Demandem Holdings Pty Ltd & Anor v Christou
[2010] FMCA 494
•7 July 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DEMANDEM HOLDINGS PTY LTD & ANOR v CHRISTOU | [2010] FMCA 494 |
| BANKRUPTCY – Petition – where applicant files notice of opposition claiming bankruptcy notice invalid – consideration of proper time to bring application – where debtor has a cross-claim against assignor of creditor’s debt – where cross-claim can be set off against debt – whether notice overstated the amount claimed. |
| Bankruptcy Act 1966 (Cth), s.41(5) Meagher, Heydon and Leeming, Equity: Doctrines and Remedies, 4th ed (2002) |
| First Applicant: | DEMANDEM HOLDINGS PTY LTD |
| Second Applicant: | GLENLEA ENTERPRISES PTY LTD ACN 065 274 544 |
| Respondent: | NICK CHRISTOU |
| File Number: | PEG 24 of 2010 |
| Judgment of: | Raphael FM |
| Hearing date: | 7 July 2010 |
| Date of Last Submission: | 7 July 2010 |
| Delivered at: | Perth |
| Delivered on: | 7 July 2010 |
REPRESENTATION
| Solicitors for the Applicants: | Lavan Legal |
| Solicitor for the Respondent: | Mr A Rumsley |
ORDERS
Application dismissed.
Applicants to pay the Respondent’s costs to be taxed if not agreed pursuant to the Federal Magistrate Court (Bankruptcy) Rules 2006. There be set off against such costs the Applicants’ costs of preparing, filing and serving the petition and the costs of 2 mentions before Registrar Jan.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 24 of 2010
| DEMANDEM HOLDINGS PTY LTD |
First Applicant
| GLENLEA ENTERPRISES PTY LTD ACN 065 274 544 |
Second Applicant
And
| NICK CHRISTOU |
Respondent
REASONS FOR JUDGMENT
There comes before me today an application for a sequestration order against Mr Nick Christou. The matter had previously been before the Registrar but was adjourned into the Court because Mr Christou had filed a notice of objection and the matter needed to be resolved. The notice stating grounds of opposition was filed on 18 March 2010. It stated that the respondent debtor sought to oppose the petition on the ground:
“The respondent gave notice under section 41(5) of the Bankruptcy Act that the sum specified in the notice as the amount due to the applicant exceeds the amount in fact due and that he disputed the validity of the notice on the ground of mis-statement by letter dated 28 October 2009 received by the applicant’s solicitors by email dated 28 October 2009 and letter dated 29 October 2009.”
The applicants concede that the notice under s.41(5) of the Bankruptcy Act 1966 (Cth) (the “Act”) was properly given. In my view, when a debtor objects to the validity of a bankruptcy notice, the appropriate course of action to take is to make an application to this Court to set aside that notice and there should, to my mind, be good reason why a debtor should wait until the petition has been filed and served before raising the matter. However, there is no legal impediment to him doing so and if indeed the bankruptcy notice upon which the petition is founded is considered to be invalid, then the petition cannot proceed.
In this particular case, the debt which is the subject matter of the bankruptcy notice was for the sum of $213,443.88 being made up of a principal sum of $150,000.00 plus interest. The principal sum of $150,000.00 was payable to the applicant creditors by virtue of a judgment of Beech J in the Supreme Court of Western Australia filed on 21 April 2008. Those orders came at the end of a lengthy hearing before his Honour involving claims and cross-claims between three partners of an accounting practice. The creditors in the bankruptcy proceedings are two companies owned by two of the partners and the debtor is the third partner personally.
The order of Beech J that I have referred to was not the only order that his Honour made. He also made orders that a company known as Stanton Partners Australasia Pty Ltd (“SPA”) pay to the debtor the sum of $122,399.38 plus interest which he had calculated up to judgment as $42,212.70. By the time the matter came to this Court, the amount owed by Mr Christou to the creditors was $200,523.29 and the amount owed by SPA to Mr Christou was $164,612.
