Finance and Mortgage Corp (NSW) Pty Ltd v Davies, Kevin William

[1998] FCA 820

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 985 of 1997

BETWEEN:	FINANCE & MORTGAGE CORP (NSW) PTY LTD APPELLANT
AND:	KEVIN WILLIAM DAVIES RESPONDENT

JUDGES:	LINDGREN, MARSHALL, MADGWICK JJ
DATE:	3 JULY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(ex tempore)

THE COURT:
INTRODUCTION

The present appeal is against certain orders made by Emmett J on 4 November 1997 on the hearing of a bankruptcy petition. His Honour’s orders were as follows::

“1       The petition be dismissed.

2There be no Order as to the costs of the petition up to and including 6 June 1997

3         The petitioner pay the costs of the debtor after 6 June 1997.”

Before his Honour, the appellant was the petitioning Creditor and the respondent was the Debtor. The particular order complained of by the Creditor is the second order, that is, that there be no order as to the costs of the petition up to and including 6 June 1997.  That date was the return date of the petition. In its notice of appeal, the Creditor seeks, in substitution for the second order, an order that the Debtor pay the Creditor’s costs up to and including 6 June 1997.

Counsel for the Creditor has frankly acknowledged that the amount of these costs would, on any reckoning, be small.  In fact, an inquiry made of the Registry prior to the hearing reveals that on the basis of a short form bill, one might reasonably expect the costs (including filing and service fees) to be of the order of $3,000.  However, counsel for the Creditor suggests that the appeal raises an important issue as to the exercise of the discretion in relation to costs, in the not uncommon situation in which a debtor has not sought to set aside a bankruptcy notice, has committed an act of bankruptcy upon expiry of the period fixed by the notice, and has thereby “led” the creditor to file the petition.

FACTS

The following chronology will sufficiently indicate the background facts. 

On 28 October 1996, the Creditor obtained default judgment in the North Sydney Local Court (Civil Claims) against the Debtor for $4,067.00.  On 7 November, the Creditor procured the issue of bankruptcy notice NN 3360/96, calling for payment of that sum.  On 5 December, the bankruptcy notice was served on the Debtor.  On 28 December, the period fixed in the bankruptcy notice for compliance expired and, payment not having been made, the Debtor committed an act of bankruptcy. The Debtor did not apply to set aside the bankruptcy notice.

On 10 January 1997, the Debtor applied to the Local Court to set aside the default judgment. On the same day that application was dismissed with costs by a Registrar of the Local Court.  For the time being, the Debtor did nothing further.  As will be seen, this is of some significance. 

On 22 April, the Creditor presented its petition NG 7449/97 in this Court. It was returnable on 6 June.  It will be noted that for a period of more than three months, from 10 January to 22 April, the Debtor did nothing to alert the Creditor to the fact that there might yet be a further challenge to the underlying judgment.

On 29 April, the Debtor filed an application for review by a magistrate of the Registrar’s dismissal of his application to set aside the default judgment. On the same day the Local Court stayed execution of that judgment. 

On 2 June, the Debtor’s solicitors sent a facsimile transmission to the Creditor’s solicitors, advising that the default judgment had been stayed and the application for review by a magistrate was fixed for hearing on 24 June, and requesting the Creditor’s solicitors to mention  the bankruptcy matter on 6 June on behalf of the Debtor’s solicitors and to have it adjourned. On the same day, 2 June, the Creditor’s solicitors replied, asserting that the petition was not based on the Local Court judgment but on the act of bankruptcy constituted by non-compliance with the bankruptcy notice.  They indicated that the Creditor would be proceeding with the petition. 

On 6 June, the petition was before the Court for the first time.  By consent, Registrar Quinn adjourned it to 27 June.  Also on 6 June, the Debtor filed his notice of intention to appear and of his grounds of opposition to the petition. Those grounds were as follows:

“The amount and basis of the debt are disputed.  There is a stay on the judgment referred to in paragraph 2 of the petition.”

On 24 June, a magistrate set aside the default judgment in the Local Court.  On 27 June, by consent, Registrar Hedge adjourned the petition to 4 July.  On 4 July, Registrar Quinn directed the Debtor to file, by 25 July, an amended notice of opposition and an affidavit in support and as to assets and liabilities. As well, she adjourned the petition to 5 August and reserved costs.

On 8 July, the Debtor’s solicitors wrote to the Creditor’s solicitors, offering to agree to an order dismissing the petition with no order as to costs.  On 18 July, the Debtor filed his  appearance and an “affidavit as to assets and means” dated 17 July.  When the matter was before the Court on 5 August, by consent Registrar Quinn granted the Debtor leave to amend and to serve his amended notice of opposition by 12 August, and made directions for the filing of affidavits by both parties.

