Khera v Jones
[2007] FMCA 1453
•24 August 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KHERA v JONES | [2007] FMCA 1453 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – whether counter-claim, set-off or cross-demand equal to or exceeding amount claimed in Bankruptcy Notice – assignment of debt. |
| Bankruptcy Act 1966, ss.40(1)(g), 41(6A), 41(7) |
| Ebert v Union Trustee Co. Australia Ltd (1960) 104 CLR 346 |
| Applicant: | JASWANT KHERA |
| Respondent: | IAN DURSTON JONES |
| File number: | SYG 3246 of 2005 |
| Judgment of: | McInnis FM |
| Hearing date: | 14 December 2006 and 25 January 2007 |
| Date of last submission: | 29 January 2007 |
| Delivered at: | Melbourne (and by video link to Sydney) |
| Delivered on: | 24 August 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr P Hill |
| Solicitors for the Applicant: | Jaswant Khera |
| Counsel for the Respondent: | Mr B Skinner |
| Solicitors for the Respondent: | Macquarie Legal Practice |
ORDERS
The Application as amended be dismissed.
The Applicant Debtor pay the Respondent Creditor's costs of and incidental to the application, including reserved costs if any, to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
Liberty to apply within 7 days is granted to the parties.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3246 of 2005
| JASWANT KHERA |
Applicant
And
| IAN ROBERT DURSTON JONES |
Respondent
REASONS FOR JUDGMENT
Jaswant Khera (the Applicant Debtor) relies upon an Amended Application filed 30 November 2005 seeking to set aside a Bankruptcy Notice issued 13 October 2005 (the Bankruptcy Notice) by Ian Robert Durston Jones (the Respondent Creditor).
The Bankruptcy Notice claims that the Applicant Debtor owes the Respondent Creditor the sum of $19,614.00. The Bankruptcy Notice annexes a certificate of judgment from the local court at Sydney wherein it appears that the Respondent Creditor was the plaintiff who recovered judgment against the Applicant Debtor who was the defendant on 5 May 2005 "in the sum of $19,614."
The proceedings have had a somewhat chequered history. Initially an application was filed by the Applicant Debtor on 7 November 2005 on what appears to be a pro forma application wherein the Applicant Debtor had ticked the box which reads, "Application under sections 30, 41(6A) Bankruptcy Act." The initial application was supported by an affidavit of the Applicant Debtor sworn 7 November 2005 where, in part, the Applicant Debtor deposes that he was served with the Bankruptcy Notice on 26 October 2005. In that affidavit the Applicant Debtor deposed “I have applied to set aside the judgement being legal costs assessed by a costs assessor.”
The Applicant Debtor annexed to the first affidavit a copy of an application in the Supreme Court of New South Wales entitled, "SUMMONS FOR LEAVE TO APPEAL" dated 4 June 2005.
When the application came before a Registrar of the Court on 7 November 2005 an order was made that the time for compliance by the Applicant Debtor with the requirements of the Bankruptcy Notice be extended up to and including Tuesday 15 November 2005. A notice of appearance was filed by the Respondent Creditor on 11 November 2005.
The Applicant Debtor filed a further affidavit sworn 21 November 2005 in support of the application and in part stating:
“3. I am confident that I will be successful in my said application before the Court of Appeal.”
That affidavit perhaps somewhat unhelpfully attached what are described to be "a bundle of relevant documents consisting of 222 pages marked "JK Exhibits". It is not necessary to refer to that document in further detail. However, I note in passing that it was no doubt filed pursuant to orders made by a registrar on 15 November 2005 adjourning the application to 29 November 2005 and extending the time for compliance accordingly together with orders in relation to affidavits.
On 29 November 2005 the application came before a Federal Magistrate who on that day made orders in the following form:
“1. The application filed on 7 November 2005 is dismissed.
2.Order 1 will take effect at 5.00pm on 30 November 2005.
3.The applicant has leave to amend the application in order to seek relief pursuant to s.41(7) of the Bankruptcy Act 1966 (Cth).
4.Time for compliance with the bankruptcy notice is extended until the expiration of 30 November 2005, pursuant to s.41(6A) of the Bankruptcy Act 1966 (Cth).
5.An application under s.41(7) of the Bankruptcy Act 1966 (Cth), if filed, is to be listed for hearing at 2.15pm on 30 January 2006.
6.Any further affidavit evidence on which the applicant wishes to rely is to be filed and served on the respondent no later than 20 January 2006.
7.Any further affidavit evidence on which the respondent wishes to rely is to be filed and served on the applicant no later than 27 January 2006.”
The Amended Application now sought to be relied upon was filed on 30 November 2005 pursuant to the orders of the Federal Magistrate. It is clear that the Amended Application seeks to rely upon s.41(7) of the Bankruptcy Act 1966 (the Bankruptcy Act) which relevantly provides:
“41(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.”
The Amended Application now relied upon states the following:-
“Application to set aside Bankruptcy Notice on the basis:
(i)of a counter-claim, set-off or cross-demand;
(ii) that could not be set up in the original action; and
(iii) is equal to or exceeding that amount claimed in the Bankruptcy Notice.”
