Green v Wilden Pty Ltd - [2013] FMCA 24

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GREEN & ORS v WILDEN PTY LTD & ORS

[2013] FMCA 24

BANKRUPTCY – Application to set aside bankruptcy notice – whether set-off.

Bankruptcy Act 1966 (Cth), ss.30, 40(1), 41(7)

Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346
Green & Ors v Wilden Pty Ltd & Ors [2005] WASC 83
Green & Ors v Wilden Pty Ltd & Ors [2009] HCATrans 272
Guss v Johnstone (2000) 171 ALR 598; [2000] HCA 26
In re GEB; A Debtor [1903] 2 KB 340
Massih v Esber (2008) 250 ALR 648; [2008] FCA 1452
Wilden Pty Ltd v Green [2009] WASCA 38(S)
Wilden Pty Ltd v Green (No. 2) [2012] WASCA 34

First Applicant:

SHARYN LEE GREEN

Second Applicant:

GRAEME WILLIAM GREEN

Third Applicant:

JULIE ANN GREEN

Fourth Applicant:

WILLIAM JOSEPH GREEN

Fifth Applicant:

NORMA GLENYCE GREEN

First Respondent:

WILDEN PTY LTD

Second Respondent:

MAGENTA NOMINEES PTY LTD

Third Respondent:

TACE PTY LTD

Fourth Respondent:

SYDNEY JAMES CHESSON

Fifth Respondent:

BERT LEONARD DENBOER

Sixth Respondent:

CALLAO PTY LTD

Seventh Respondent:

BENRONE PTY LTD

File Number:

PEG 211 of 2011

Judgment of:

Lucev FM

Hearing date:

1 June 2012

Date of Last Submission:

1 June 2012

Delivered at:

Perth

Delivered on:

22 January 2013

REPRESENTATION

Counsel for the Applicant:

Mr M L Bennett

Solicitors for the Applicant:

Bennett & Co

Counsel for the Respondents:

Mr M Holler

Solicitors for the Respondents:

AustAsia Legal Pty Ltd

ORDERS

Bankruptcy Notice No. BN4785/2011 be set aside under s.30 of the Bankruptcy Act 1966 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT PERTH

PEG 211 of 2011

SHARYN LEE GREEN

First Applicant

GRAEME WILLIAM GREEN

Second Applicant

JULIE ANN GREEN

Third Applicant

WILLIAM JOSEPH GREEN

Fourth Applicant

NORMA GLENYCE GREEN

Fifth Applicant

And

WILDEN PTY LTD

First Respondent

MAGENTA NOMINEES PTY LTD

Second Respondent

TACE PTY LTD

Third Respondent

SYDNEY JAMES CHESSON

Fourth Respondent

BERT LEONARD DENBOER

Fifth Respondent

CALLAO PTY LTD

Sixth Respondent

BENRONE PTY LTD

Seventh Respondent

REASONS FOR JUDGMENT

Introduction – the present application

The present application is an application under the Bankruptcy Act 1966 (Cth)[1] to set aside, under s.30 of the Bankruptcy Act, a bankruptcy notice[2] issued in respect of a debt of $7,883.30 on 1 July 2011,[3] that debt being costs arising from an order issued by the High Court of Australia on 24 February 2010.[4]
[1] “Bankruptcy Act”.
[2] Bankruptcy Act, s.41(7).
[3] No. BN4785/2011 (“Bankruptcy Notice”).
[4] “High Court Costs Order” and “High Court Costs” respectively.
The applicants submit that the Bankruptcy Notice should be set aside, for one or more of the following reasons:
a)the debt the subject of the Bankruptcy Notice is extinguished;
b)Mr Graeme Green (the second applicant) has a set-off against the amounts claimed in the Bankruptcy Notice; and
c)the service of the Bankruptcy Notice was at the time when it was served, and in all the circumstances, an abuse of process.

