Franks v Equititrust Ltd

[2012] FMCA 1180

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FRANKS v EQUITITRUST LTD [2012] FMCA 1180

BANKRUPTCY – Bankruptcy Notice – where notice included amounts for interest from assessment to entry of judgment – where notice included filing fees for costs assessment – where judgment was in name of party to assessment and not “Manager Costs Assessor” – invalidity of notice.

Legal Profession Act 2004 (NSW), ss.368(5), 369, 369(7)
Corporations Act 2001 (Cth), 601AD
Bankruptcy Act 1966 (Cth), s.41(5)
Federal Magistrates Court (Bankruptcy) Rules 2006

Dennis v Miller & Ors [2012] FMCA 25
Rookharp Pty Limited v Webb & Anor [2011] FMCA 801
Scook v Sims Construction Pty Ltd [2004] 3 ABC(NS) 43
Lord v Rankine [2010] FMCA 668
Croker v Commissioner of Taxation [2005] 145 FCR 150
Rankine v Lord (2011) 9 ABC (NS) 142
Kassem & Secatore as joint liquidators of Pan Pacific Age Care Services Pty Ltd (In liq) & Anor v Koutavas [2012] NSWSC 236

Applicant: PHILLIP MAURICE FRANKS

Respondent: EQUITITRUST LIMITED (RECEIVERS & MANAGERS APPOINTED)
(IN LIQUIDATION)

File Number: SYG 2204 of 2012

Judgment of: Raphael FM

Hearing date: 19 November 2012

Date of Last Submission: 19 November 2012

Delivered at: Sydney

Delivered on: 19 November 2012

REPRESENTATION

Counsel for the Applicant: Mr P Folino-Gallo

Counsel for the Respondent: Mr M Bennett

Solicitors for the Respondent: Tucker & Cowan

ORDERS

1. Bankruptcy Notice BN 5742 of 2012 issued 12 September 2012 be set aside.

2. Respondent to pay the Applicant’s costs to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 2204 of 2012

PHILLIP MAURICE FRANKS

Applicant

And

EQUITITRUST LIMITED (RECEIVER & MANAGER APPOINTED) (IN LIQUIDATION)

Respondent

REASONS FOR JUDGMENT

1. This application raises some interesting points upon the validity of Bankruptcy Notice BN 5742 issued on 12 September 2012.  I am indebted to both Mr Folino-Gallo, who appears on behalf of the applicant, and Mr Bennett, who appears on behalf of the respondent, for the responsible and helpful way in which they have presented their arguments.  As will be made clear in these reasons the applicant debtor has a number of grounds upon which he believes that the bankruptcy notice should be set aside. 

2. Those grounds, he argues, are supported by authority.  Mr Bennett accepts that there is significant authority against him but wishes it to be made clear that he does not accept, for the purposes of the hearing in this court, the correctness of the decisions about which I am shortly to opine.  It remains open for him to appeal this decision, although in effect, he will be seeking the views of the Full Bench upon several other decisions including decisions of the Federal Court and the Supreme Court of New South Wales by which this court is bound or, alternatively, obliged to follow unless it can be said with some certainty that the decision (in the Supreme Court of New South Wales) is clearly wrong. 

3. There has been some long running disputes between Mr Franks the applicant and the respondent and companies in the group formerly known as the Equititrust Group.  It would appear that Mr Franks was a property developer who received accommodation from the Equititrust Group in relation to his developments.  When the Equititrust Group fell into insolvency there was still some outstanding matters between the parties and Mr Franks had brought proceedings before his Honour Brereton J in the Supreme Court of New South Wales.  Those proceedings resulted in success for Mr Franks. But the success was against one of the more insolvent of the Equititrust Group companies now known, with what is clearly some wry humour, as Moribund Pty Ltd.  Mr Franks appealed Brereton J’s judgment which granted him the benefit of an indemnity from another company in the group, Equititrust Ltd but did not extend that indemnity to the costs of the proceedings.  Mr Franks was unsuccessful in his appeal and a costs order was made against him.  It is as a result of that costs order the parties appear before me today. 

4. The judgment of the Supreme Court of New South Wales, a copy of which is found at [68] as an exhibit to the affidavit of David Robert Walter Tucker sworn on 22 October 2012 is in the following form:

   “Title of Proceedings

   First Appellant:  Phillip Maurice Franks

   First Respondent: Moribund Pty Ltd (formerly Equitiloan Securities Pty Ltd) (In liquidation) 

   Second Respondent: Equititrust Ltd (formerly Equitiloan Ltd)

   Terms of judgment or order:  Appeal dismissed with costs.”

