Franks v Nicholson
[2007] FMCA 935
•22 June 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FRANKS v NICHOLSON | [2007] FMCA 935 |
| BANKRUPTCY – Bankruptcy notice – set aside – whether debtor has a cross-claim pursuant to s.40(1)(g) Bankruptcy Act 1966 – whether debt owed to company – whether agreement to make payment exists – whether claim lying in restitution exists – whether payment was at the expense of the debtor. |
| Legal Profession Act 2004 (NSW) Bankruptcy Act 1966, s.40(1)(g) |
| Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577 Halsbury’s Laws of Australia at [370-190]. |
| Applicant: | PHILLIP MAURICE FRANKS |
| Respondent: | GEOFFREY NICHOLSON |
| File Number: | SYG3481 of 2006 |
| Judgment of: | Raphael FM |
| Hearing date: | 8 June 2007 |
| Date of Last Submission: | 8 June 2007 |
| Delivered at: | Sydney |
| Delivered on: | 22 June 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr D Ash |
| Solicitors for the Applicant: | DTA Lawyers |
| Counsel for the Respondent: | Mr M Aldridge SC |
| Solicitors for the Respondent: | Horowitz & Bilinsky |
ORDERS
Application dismissed.
Applicant to pay the respondent’s costs to be taxed if not agreed according to the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG3481 of 2006
| PHILLIP MAURICE FRANKS |
Applicant
And
| GEOFFREY NICHOLSON |
Respondent
REASONS FOR JUDGMENT
Mr Franks, the applicant debtor in these proceedings, is a property developer. He was the sole director of a company known as Windy Dropdown Pty Ltd (In Administration) (“Windy”). Subject to a Deed of Company Arrangement the company developed a piece of land between Molong Street and Robertson Road North Curl Curl into nine separate lots which it called Windy Dropdown Estate. Although there are a number of features of the estate which might be considered to be common property such as a roadway, lighting and entrance and access gates, the developer did not subdivide the land by way of strata title nor did it place that common property into a community title. Ownership of the road appears to have been divided amongst all nine owners of the sub divided land each of which property was burdened with rights of way in favour of the other owners to pass and repass.
Geoffrey Nicholson QC, the respondent creditor, purchased Lot 10 in deposited plan 881696 on 31 October 1998. The purchase was completed on 30 November 1998.
The relationship between Mr Nicholson and Mr Franks and his company could be said to have been strained. There were proceedings between Mr Nicholson in the Land and Environment Court of New South Wales in respect of which Mr Franks obtained an order for costs. Those costs were assessed an pursuant to the provisions of the Legal Profession Act 2004 and the assessment was registered with the Local Court of New South Wales which gave judgment in the sum of $21,680.55 to Mr Nicholson on 28 February 2006. On 20 March 2006 Bankruptcy Notice NN1141/06 was issued by the Official Receiver citing Mr Franks as debtor and Mr Nicholson as creditor. The notice was later extended on 13 September 2006 to 20 March 2007. The notice was served on 6 November 2006. In the original application to set aside this notice there was a claim that the notice had not been properly served upon the debtor. In written submissions the respondent argued that the bankruptcy notice had been properly served pursuant to Regulation 16.01 of the Bankruptcy Regulations. The debtor did not have anything to say in response to those submissions and I accept that service was effected.
The subdivision was slow to sell. For some considerable time Windy remained the owner of the majority of the lots. In the years up to 2003 certain work was required to be done to what I have previously described as “common property” although it has never been such in the true sense of the term. In about May 2002 Windy delivered to Mr Nicholson what Mr Franks described as “an unsigned document seeking payment of $6,419.16 for what was said to be expenses in relation to the maintenance of those common rights since the date of the registration of the plan of sub division which was said to total $57,772.44.” To this figure was added a management and handling fee of 20%. Correspondence between Mr Nicholson and Mr Franks then ensued. In particular there is a letter of 30 July 2002 found as Exhibit F to Mr Franks’ affidavit sworn on 16 March 2007. In that letter Mr Nicholson raises a number of objections to the invoice including the fact that much of the costs alleged to have been incurred by Windy were not incurred by that company at all but either by Mr Franks personally or by another company known as WDD Constructions. Mr Nicholson also pointed out to Mr Franks that there was no common property although he accepted that there was joint property. Mr Nicholson disputed the management charge and any suggestion that he might in any way be responsible for costs or expenses involved prior to his purchase of the lot.
The dispute about these charges was not resolved in July 2002 but eventually some discussions were held between Mr Franks and Mr Nicholson and as a result of this Mr Nicholson’s solicitor wrote to Mr Franks’ solicitors on 12 November 2002:
“12 November 2002
DTA Lawyers
Attention David Trodden
Dear Sir
RE: WINDY DROP DOWN ESTATE – ACCESS AND OTHER MATTERS
I refer to our “Without Prejudice” discussions today and advise that I have spoken to Mr Nicholson, my client.