The basis upon which the learned Federal Magistrate dismissed the application in it's original form, in part, no doubt arises from a notice of intention to oppose application which had been filed by the Respondent Creditor on 15 November 2005 which in general terms challenged the reliance then in the original application by the Applicant upon principally s.41(6A) of the Bankruptcy Act.
The Applicant Debtor relied upon an affidavit sworn by him on 29 November 2005 (Exhibit A3) (the 29 November affidavit).
Although not relied upon at trial, the Applicant also filed and served affidavits sworn 20 January 2006 and 30 January 2006.
When the matter came before the Federal Magistrate on 30 January 2006, orders were made understandably and appropriately referring the parties to mediation. Regrettably mediation did not resolve the differences between the parties who are both lawyers and appear to have spared little or no expense in pursuing litigation.
I do note in passing however, that the mediation was adjourned due to the illness of one of the parties and after some months the mediation process was exhausted. This occurred by about July 2006.
On 14 August 2006 a Federal Magistrate made the following orders:
“1.The Court directs that the matter be listed for hearing at 10.15am on 1 November 2006.
2.The applicant is to file and serve on the respondent any further affidavit evidence no later than 11 October 2006.
3.The respondent is to file and serve on the applicant any affidavit evidence in reply no later than 25 October 2006.
4.The applicant is to file and serve on the respondent any outline of written submissions not less than 14 days before the final hearing date.
5.The respondent is to file and serve on the applicant any outline of written submissions not less than 7 days before the final hearing date. A copy of any written submissions is also to be e-mailed to my associate.
6.Costs of today are reserved.”
Pursuant to the orders of the court made on 14 August 2006 the Respondent Creditor filed part 1 and part 2 of submissions on 31 October 2006 together with a list of authorities which were relied upon in the proceedings before this court.
The Applicant filed, though does not now seek to rely upon, a further affidavit sworn 31 October 2006. That affidavit provided evidence which was relied upon in order to seek a further adjournment and on 1 November 2006 orders were made by the court as follows:
“1.The matter be adjourned for further directions and/or hearing at 9.30am on 8 December 2006.
2.The applicant file and serve on the respondent an outline of written submissions in support of his application no later than 4 December 2006 together with any further affidavit evidence he wishes to rely on.
3.In default of compliance with order 2 the respondent has liberty to apply for summary dismissal of the application or the appointment of a litigation guardian, such application to be filed and served no later than 5 December 2006 and made returnable on 8 December 2006.
4.The respondent has liberty to apply for an order for costs thrown away by reason of today’s adjournment, such application is to be made returnable on 8 December 2006.”
The Applicant Debtor filed submissions on 4 December 2006 which are now relied upon in these proceedings.
Due to the illness of the Federal Magistrate another Federal Magistrate on 8 December 2006 adjourned the proceedings to 14 December 2006.
As a result of the continuing illness of the presiding Federal Magistrate the matter was listed before me on 14 December 2006 and on that day the court heard submissions from the parties and then made further orders as follows:
“1.Leave is granted to the applicant to file and serve any further affidavits and/or submissions in relation to Exhibits R1, R2 and R4 on or before 22 December 2006.
2.Leave is granted to the respondent to file and serve any affidavits and/or submissions in reply and submissions in relation to Exhibit A4 on or before 12 January 2007.
3.The decision shall be reserved upon receipt of the respondent’s further affidavits or submissions or otherwise shall be reserved on 15 January 2007.”
On 14 December 2006 the court also made directions that the time for compliance with the Bankruptcy Notice be extended until judgment is delivered or by further order of the court. A transcript of that proceeding was obtained by the court and made available for inspection by the parties.
It is noted that at the hearing on 14 December 2006 the Applicant Debtor relied upon affidavits sworn by him on 4 December 2006 (Exhibit A1) and 13 December 2006 (Exhibit A2).
The affidavits relied upon by the Respondent Creditor in date order are as follows:
(1) Affidavit sworn 14 November 2005 (Exhibit R1)
(2) Affidavit sworn 23 November 2005 (Exhibit R2)
(3) Affidavit sworn 7 December 2006 (Exhibit R5)
(4) Affidavit sworn 14 December 2006 (Exhibit R6)
(5) Affidavit sworn 27 January 2006 (Exhibit R3)
(6) Affidavit sworn 29 January 2006 (Exhibit R4)
A further hearing by audio-link was conducted by the court on 25 January 2007. On that date the following orders were made:
“1.The Applicant be granted leave to file and serve material annexed to facsimile transmissions dated 12, 14 and 15 January 2007.
2.The Respondent be granted leave to file and serve the Affidavit of Damian Gavin sworn 17 January 2007 with service to be effected by Monday, 29 January 2007.
3.Thereafter the Courts decision will be reserved.
4.Costs of this mention be reserved.”
