedure Rule 37.4(5)) dated 5 December 2011 was given after the date of the next payment made by Mr De La Vega on 1 December 2011.
I reject the contention that the amount claimed in the bankruptcy notice was overstated. I accept that the default judgment obtained in the Local Court in the amount of $12,470.35 was calculated on the basis of accrued interest of $1,061.96 and costs and disbursements of $1,174.36. The amount of the claim itself was $10,234.03. Mr De La Vega contended that the bankruptcy notice claimed interest on interest, which is impermissible, pursuant to s.101(6) of the Civil Procedure Act, which provides:
This section does not authorise the giving of interest on any interest payable under this section.
Mr De La Vega also claims that the bankruptcy notice impermissibly seeks interest on costs, which is impermissible under s.101(1) of the Civil Procedure Act, which provides:
Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid.
I prefer Aneeta’s submissions on this issue.
The judgment debt was by way of entry of default judgment in the Local Court of NSW following striking out of the defence of Mr De La Vega.
Interest under s.101 of the Civil Procedure Act accrues on the whole of the judgment entered. Interest awarded up to judgment merges into the judgment amount upon entry of judgment and interest accrues upon it.[9]
[9] Jackson, in the matter of Conway v Conway [2000] FCA 1530 (31 October 2000) at [1]-[15], in particular [7]
Similarly, the order for costs formed part of the judgment upon entry of default judgment and interest accrues on that amount under s.101 of the Civil Procedure Act.[10]
[10] see Rookharp Pty Limited v Webb & Anor [2011] FMCA 801 (14 October 201) at [192]-[198]
In Rookharp one of the grounds of opposition to the creditors petition was that:
4. The creditors Petition is based upon non-compliance with Bankruptcy Notices that are invalid and/or nullities because both impose interest on professional costs ordered upon entry of Default Judgments. This is contrary to section 101 of the Civil Procedure Act.
In Rookharp Barnes FM stated[11]:
This case is not akin to the circumstances considered in Apps & Anor v Campbell [2010] FMCA 1 in which interest was claimed under a bankruptcy notice pursuant to s.101 of the Civil Procedure Act in relation to a period which commenced prior to the date of the judgment on which the bankruptcy notice was based. It was in those circumstances that the bankruptcy notice in Apps was said to be affected by a defect or irregularity, because s.101 of the Civil Procedure Act does not permit the calculation of post-judgment interest from an earlier date. No such issue arises in the present case. That case is not authority for the proposition that interest cannot be claimed on the total amount of the judgment.
It is the case that s.101(1) of the Civil Procedure Act provides that unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid. However, as the solicitor for the applicant pointed out, “judgment” is defined in s.3 of the Civil Procedure Act to include “any order for the payment of money, including any order for the payment of costs”. Where an order for costs is made separately to a judgment for a monetary amount, interest on such an order for costs would not commence until such time as the costs which were the subject of the costs order had been taxed or assessed. However in this instance there were orders for a fixed amount of costs (see the definition of “judgment debt” in s.3 of the Civil Procedure Act). The total amount of each judgment included a fixed assessed amount of costs to which interest was applicable. No further assessment of those costs was required. It was open to the creditor to calculate interest for the purposes of the bankruptcy notice on the whole of the judgment under each default judgment, including the fixed amount of costs.
[11] at [196]-[197]
The present case is if anything stronger than Rookharp because in the present case the default judgment was inclusive of costs (and interest) which were not separately identified in the Court’s order.
Conclusion
The bankruptcy notice will be set aside upon the basis that Mr De La Vega has satisfied the Court that he has a cross demand against Aneeta exceeding the amount of the judgment debt supporting the bankruptcy notice.
I shall also order that Aneeta pay Mr De La Vega’s costs of the application.
I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Driver FM
Date: 11 May 2012
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