5. The successful parties sought to have their costs assessed and this was done by Mr Terence L Stern, a costs assessor, by way of a letter dated 8 December 2011 and reasons for assessment dated the same date ([69] Affidavit of Tucker], ([80 – 90] Affidavit of Tucker), prior to the decision being made Equititrust solicitors wrote to Mr Stern on 23 September 2011 stating:

   “It should be noted that the appeal was against Equititrust Ltd (formerly Equitiloan Ltd) the costs are, therefore, to be assessed in favour of that entity only.”

6. The assessment was clearly made in favour of both parties to the judgment. Again, in accordance with the provisions of s.369 of the Legal Profession Act 2004 (NSW)[1] the costs of the costs assessment were assessed.  That was done by way of a certificate of determination of the costs dated 16 December 2011.  The costs were assessed in the sum of $721.88 and the costs applicants were said to be Moribund Pty Ltd and Equitiloan Ltd.  In order to avoid confusion I would state that Equitiloan Ltd is now known as Equititrust Ltd (Receiver and Manager Appointed) In Liquidation. 

   [1] “Act”

7. Pursuant to ss.368(5) and 369(7) of the Act the certificates of assessment of costs, once filed in the registry of a court having jurisdiction to order the payment of the amount of money certified, are taken to be judgments for the amount of the unpaid costs:

   “And the rate of interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed.” 

8. In this case it was decided to file the certificates in the Balmain Local Court.  The two certificates were sent to the court both bearing as costs applicants and, therefore, persons in whose favour the judgment was to be entered, Moribund Pty Ltd and Equitiloan Ltd.  For reasons which have not been explained the two judgments of the Balmain Local Court were only in the name of Equitiloan Ltd.  The major judgment was for $24,729.03 and the minor judgment for the costs of the assessment was for the sum of $932.58. 

9. When the judgment creditor sought to issue a bankruptcy notice he stated that the creditor’s name was “Equititrust Ltd ACN 061383944 (Receivers and Managers Appointed) (In Liquidation) formerly Equitiloan Ltd”. He also placed in the bankruptcy notice, under the heading Claims, the sum of $25,661.61 being the amount “as per the attached final judgment”. This is the total of the two judgments that I have referred to above in [8].

10. Although the total sum that appears in the bankruptcy notice, of $25,661.61 is the product of the two individual judgments those individual judgments are informed by a document found at page 2 of the exhibits to another affidavit of Mr Tucker dated 14 November 2012 and page 5.  These are documents entitled “Registration of Certificate of Determination of Costs” and those documents which were filed with the application make a claim for interest between the date of the decision on the assessment and a filing fee.  In both cases the filing fee is wrongly described as being of $162.00 when it was in fact of $164.00.  The interest claimed in respect of the larger assessment was $1,491.00 and in respect of the smaller assessment it was the sum of $46.70.  It was the calculations contained in these documents that went through to the actual judgments of the Balmain Local Court.

11. Mr Franks comes before this court to argue that the bankruptcy notices should be set aside on the following grounds:

The failure to include all parties to the costs assessment

1. In Dennis v Miller& Ors [2012] FMCA 25[2] Smith FM, relying upon the authorities of Rookharp Pty Limited v Webb & Anor [2011] FMCA 801 and Scook v Sims Construction Pty Ltd [2004] 3 ABC(NS) 43 held that all persons having the benefit of the costs order must join in an application for assessment and that all those persons must then be named in the assessment certificates and be identified as joint judgment creditors when the certificates are filed and entered as a judgment. I have considered his Honour’s decision and I am unable to say that it is clearly wrong based as it is upon prior authority of some standing. The respondent to the application argues, in this particular case, there is a distinguishing factor and that is the other party named in the costs certificate, Moribund Pty Ltd, has been deregistered and therefore has no legal standing to bring these proceedings. But as Mr Folino-Gallo points out any chose in action still existing for the benefit of Moribund vests in the ASIC upon the deregistration by operation of s.601AD of the Corporations Act 2001 (Cth). It would therefore have been possible to join the ASIC into the proceedings or alternatively to have the deregistration of Moribund lifted for the purposes of bringing these proceedings.

