Hill v James (No 1)

[2006] FMCA 483

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HILL & ANOR v JAMES (No 1) [2006] FMCA 483

BANKRUPTCY – Preliminary matter concerning status of the parties – whether the applicants are proper parties to these proceedings or competent to bring them – whether the first applicant has assigned his debt pursuant to a personal insolvency agreement – whether second applicant should be substituted as petitioning creditor.

Bankruptcy Act 1966, ss.49, 52(1)(c), 108, 188
Federal Magistrates Court (Bankruptcy) Rules  2006, Part 4 (Rule 6(4))

Hicks v Minister for Immigration [2003] FCA 7
Zotovic v The Dobell Boat Hire Pty Limited [1985] 62 ACTR 29 at [32]
SZEEU v Minister for Immigration [2006] FCAFC 2
Morris Komesaroff v The Law Institute of Victoria [1997] 893 FCA
Australian Litigation Fund v Mearns and Anor [2005] FMCA 1727
McNamara v Langford (1931) 45 CLR 267

First Applicant: TERRY DONALD HILL

Second Applicant:	PETER DAVID RODGERS
Respondent:	DAVID ANTHONY JAMES

File Number: SYG1872 of 2005

Judgment of: Raphael FM

Hearing date: 30 March 2006

Date of Last Submission: 30 March 2006

Delivered at: Sydney

Delivered on: 30 March 2006

REPRESENTATION

Counsel for the Applicant: Mr M Aldridge SC and Mr R Glasson

Solicitors for the Applicant: Eakin McCaffery Cox

Counsel for the Respondent: Mr D Allen

Solicitors for the Respondent: Catalyst Legal

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG1872 of 2005

TERRY DONALD HILL

First Applicant

PETER DAVID RODGERS

Second Applicant

And

DAVID ANTHONY JAMES

Respondent

REASONS FOR JUDGMENT

1. These proceedings, which have been set down for a hearing of three days, commenced yesterday with an application by the respondent for me to hear a preliminary question to be tried.  The draft preliminary question was in the following form:

   “(1) It being the fact that Mr Hill has assigned his debt to Mr Rodgers that the petition presented by Mr Hill must be dismissed for Mr Hill cannot meet the requirements in section 52(1)(c) of the Bankruptcy Act and Part 4 (Rule 6(4) of the Federal Magistrates Court (Bankruptcy) Rules 2006.

   (2) The petition must be dismissed as Mr Rodgers is not a petitioning creditor.”

2. No agreement was reached as to whether that matter would be heard as a preliminary matter but argument was heard concerning the status of the applicants and it is in relation to their status that this judgment refers.  It is not strictly speaking a “preliminary issue” as a decision will not determine the whole matter.

3. The proceeding, which is an application for a sequestration order, was commenced by the presentation of a petition on 15 July 2005. At that time the applicant was Mr Hill. On 28 July 2005 Mr Hill signed an authority under s.108 Bankruptcy Act 1966 (Cth) (“the Act”) appointing Mr Rodgers his controlling trustee. On 9 September 2005 a meeting of Mr Hill's creditors took place and a resolution was passed requiring Mr Hill to enter into a personal insolvency agreement.

4. A personal insolvency agreement was entered into on 9 September 2005. Pursuant to the personal insolvency agreement and the provisions of s.188 of the Act certain property was assigned to Mr Rodgers. That property included the right to any benefit that Mr Hill might obtain from the bankruptcy of Mr James.

5. On 9 November 2005 this proceeding came before Barnes FM.  I do not have a transcript of what occurred on that day but I think it is not disputed that the question of who should properly be an applicant in the matter was raised.  Her Honour made an order that:

   “Peter David Rodgers, the trustee of the property of Terry Donald Hill, a debtor, be joined the second applicant in these proceedings.”

6. I am informed by the parties that the reason why Mr Rodgers was not substituted as the petitioning creditor for Mr Hill was because her Honour was informed by those representing Mr James, the debtor, that there was an attack being made upon the personal insolvency agreement and that such attack was likely to be heard before this proceeding came before me on 29 March.  It was therefore appropriate to leave both parties in the proceeding so that if the attack on the personal insolvency agreement was successful Mr Hill would remain the petitioning creditor; otherwise Mr Rodgers would be the petitioning creditor.  The attack on the personal insolvency agreement has not been concluded.

7. The debtor now argues that neither Mr Hill nor Mr Rodgers are proper parties to these proceedings or competent to bring them.  In the case of Mr Hill it is said that any right that he had in relation to the debt and therefore to petition for the bankruptcy of Mr James has vanished as a result of the assignment pursuant to the personal insolvency agreement. In respect to Mr Rodgers it is said that he is not a person who can be substituted as a creditor because the debt in relation to which he now petitions was not in existence at the time of the petition; McNamara v Langford (1931) 45 CLR 267.

8. In Hicks v Minister for Immigration [2003] FCA 757 French J dealt in some detail with the responsibility of courts to provide judicial comity. At [74] his Honour said:

   “I am not bound by any doctrine of precedent to apply the construction adopted by Ryan J in Ball. The position in this Court is the same as that expressed by Lord Goddard CJ (Atkinson and Lewis JJ agreeing) in Police Authority for Huddersfield v Watson [1947] 1 KB 842 at 848:

   “I think the modern practice, and the modern view of the subject, is that a judge of first instance, though he would always follow the decision of another judge of first instance, unless he is convinced the judgment is wrong, would follow it as a matter of judicial comity. He certainly is not bound to follow the decision of a judge of equal jurisdiction. "”

9. His Honour then cited Zotovic v  The Dobell Boat Hire Pty Limited [1985] 62 ACTR 29 at 32 in which Blackburn CJ said:

   “As a judge of this court I should follow a decision of another judge of the court unless there is clear reason for not following it.”