Background facts and previous proceedings

Writs of summons in the Supreme Court of Western Australia were issued by the present applicants on 23 December 1991, and eventually went to trial, it appears for more than 50 days over more than 12 months, in 2003 and 2004.[5] Following an appeal from Wilden 2005 there was an application to the High Court for special leave to appeal to the High Court which resulted in the High Court Costs Order.
[5] Green & Ors v Wilden Pty Ltd & Ors [2005] WASC 83 (“Wilden 2005”).
One of the unit trusts the subject of the long running litigation, the Summerfield (1987) Unit Trust,[6] is relevant to these proceedings. By Deed of Trust dated on or about 2 July 1987, Tace Pty Ltd[7] was appointed as trustee for the Summerfield Trust.[8]
[6] “Summerfield Trust”.
[7] “Tace”.
[8] Affidavit of Graeme William Green, sworn 2 August 2011, para.5 and attachment GWG-3 (being a copy of the Deed of Trust for the Summerfield Trust) (“Mr Green’s Affidavit”).
On or about 28 July 1987 Mr Graeme Green purchased and was issued with 300 units in the Summerfield Trust.[9] On or about 9 November 1990, and pursuant to the terms of the Summerfield Trust Deed, Mr Graeme Green lodged a request for repurchase of all of the units that he held in the Summerfield Trust with Tace.[10] No agreement was reached between Tace and Mr Graeme Green in relation to the repurchase value of each of the units that Mr Green held in the Summerfield Trust.[11] Subsequently, a valuation of Mr Graeme Green’s units in the Summerfield Trust was undertaken by a Mr Robert Richmond. As determined by Mr Richmond in his report dated 1 October 1992, the units were valued at $1,291.23 per unit,[12] plus any distributions made by the Summerfield Trust.[13] Notwithstanding Mr Richmond’s valuation there was still no agreement in relation to the repurchase value of the units in the Summerfield Trust, and the litigation mentioned above[14] ensued.[15]
[9] Mr Green’s Affidavit, attachment GWG-5.
[10] Mr Green’s Affidavit, para.8.
[11] Mr Green’s Affidavit, paras.9-11.
[12] “Unit Repurchase Value”.
[13] Mr Green’s Affidavit, attachment GWG-6 (“Mr Richmond’s Report”).
[14] See para.3 above.
[15] Mr Green’s Affidavit, para.12 and, in relation to the litigation, at paras.13-23.
Orders which seemingly finalised the long running litigation between the applicants and respondents were made by:
a)the Supreme Court of Western Australia Court of Appeal[16] on 6 July 2009;[17] and
b)the High Court of Australia on the dismissal of an application for special leave to appeal to the High Court on 14 October 2009,[18] and on 24 February 2010 when the respondents obtained the High Court Costs Order in their favour.
[16] “Court of Appeal”.
[17] “Court of Appeal Proceedings”.
[18] Green & Ors v Wilden Pty Ltd & Ors [2009] HCATrans 272.
On 28 April 2011, the respondents obtained a certificate of taxed costs against the applicants in the Court of Appeal Proceedings for the amount of $63,124.52.[19]
[19] “Court of Appeal Costs”.
Orders 5-10, 11, 13 and 14 of the orders made on 6 July 2009 in the Court of Appeal Proceedings concern payment for the repurchase of units in various trusts, including the Summerfield Trust, and for the costs of the trial and the Court of Appeal Proceedings. Those orders are as follows:
5.The respondents are entitled to be paid for their units the amount determined by reference to the relevant applicable current repurchase value (less any deductions for stamp duty and other disbursements properly incurred by the relevant trustee upon or in respect of the repurchase).
6.The respondents are entitled to be paid:
(a)the amount (if any) paid or credited as having been paid by way of income distribution to holders of units in the trust in which they hold units from the date of the repurchase request until the cancellation or transfer of the units to or at the direction of the trustee; and
(b)interest on the amounts referred to in (a) accruing at the rate the funds would have earned if invested in an interest-bearing deposit with the banker to the trust.
7.If upon the determination of the amounts owing under orders 2(b) and (c), 5 and 6:
(a)a net amount is payable to a respondent(s), then on payment of the net amount the respondent(s) shall transfer their units to or at the direction of the relevant trustee;
(b)a net amount is payable by a respondent(s), they shall forthwith transfer their units to or at the direction of the relevant trustee.
8.The trustee of the Balga Bazaar Unit Trust (the Balga Trust) shall:
(a)ascertain the funds received by Wilden Pty Ltd (Wilden) as trustee of the Balga Trust for the purported issue of units referred to in orders 4.3 and 4.4 of the judgment of Hasluck J on 9 August 2005;
(b)ascertain the moneys paid or credited as having been paid by way of capital distribution or income distribution to the purported holders of the units referred to from the date such units were purportedly issued until the date of these orders; and
(c)thereafter set off against the sum found to have been received by Wilden under order 8(a), the funds found to have been credited or paid by way of capital distribution or income distribution to the purported unit holders under order 8(b) (the net sum).
9.The net sum is payable to the relevant person(s) within 10 days from the date of its determination under order 8.
10.If the parties are unable to agree upon the amounts payable by the respondents to the appellants or by the appellants to the respondents or by the appellants to other appellants as the case may be pursuant to orders 5, 6 and 8, then:
(a)leave be granted to the appellants and the respondents (or any of them), to apply to a single judge of this court for an order that there be mediation with respect to such matters as the parties are unable to agree; and that
(b)in the absence of agreement (either before or consequent upon mediation) an account be taken before a registrar of this court for the purpose of determining those matters.
11.Payment of any amount payable by any of the appellants (defendants) to any of the respondents (plaintiffs) determined in accordance with the foregoing orders be stayed until the appellants’ costs of the appeal and of the action have been taxed or agreed, and the taxed or agreed costs set off (as the appellants see fit) against any amount payable to any respondent, so that only the balance (if any) after such set off will be payable.
13.The first and second plaintiffs do pay to the defendants the costs of the action and the counterclaim to be taxed as a single bill. The third plaintiffs shall be jointly and severally liable to the defendants for 25% of the said taxed costs. The defendants are entitled to:
(a)a certificate for second senior counsel;
(b)all reserved costs;
(c)transcript fees;
(d)expert witness fees; and
(e)the costs of preparing the defence and counterclaim, discovery and inspection, and getting up the case for trial without regard to any limit imposed by any applicable scale.
14.The first and second respondents do pay to the appellants 80% of the costs of the appeal to be taxed as a single bill. The third respondent shall be jointly and severally liable to the appellants for 25% of the said taxed costs. The appellants are entitled to a certificate for second counsel.[20]
[20] The orders (“Court of Appeal Orders”) appear in Wilden Pty Ltd v Green [2009] WASCA 38(S) and in the Affidavit of Dalitso Banda, sworn 4 October 2011, attachment DB-1 (“Mr Banda’s First Affidavit”).
On 13 July 2011 the applicants were served with the Bankruptcy Notice.
Following service of the Bankruptcy Notice, the applicants sent a letter dated 20 July 2011 to the respondents by which Mr Graeme Green purported to set-off amounts owed to him by the third respondent, Tace, as trustee for the Summerfield Trust.[21] The set-off was said to be for monies owing on account of the Unit Repurchase Value.
[21] Mr Green’s Affidavit, attachment GWG-9 (“Set-Off Letter”).
The respondents asserted that the applicants were not entitled to the set-off claimed by Mr Graeme Green, and that paragraph 11 of the Court of Appeal Orders entitled the respondents to elect whether or not to accept the set-off claimed by Mr Graeme Green.[22] This was disputed by the applicants.
[22] See affidavit of Sydney James Chesson, sworn 20 September 2011 (“Mr Chesson’s First Affidavit”) at paras.7 and 8; Mr Green’s Affidavit, attachment GWG-12.
On 20 February 2012 the Court of Appeal delivered judgment in Wilden Pty Ltd v Green (No. 2).[23] The Court of Appeal found that the respondents’ interpretation of the Court of Appeal Orders was wrong, and made supplementary orders.[24] The Court of Appeal Supplementary Orders stayed the payment of the Court of Appeal Costs and the trial costs in the Supreme Court of Western Australia, until a determination was made in accordance with Orders 5-10 of the Court of Appeal Orders.[25] The reasons for the Court of Appeal making that stay order were as follows:
7. On an objective construction of the orders, it is clear that the stay in Order 11 is predicated on the assumption that the trustee appellants would act within a reasonable time to identify the amounts payable to the respondents in accordance with Orders 5 - 10.
8 As appears from the affidavit of Mr Chesson sworn on 16 December 2011 (par 8.1.3), he mistakenly construed Order 11 as staying Orders 1 - 10 until such time as the costs in the appeal and in the trial were determined. The same misunderstanding is echoed in the appellants' written submissions (par 11.2). The stay in Order 11 does not in terms or effect relieve the trustee appellants of their duties to calculate the moneys owed to the respondents the subject of Orders 5 - 10. The stay is confined to payment of those entitlements.
9 Thus a situation has arisen in which the objectively determined intention of the court orders has been undermined by the failure of the trustee appellants to act in a timely fashion to determine the amounts owed to the relevant respondents. As a result, the respondents are prejudiced by the stay in a way that was never intended. The court ordered liberty to apply generally because of the obvious potential for difficulties in implementing and giving effect to the relief. That is what has occurred in this case. In those circumstances, the court has jurisdiction to grant the relief sought by the respondents: Cameron v Renouf [2008] WASC 60 [28] - [32].[26]
[23] [2012] WASCA 34 (“Wilden (No. 2)”).
[24] Wilden (No. 2) at para.10 per McLure P, Pullin and Newnes JJA (“Court of Appeal Supplementary Orders”).
[25] Wilden (No. 2) at paras.7, 8, 9 and 10 per McLure P, Pullin and Newnes JJA.
[26] Wilden (No. 2) at paras.7, 8 and 9 per McLure P, Pullin and Newnes JJA.
By letter dated 20 February 2012 the respondents asserted that the judgment in Wilden (No. 2) did not relieve or otherwise affect the applicants’ liability for the High Court Costs.[27]
[27] See affidavit of Dalitso Banda, sworn 21 February 2012, attachment DB-4 (“Mr Banda’s Second Affidavit”).
The respondents submit that there was no value in any matter relating to the Supreme Court orders that would provide any off-set to the costs in the High Court Costs order.