On 11 August, the Debtor filed an amended notice of opposition, setting out the following grounds:

“(1)The respondent Debtor denies being indebted to the Creditor in the sum alleged in paragraph 2 of the Creditor’s petition or at all;

(2)The judgment relied upon in paragraph 2 of the Creditor’s petition was a default judgment which was set aside by the Local Court at North Sydney on 30 May 1997 [this was a wrong date];

(3)      ...

(4)      the respondent Debtor is solvent and is able to pay his debts.”

On 26 August, the Creditor filed an affidavit of that date of its managing director directed to establishing the existence of the debt.

On 19 September the Debtor filed his affidavit sworn 18 September as to the underlying facts and as to solvency, together with an affidavit also sworn 18 September 1997 by his accountant in support of his case that he was not indebted to the Creditor. 

On 25 September, by consent, Registrar Hedge directed the Debtor to provide answers to a request for further and better particulars by the Creditor’s solicitors and made further directions for affidavits and stood over the proceeding to 17 October for mention, reserving costs.  On 17 October, by consent, Registrar Hedge adjourned the petition to 4 November and reserved costs.

On 4 November the hearing took place before Emmett J and his Honour made the orders to which we have previously referred.

REASONING

His Honour distinguished between the issues relating to the costs down to and including the return date of the petition (6 June) and the costs after that date. There was no opposition to the making of an order that the Creditor pay the Debtor’s costs after 6 June. 

It has been put to us on the hearing of the appeal that the Debtor led the Creditor to file the petition. The Debtor chose not to apply for an order setting aside the bankruptcy notice but to commit an act of bankruptcy on 28 December 1996. Apart from the abortive application to set aside the Local Court default judgment on 10 January 1997, the Debtor took no relevant step between the commission of the act of bankruptcy on 28 December 1996 and 22 April 1997 when the petition was presented.  We accept that these factors militate against the position of the Debtor on costs. They support a view that the Debtor bore some responsibility for the Creditor’s decision to file its petition. His Honour thought likewise. The question is whether it followed that his Honour was bound to exercise his discretion by ordering the Debtor to pay the Creditor’s costs down to 6 June 1997.

Against the making of such an order, his Honour said this:

“On the other hand, as I have said, the petitioner has been unsuccessful and has not prosecuted the matter.  In the circumstances I consider that the interests of justice are served by there being no order as to the costs of the petition up to and including 6 June 1997.”

The background to that paragraph is to be found in the transcript of the hearing before his Honour. There was discussion of the possibility of an adjournment of the petition until the outcome of the issue, “debt or no debt”, in the Local Court was known.  However, the Creditor took the position that it preferred to have its petition immediately dismissed.  That course had the effect of depriving his Honour, when exercising his discretion in relation to costs, of the benefit of knowledge of the outcome of the contest as to whether there was or was not a debt and of the reasoning of the Local Court on that question. There was discussion, in the transcript, of the affidavit evidence which had been filed on behalf of the Debtor directed to establishing that there was no debt. Counsel for the Debtor submitted that his Honour should accept that the Creditor had never had reasonable grounds on which to believe that it could prove a debt.

His Honour certainly took into account against the Debtor the various matters to which we have already referred, but he did not see fit to go so far, on that account, as the Creditor would have wished, by making an order in favour of the Creditor. The reason was that the Creditor chose, in the circumstances mentioned, not to prosecute the petition any further, even after a substantial adjournment. 

His Honour was exercising a discretion.  That discretion was his Honour’s, not ours. There is no indication in his judgment that he acted upon a wrong principle or took extraneous or irrelevant matters into account.  We think that it was within his discretion, in the circumstances in which the Creditor chose not to have the petition adjourned but to have it dismissed, to make the order which he made. We do not think that the only exercise of discretion that was open to his Honour was to order the Debtor to pay the costs.

This is not to detract from the general proposition that a debtor should apply promptly to set aside a bankruptcy notice and keep the creditor informed of the stance being taken by the debtor. But in this case, the creditor’s insistence that its petition be dismissed immediately rather than adjourned pending the outcome in the Local Court was, in the light of all the circumstances, also a factor which his Honour was entitled to take into account.

CONCLUSION

We see no error in his Honour’s exercise of discretion. The orders of the Court are, first, that the appeal be dismissed; and, second, that the appellant pay the respondent’s costs.

[Counsel for the respondent applied for an order that the Debtor have his costs on either an “indemnity” or “solicitor-client” basis.]

We see no reason to depart from the usual order as to costs by ordering that the Debtor have his costs on any basis other than the usual party and party basis.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren

Associate:

Dated:  14 July 1998

Counsel for the Appellant:	Mr A C Hogg
Solicitor for the Appellant:	Mr J Pappas
Counsel for the Respondent:	Mr R M Lovas
Solicitors for the Respondent:	Watson McNamara & Watt
Date of Hearing:	3 July 1998
Date of Judgment:	3 July 1998