   At [75]:

   “It is well established that a judge of this court should follow an earlier decision of another judge unless of the view that it is plainly wrong; Takapana Investment Pty Limited v Teco Information Systems Co Ltd (1998) 82 FCR 25 at 33 (and other authorities there cited).”

10. This view of his Honour in relation to first instance Judges was mirrored in SZEEU v Minister for Immigration [2006] FCAFC 2 at [137-154] in relation to decisions of Full Benches of the Federal Court.

11. There have been two cases decided in recent years on the substitution of a creditor by assignment as a petitioning creditor in a bankruptcy matter.  The first is a decision of Heerey J in Morris Komesaroff v The Law Institute of Victoria [1997] 893 FCA, the second is a decision of Barnes FM in Australian Litigation Fund v Mearns and Anor [2005] FMCA 1727. Those cases were similar. In the first a debt owed to the Law Institute of Victoria became a debt payable to another organisation known as Victorian Laws RPA Limited as a consequence of the operation of the Victorian Legal Practitioners Act 1996.  His Honour said this:

    “I am satisfied that leave should be granted [to substitute creditors]. It is not to the point, as the debtor argued, that the substituted petitioning creditor was not in existence at the date of the act of bankruptcy, or indeed at the date of the petition. I am satisfied the debt was in existence and was owed by the debtor from 13 November 1992. That debt became payable to Victorian Lawyers RPA Limited on 1 January 1997 as a consequence of the operation of the Legal Practitioners Act 1996; see McIntosh v Shashoua (1931) 46 CLR 494, Growden v Wiltshire (1935) 52 CLR 286.

    It is the debt which must be owed at the date of the petition: McNamara v Langford (1935) 45 CLR 267, Hyams v Elder Smith Goldsbrough Mort Limited (1976) 133 CLR 637 at 639. But the debt need not necessarily be owed then to the party who has sought to be substituted as petitioning creditor.”

12. The judgment of Heerey J was given ex tempore.  It is argued that his Honour did not properly interpret the decision of the High Court in McNamara.  The decision in Australian Litigation Fund v Mearns, on the other hand, was a reserved decision which was clearly well researched and fully considered.  In that case the company known as the Australian Litigation Fund sought to be substituted for the original creditor Willoughby Community Preschool Incorporated as the result of a litigation funding arrangement between the parties.

13. Her Honour dealt with the argument that this substitution could not occur under the provisions of s.49 of the Act and considered McNamara v Langford.  At [47] her Honour said:

    “It was contended for ALF that the better view was that it was not necessary or appropriate to rely on s.49 of the Bankruptcy Act1966 in the present case, which was not a situation where there were two creditors in relation to two separate debts, but rather one where there had been an assignment of the one debt. In the alternative, if s.49 was the only applicable source of power to substitute the fact that the debt was not in ALF's name at the time of the act of bankruptcy should not be a bar to substitution as the debt itself was in existence at the relevant time and the assignment had validly passed all legal and other remedies and rights in relation to the same debt. It was also contended that McNamara v Longford said nothing about the situation before the Court, where there had been a change in who was entitled to the legal right to the debt and all legal and other remedies for the debt.”

At [48]:

However, it was conceded that s.49 had been interpreted in the manner contended for by the debtor in McNamara v Longford to require the substituted creditor to have a debt owed to him or her at the time of the act of bankruptcy. It was also conceded that it might be said that the application of s.49 in the present situation involved some artificiality, as it refers to substitution of ‘another’ creditor to whom the debtor is indebted. In any event, it was submitted that the appropriate power to be exercised by the Court in this case was that under the Rules to add a party whose participation was necessary or appropriate and to remove parties.”

Her Honour went on to consider the relevant authorities and the law relating to assignment before saying:

[58]

“Neither of the objections to substitution raised by the debtor are such as to persuade me either that there is no power to make the order sought or that the order sought should not be made. First, the objection that the debt to the assignee was not in existence at the time of the act of bankruptcy is a technical objection taken to substitution under s.49 based, as it is, on the authority of McNamara and Longford. McNamara v Longford is not entirely in point in the circumstances of this particular case as it involved two debts. I do not consider that it is necessary that a creditor who seeks to be substituted as petitioning creditor as an assignee of the debt on which the creditor’s petition was based must be a person to whom the debt (or some other debt) was owed at the time of the act of bankruptcy alleged in the petition. The debt relied on by ALF is the same debt as was relied on by the petitioning creditor in the creditor’s petition. The debt cannot be said not to have been in existence. There is nothing in McNamara v Longford, or in what was said by counsel for Mrs Mearns that has persuaded me that a creditor who seeks to be substituted as assignee of a debt from the petitioning creditor must at the same time have been owed a separate debt at the time of the act of bankruptcy.”

The facts of that case are so similar to those before me that I must take the decision into account.  Nothing that I have heard, as persuasively as he may have put it, from counsel for Mr James convinces me that the decision of her Honour and the decision of his Honour Heerey J are clearly wrong.  I am bound by comity to follow those decisions.

1. In the circumstances I am satisfied that if it is required I should make an order that Mr Rodgers be substituted as petitioning creditor for Mr Hill, but because of the currency of the attack upon Mr Rodgers' position as an assignee and what is now clearly a possibility that this case will not be concluded within the time allotted, I will not take that step but will retain both parties as applicants in this proceeding.  If the proceedings are adjourned, as I am informed the respondent will request, then it is appropriate that the two parties remain as applicants.  If no adjournment is granted and I come to a conclusion in the matter, I will make the substitution order at the same time as I make other orders in relation to the proceeding.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date:6 April 2006