He has agreed that he will without admissions as to liability, place in my Trust Account the sum of $3,000.00 provided the following things occur:
1. The letter of demand served on our client be withdrawn;
2. The intercom facility at the front gate be re-activated;
3. An independent estate manager along the lines of someone like Body Corporate Services be appointed to oversee the expenses concerning the outgoings to which all the occupants must contribute, be appointed: and
4. As soon as possible a meeting of all of the estate occupants be convened to agree the appointment of the Manager and the expenses to be agreed for contributions between the estate occupants, as soon as possible.
I believe that there is a significant amount of goodwill between the parties and if these matters are implemented quickly there will be no necessity to resort to litigation.
Look forward to hearing from you.
Yours sincerely
P S S TOCCHINI”
The response which Mr Nicholson received to his lawyer’s letter came by way of facsimile dated 11 February 2003 from the solicitors to Windy enclosing a draft deed and a revised account indicating that Mr Nicholson allegedly owed $3,205.97 which again included a management and handling fee of 20% on top of the other expenditure. The draft deed was never signed and there were proceedings in the Supreme Court between Mr Nicholson and Windy relating to access to the property. Those proceedings were eventually concluded in favour of Mr Nicholson.
Mr Franks alleges that on or around 4 June 2003 he prepared a revised invoice for what he described as “body corporate” which showed a total amount due by Mr Nicholson of $14, 599.38 and another invoice on 16 January 2004 which increased the total to $16,323.18. Interestingly the first invoice includes a general maintenance and cleaning charge from January 1999 to June 2003 at a $100.00 per week and the second invoice includes an identical charge between July 2003 and 16 January 2004 at $100.00 per week. There was no cleaning charge on the first invoice referred to in [4] above. Both invoices include a management and handling fee of 20%. Mr Nicholson denies receiving these invoices prior to the current litigation. He maintains his denial of any agreement to make payment pursuant to the invoices and in particular denies any agreement relating to the imposition of a general cleaning levy at $100.00 per week or a service charge of 20% of the invoiced price.
On 14 November 2006, after the bankruptcy notice had been issued, Windy entered into a deed with Mr Franks pursuant to which Windy recited that it claimed that Mr Nicholson was indebted to it, that the deed administrators have declined to pursue the claim and that Windy agreed to assign the claim to Franks on the terms set out in the deed. The assignment itself is expressed as follows:
“2 Assignment
2.1WDD hereby assigns to Franks all of its right title and interest (if any) in the claim.
2.2WDD will do all things and execute all documents as may be reasonably necessary to enable Franks to receive the benefit of the assignment referred to in clause 2.1.
3 Consideration and Payment
3.1Franks will pay to WDD upon execution of this deed the sum of $1.00 plus GST (if applicable).”
The grounds upon which Mr Franks now seeks to set aside the bankruptcy notice are those found in s.40(1)(g) of the Bankruptcy Act 1966 which is in the following form:
“Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:
(g) 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.”
The claim which Mr Franks alleges that he has and was not able to raise in the original proceedings is the claim assigned to him by Windy. He argues that that claim as represented by the invoice numbered 120 and 131 together with interest thereon exceeds the judgment debt by a sum of approximately $1,000.00.
Discussion
The argument in the proceedings turned not on the validity of the assignment nor on whether there was constituted a claim which could not have been raised in previous proceedings but on the very nature of the debt allegedly owed to the company. Mr Franks in his affidavit dated 24 November 2006 at [23] states:
“[23] In or about mid 2000 the company agreed with the proprietors of the lots from time to time to maintain the common areas at the joint cost of the proprietors at the relevant times.
[24] Pursuant to the agreement the company charged fees for and incurred costs in maintaining the common areas and issued tax invoices in respect of those fees and costs to the relevant proprietors including the respondent.
[28] Pursuant to the agreement, interest on the amounts due from time to time was calculated to the daily rate equal to 12% per annum.”