   [2] “Dennis”

The inclusion of interest

1. Mr Franks argues that there is no provision within ss.368 or 369 of the Act for the payment of interest on assessed amounts and that interest would only be due following the entry of judgment. He argues that s.368(5) refers only to post judgment interest and that without any specific authority for the payment of interest it is not possible for interest between the date of the assessment and the entry of judgment to be added to the judgment sum. I would certainly tend to agree that in a highly regulated, almost codified, section of this important Act a court should hesitate to presume that a party is entitled to something for which no authority is given. Of course, it would be open to the court making the order for costs to indicate that interest on the unpaid costs should be paid prior to judgment. But that did not happen. So I am of the view that for this reason the bankruptcy notice is in error and that there has been an overstatement of the amount. 

2. In Dennis Smith FM considered whether or not certificates that contained the addition of a filing fee fell within the purview of s.41(5) so that in the absence of a notice from the debtor any overstatement in the notice would not invalidate it. His Honour said:

   “[8]Counsel for Mr Dennis submitted that, if s.41(5) of the Bankruptcy Act applied in relation to his contentions, so that the bankruptcy notice was “not invalidated by reason only that the sum specified in the notice as to the amount due to the creditor exceeds the amount in fact due”, then notice of his contentions had been sufficiently given by way of his written submissions filed before the hearing and before the time for compliance with the notice expired.

   [9]Counsel for the respondents did not take any point under s.41(5), and I am not satisfied that he could have done so. It appears to me that this provision concerns an objection to the amount stated in the bankruptcy notice, where the objection asserts that the notice overstates the true amount outstanding under the judgment relied upon in the bankruptcy notice. Where the argued overstatement arises because of a contention going to the validity of the judgment itself, or because of a contention inviting the Court to ‘go behind’ the judgment debt so as to discover an amount ‘in truth and reality’ owing to the creditor, then s.41(5) would not seem to be relevant. I would not understand Hely J in Croker v Commissioner of Taxation(2005) 145 FCR 150, [2005] FCA 127 to have decided otherwise, although in that case his Honour did consider, and reject, a contention in relation to s.41(5). In any event, in the absence of any submissions to the contrary, I am not satisfied that Mr Dennis is precluded from raising any of the above three contentions by reason of s.41(5).”

3. Once again I am unable to say that his Honour is clearly wrong in the views he has expressed above and, to my mind, the inclusion of the interest invalidates the bankruptcy notice. 

The inclusion of the filing fee 

1. Both bankruptcy notices include within the amount said to be owing the cost of the filing fee for registration of the judgments.  This is the sum of $164.00 stated to be $162.00.  In Lord v Rankine [2010] FMCA 668 I applied the thinking of Healey J in Croker v Commissioner of Taxation [2005] 145 FCR 150 to set aside a bankruptcy notice on the ground that the inclusion of an amount in the judgment that was beyond the amount certified was not authorised by the legislation. That decision of mine was upheld on appeal Rankine v Lord (2011) 9 ABC (NS) 142 by Marshall J. The law which currently binds me and which, needless to say, I believe is correct, is that by including these sums of $162.00 or $164.00 the applicant has effectively invalidated the notice.

Payment of the smaller judgment to Equitiloan Ltd

1. This smaller judgment suffers from the same vices with regard to the interest and the registration filing fee but it has an additional problem of its own.  On 16 March 2012 Ward J (as she then was) handed down judgment in Kassem & Secatore as joint liquidators of Pan Pacific Age Care Services Pty Ltd (In liq) & Anor v Koutavas [2012] NSWSC 236. In a well reasoned and detailed judgment her Honour took into account the decision of Smith FM in Dennis, and whilst disagreeing with his Honour’s views as to the substantive point that she was to consider, did not cavil with his Honour’s views set out in [8 and 9] as extracted herein.

2. In short her Honour’s decision was that by virtue of s.369 of the Act the person who should be named in the judgment for the costs of the cost assessment is not the party to the proceedings, notwithstanding that that party may have already paid the costs, but the person entitled “Manager Costs Assessor.” It is not necessary for me to go into her Honour’s judgment in any detail because it would be inappropriate of me to even suggest that it was clearly wrong or that I should not follow it. If the judgment was wrongly drawn up then that also invalidates the bankruptcy notice.

3. In all these circumstances I am of the view that the bankruptcy notice should be set aside and the only question that remains for me is one of costs.   I order that the respondent pay the applicant’s costs to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.

I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date:  7 December 2012