Applicant’s submissions

Extinguishment of debt

The applicants submit that the effect of the Set-Off Letter was to set-off in full the amount demanded in the Bankruptcy Notice against the amount owed to Mr Graeme Green by Tace as trustee for the Summerfield Unit Trust. As a result of the set-off applying the applicants say that the debt the subject of the Bankruptcy Notice was extinguished, and the Bankruptcy Notice should have been withdrawn immediately upon notice of the set-off. The applicants say that the debt the subject of the Bankruptcy Notice no longer exists, and on this basis alone the Bankruptcy Notice should be set aside.

Set-off

The applicants also claim that they have not committed an act of bankruptcy on the basis that the applicants have a set-off amount equal to or exceeding the amount of the debt the subject of the Bankruptcy Notice, which, and this is common ground,[28] could not have been set up in the proceedings in which the debt was obtained.[29] Accordingly, the Bankruptcy Notice in respect of the costs of the High Court Proceedings should be set aside on the basis of that set-off.
[28] Transcript, p.9.
[29] Bankruptcy Act, s.40(1)(g); Massih v Esber (2008) 250 ALR 648; [2008] FCA 1452 (“Massih”).

Abuse of process

The applicants also claim that, if on the proper construction of paragraph 11 of the Court of Appeal Orders, the entitlement to set-off payments payable in respect of unit entitlements by Tace does not arise until the trial costs have been taxed and determined, so that the aggregate of the trial and appeal costs are to be then set-off against the amount owed by Tace to Mr Graeme Green, and so that only the balance (if any) is payable after the set-off, the respondents’ conduct in issuing and serving the Bankruptcy Notices prior to the taxation of the trial costs is an abuse of process.

Court of Appeal Supplementary Orders

The applicants submit that the effect of the Court of Appeal Supplementary Orders is to stay the payment of the Court of Appeal Costs, as well as the trial costs in the Supreme Court of Western Australia, until a determination is made of the amounts payable under orders 5-10 of the Court of Appeal Orders. The applicants submit that the consequence of the stay is that whatever costs are payable in relation to the litigation before the Court of Appeal and the Supreme Court of Western Australia, those costs are, therefore, not presently payable.