Both Mr Franks and Mr Nicholson gave evidence. Mr Franks was unable to provide any details of the alleged agreement. He claimed it was an oral agreement, although it is difficult to understand with whom the agreement was made because in 2000 only 50% of the properties had been sold. Mr Franks then began to rely on the draft deed which had been sent out in February 2003 but accepted that it had not been executed by anybody. He also accepted that the letter from Mr Nicholson in 2002 denied an agreement and made specific comments about some of the items included in the first invoice (which was the only one he acknowledged he had received prior to the proceedings) which Mr Franks had not answered. Mr Franks agreed in cross examination that the dates which the invoices bore had little relationship to the dates upon which they were submitted. He acknowledged that some of the invoices bore the same invoice number even though they were different. He acknowledged that the other owners at the time had not paid these invoices. Taking into consideration these admissions and the evidence put on affidavit by Mr Nicholson, in particular the letter of 30 July 2002, I am quite satisfied that there was no oral agreement between the parties. I am equally satisfied that the letter of 30 July 2002 whilst contemplating an eventual agreement between the property owners was in no way an acceptance of the one invoice that had been received. At best it could be said that together with the payment of $3,000.00 to his solicitor Mr Nicholson was making an offer of compromise to Windy which was not accepted.
As the proceedings before me advanced the claim of an agreement receded and in its place was suggested a claim in quasi-contract or restitution. Mr Nicholson does not accept that this type of claim can necessarily be the subject of an assignment but there is a more serious objection to it for the purposes of this application. The evidence indicates that quite a substantial proportion of the monies said to have been expended by Windy were actually invoiced out to entities other than that company. Exhibit 2 is a bundle of invoices from a company called Boston Security Services Pty Limited. They are for respectively $9,235.00, $478.00, $583.00, $247.00, $7,653.00, $165.00 and $889.00 (in all cases excluding the cents). Each of these invoices is addressed to WDD Constructions Pty Ltd. A similar situation exists with a bundle of invoices that was Exhibit 3, all of which were addressed to Mr Franks and Exhibit 4 and Exhibit 5 addressed either to Mr Franks or WDD Constructions. It is clearly articulated that for a prima facie claim in restitution to be made, the elements of unjust enrichment must be satisfied: see Halsbury’s Laws of Australia at [370-190].
The elements of unjust enrichment were outlined in Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577 at 604, where Deane J opined:
“[Unjust enrichment] constitutes a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff”.
The phrase “at the plaintiff’s expense” was considered further in Kleinwort Benson v Birmingham City Council [1997] QB 380 where Evans LJ noted (at 393):
“ . . .the payee’s obligation, which is correlative to the payer’s right to restitution, is to refund or repay the amount which he has received and which it is unjust that he should keep. ‘At his expense’, in my judgment, serves to identify the person by or on whose behalf the payment was made and to whom repayment is due: compare Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105, 125E, per Goulding J., and see Birks, Introduction to the Law of Restitution, p. 132. That person, having made the payment, is necessarily out of pocket to that extent, and the defendant’s obligation is to replenish his pocket when the circumstances are such that the money should be returned.”
In the same case, Saville LJ considered the expression ‘at the payer’s expense’ was a “convenient way of describing the need for the payer to show that his money was used to pay the payee” (at 394). In Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 185 ALR 335 at 342 Gleeson CJ, Gaudron and Hayne JJ indicated that the payments should be made out of the funds of the payer in a “direct and immediate sense”.
Even if I accept for the purposes of these proceedings that Mr Nicholson as one of the joint property owners bears some responsibility for the upkeep or the roadway and the gates and that he should therefore reimburse any person who has paid or who has accepted an obligation to pay for those works the right to restitution can only be enforced by that person. No evidence has been brought before me that payments made by WDD Constructions Pty Ltd or Mr Franks himself or payments made by them responding to the invoices that are found in the exhibits, were made obligations of Windy. I was not shown cheques paid by Windy to Boston Security Services Pty Ltd or the other suppliers nor was I shown movements on loan accounts between the various parties or accounts of Windy indicating that it was a debtor of WDD Constructions or Mr Franks in respect of these payments. In the absence of such evidence I am unable to say that there is any obligation upon Windy which could sound in a claim for restitution or quasi contract against Mr Nicholson in respect of those invoices to which I have referred. I am also unable to see how a claim for restitution can be made in respect of a cleaning charge alleged to have been agreed but in respect of which I am satisfied there was no agreement, a handling fee in respect of which I am satisfied there was no agreement or interest at the rate of 12% in respect of which I am also satisfied there was no agreement. Without an agreement interest cannot be due except under an order of the court and therefore cannot form part of a restitutionary claim. So far as the cleaning is concerned the restitutionary claim could at best be the amount actually expended for cleaning and that has not been established. I am unable to see how a claim for a service fee can be constituted within the normal definition of a restitutionary claim as it was clearly not expended but added to the invoice totals.
The effect of these findings is to reduce any claim that Mr Franks may have against Mr Nicholson far below the amount of the judgment debt and therefore to take it outside of the provisions of s.40(1)(g). I am obliged to dismiss the application, which I do, and to order that the applicant pay the respondent’s costs to be taxed if not agreed according to the Federal Magistrates Court (Bankruptcy) Rules 2006.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
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