Mr Christou argued that the amount owed was incorrect because, inter alia, there was impressed upon the sum of $200,523.28 a trust to pay one-third of that amount after costs to a company from which he had received an assignment. Mr Christou also argued that he was entitled to certain distributions as a result of order 5 of Beech J which totalled some $700,000.00 and that because the debt that SPA owed Mr Christou was the subject of a debt appropriation order in favour of the creditors per that amount could not be the subject of the bankruptcy notice.
I am of the view that the bankruptcy notice did misstate the debt for this reason. The assignment under which the creditors claim took place in 2005. At that time Mr Christou had a claim against SPA, which was the management company of the firm of accountants in which he was a partner, in respect of the 2001 and 2002 years. The amount of that claim was crystallised in the judgment of Beech J. The applicant accepts that, to the extent that the assignment was a legal assignment, it was governed by the provisions of s.20 of the Property Law Act 1969 (WA) which says, relevantly, in sub-s.(20)(1):
“Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim that debt or chose in action, is effectual in law (subject to the equities having priority over the right of the assignee), to pass and transfer from the date of the notice:
(a) the legal right to that debt or chose in action;
(b) all legal and other remedies of the debt or shows in action; and
(c) the power to give good discharge for the debt or chose in action, without the concurrence of the assignor.” [emphasis added]
The learned authors of Meagher, Heydon and Leeming, in their Equity: Doctrines and Remedies opine at [284]:
“A chose in action is, after all, the benefit of an obligation; and “equity” means in this context a defence, set off or counterclaim which the person subject to the obligation is entitled to oppose to the claim of the person entitled to the benefit. The effect of the rule is that the defence, set off or counterclaim is equally available against the assignee.”
At the time of the assignment from SPA to Demandem and Glenlea, Mr Christou had a counterclaim against SPA for his share of the distributions from SPA for the two years 2001 and 2002. That was “an equity”.
When the creditors came to draft their bankruptcy notice they had the benefit of Beech J’s judgment and the crystallisation of the equity in favour of Mr Christou. It would have been appropriate at that time to have deducted from the amount owed by Mr Christou to SPA the amount that SPA owed Mr Christou and to have issued the bankruptcy notice for the lesser sum. Mr MacLennan, who has provided the Court with helpful written submissions, says that the nature of the debts between the two parties are different. In the first case there was a claim for damages for breach of director’s duties which realised the sum of $150,000.00. In the second, there was the claim by Mr Christou against SPA itself for failure properly to distribute its income. I accept that these causes of action are not the same but the nature of a counterclaim, as understood in Australian law, is that it is a claim that can be made against any cause of action brought by a plaintiff against a defendant and is not restricted to the cause of action that the plaintiff has brought. This being the case, Mr Christou would have a set off against SPA’s assignees and if the matter had proceeded to his bankruptcy, his trustee in bankruptcy would have been obligated to effect that set off so that any proof of debt which the assignees might file would be reduced.
In these circumstances, it seems clear to me that the bankruptcy notice overstated the debt and that, as a proper notice under s.41(5) was given, the bankruptcy notice should be held to be invalid, and therefore the application for a sequestration order must fail. I do not propose to deal with the other arguments raised in this matter because I do not believe that is necessary in these circumstances.
I have heard the parties as to costs. I remain of the view that the objection to the bankruptcy notice should have been brought before this Court at the time of the issue of the notice and at the time when the s.41(5) notice was issued by the debtor. Because I have dismissed the application, the costs associated with the defence of the application should be those of the respondent to be taxed, if not agreed, in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006. But there should be set off against those costs, the costs of the applicants in preparing, filing and serving the petition and their costs of two mentions before Registrar Jan of this Court. These, in my view, were costs “thrown away” unnecessarily by the failure of the respondent to bring the matter to the Court immediately upon coming to the view that the bankruptcy notice was invalid.
I certify that the preceding ten (10) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 13 July 2010
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