Respondents’ submissions

The respondents submit that the question is whether the applicants have at the date of the hearing satisfied the Court that their claimed set-off is equal to or exceeding the debt the subject of the Bankruptcy Notice.[30]
[30] Citing In re GEB; A Debtor [1903] 2 KB 340 at 348-349 per Vaughan Williams LJ (“Re GEB”); Guss v Johnstone (2000) 171 ALR 598 at 607 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ; [2000] HCA 26 at para.43 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ (“Guss”).
The respondents submit that on the current state of the evidence the costs allocator from the Supreme Court for costs in the sum of $568,678.38,[31] for which Mr Graeme Green is 80% responsible,[32] being $454,942, means that there is no sufficient set-off demonstrated by Mr Graeme Green to extinguish the debt the subject of the Bankruptcy Notice.

Consideration

[31] Exhibit 1.

[32] Court of Appeal Orders, Order 14.

Legislation

Section 41(7) of the Bankruptcy Act provides as follows:
(7) 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.
Section 40(1) of the Bankruptcy Act provides as follows:
(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) …
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 nature of the exercise in which the Court is involved is set out in Guss where the High Court said:
38 The nature of the exercise upon which Sundberg J was engaged is well established by a long line of authority.
39 In Vogwell v Vogwell, Latham CJ said, in relation to a corresponding provision:
"[T]he authorities show that the matter to which the court looks is this, - whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate."
40 The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.[33]
[33] Guss ALR at 606 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ; HCA at paras.38-40 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ.

In Ebert v The Union Trustee Company of Australia Limited[34] the High Court said:
… section 52 (j) makes it necessary that a debtor served with a bankruptcy notice, if he does not comply with its requirements, should satisfy the Court of Bankruptcy that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt. The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. "Cross demand" is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out … Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.[35]
[34] (1960) 104 CLR 346 (“Ebert”).
[35] Ebert CLR at 350 per Dixon CJ, McTiernan and Windeyer JJ.
Re GEB cited by the respondents does not assist in resolving this matter. This matter is to be resolved by application of the relevant Bankruptcy Act provisions, as interpreted by the High Court,[36] to the facts found by the Court.
[36] See paras.21-24 above.

Conclusion

The Court must ascertain whether, as at the date of the hearing, the applicant had a set-off against the amount of the High Court Costs Order which could not have been set up in the High Court Costs proceedings.
The facts, when boiled down, are within a remarkably short compass, namely that:
a)the High Court Costs Order is for an amount of $7,833.30;
b)as Mr Graeme Green holds 300 units in the Summerfield Trust, Tace owes Mr Graeme Green at least $387,369, plus any distributions from the Summerfield Trust in respect of his unit entitlement, and interest on the unpaid repurchase since 1992, and he has sought to set that sum off against the High Court Costs Order;
c)the Court of Appeal Supplementary Orders stayed the payment of the Court of Appeal Costs, and the trial costs in the Supreme Court of Western Australia, until a determination is made of the amounts payable under orders 5-10 of the Court of Appeal Orders, with the consequence that whatever those costs are, they are not presently payable; and
d)the applicants could not have set up their set-off in the taxation of the High Court Costs. No other proceeding or application for a set-off would have been able to be considered by the assessor of costs during the taxation of the High Court Costs.[37]
[37] Massih; Bankruptcy Act, s.40(1)(g).
The net effect of those short facts is that as at the date of the hearing to set aside the Bankruptcy Notice, Mr Graeme Green was owed $387,369 by Tace, which he was entitled to set-off against the High Court Costs Order, and which could not have been set up in the taxation of the High Court Costs.
There being an available set-off in an amount which far exceeds the amount of the debt owed by reason of the High Court Costs Order and set out in the Bankruptcy Notice, it follows that no act of bankruptcy was committed, and that the Bankruptcy Notice ought to be set aside, and there will be an order accordingly.[38]
[38] Bankruptcy Act, s.40(1)(g).
There being an available set-off such as to warrant a setting aside of the Bankruptcy Notice, it is unnecessary to deal with the other bases suggested by the applicant for a setting aside of the Bankruptcy Notice.
The Court will hear the parties as to costs.

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Lucev FM

Date: 22 January 2013