The affidavit of Damien Gavin sworn 17 January 2007, although served and filed, for reasons which will become apparent did not appear in my view to be significant, and although the court has recited material relied upon by the parties, it should be stressed that not all the material is particularly relevant.
The affidavit of Mr Gavin appeared to respond to an affidavit of the Applicant sworn 12 January 2007, and the Applicant then also sought to rely upon supplementary submissions dated 14 January 2007.
The facsimile transmissions dated 12, 14 and 15 January 2007 which were referred to in the orders of the court of 25 January 2007 are the following:
1.Affidavit of applicant referred to above sworn 12 January 2007 forwarded by facsimile transmission with annexure "A" being a letter dated 11 January 2007 from the Applicant Debtor to the solicitors for the Respondent Creditor.
2. The supplementary submissions referred to earlier of the Applicant Debtor dated 14 January 2007.
3. A covering letter annexing a copy letter dated 15 January 2007 from the Applicant Debtor to the solicitors for the Respondent Creditor.
I permitted the parties to either file and serve and/or rely upon additional material out of an abundance of caution, but for reasons which will become apparent most of that material is irrelevant to the issue to be determined by the court.
I have deliberately set out in some detail the chronology of events as it is clear there has been significant delay in this matter and in part the delay has arisen as a result of the state of the material relied upon by the parties and the somewhat disjointed nature of the proceedings, in part due to factors beyond the control of the parties.
The Issue
The issue in this application is whether there is a basis to set aside the Bankruptcy Notice issued by the Respondent Creditor against the Applicant Debtor pursuant to s.41(7) of the Bankruptcy Act on the basis that the debtor has a counterclaim equal to or exceeding the amount claimed in the Bankruptcy Notice.
Background
The background set out in the affidavit material of the parties leading to the issuing of the Bankruptcy Notice does not appear to be in dispute. The judgment which is the basis of the Bankruptcy Notice arose from costs orders made by a District Court Judge on 15 March 2002 and by another judge of the District Court on 24 April 2003 in District Court proceedings between the parties, both of whom as indicated earlier are lawyers.
The Bankruptcy Notice issued on 13 October 2005 claims a total debt owing of $19,614.00. Annexed to the Bankruptcy Notice is a certificate of judgment certifying that the Respondent Creditor obtained judgment against the Applicant Debtor on 5 May 2005 in the sum of $19,614.00.
There is no dispute that the amount of the debt claimed in the Bankruptcy Notice remains outstanding. As indicated earlier the Applicant Debtor seeks to set aside the Bankruptcy Notice pursuant to s.41(7) of the Bankruptcy Act.
The Applicant Debtor's claim appears to be based on purported assignments of a judgment debt owed to his wife Gita Jess Khera (Gita Khera) (the First Deed).
The first assignment of debt dated 28 November 2005 appears as an annexure to the affidavit of the Applicant Debtor sworn 29 November 2005 (Exhibit A3).
It is noted that the First Deed appears to have been executed approximately one month after the Bankruptcy Notice was issued and served. The First Deed is referred to in the affidavit of the Applicant Debtor sworn 29 November 2005 in the following terms,
“2.On 28 November 2005 I received the benefit of an assignment from Gita Jess Khera (‘Gita’) of a judgment debt owed to her including interest accruing thereon in the sum of $10,000.00 being part of the costs owed by Ian Robert Durston Jones, the respondent herein, in proceedings in the Local Court Downing Centre, Civil Claims file no. 10280/93.”
The Local Court proceedings by Gita Khera against the Respondent Creditor in these proceedings amongst other things is referred to in the recitals of the First Deed which include,
“A.On 22 May 2001, The Assignor obtained a judgment order against Ian Robert Durston Jones (hereinafter referred to as ‘Mr Jones’) in the Local Court at Downing Centre in the sum of $29,552.29 (annexure ‘A’ hereto) in relation to proceedings number 10280/93.
B.In relation to the said Local Court proceedings, Mr Jones was also ordered to pay the Assignor’s costs. On or about 10 October 2005, The Assignor has served a bill of costs on Mr Jones in relation to the said Local Court proceedings in the sum of $56,191.43 and these costs are presently being assessed by an Assessor.
C.Mr Jones has been paying $400.00 per month to the Assignor since about May 2002 towards the said judgment order.
D.Interest on the said judgment order continues to accrue.
E.The Assignee has from time to time, since about 2001, been advancing money to the Assignor.”
The First Deed then provides as follows:
“THIS DEED WITNESSES:
1.In consideration of the Assignor having advanced money to the Assignee as referred to in recital E above, the Assignor hereby assigns and transfers to the Assignee the balance of the judgment order referred to in recital A above and $10,000.00 of the costs referred to in recital B.”
The parties to the First Deed appear to have executed the Deed in the presence of "Mrs M Jones."
In relation to First Deed, the Applicant Debtor in his affidavit sworn 29 November 2005 further deposes as follows:
“3.Annexed hereto and marked ‘A’ is a copy of a letter dated 28 November 2005 from Gita to the respondent giving notice of the assignment. Annexed hereto and marked ‘B’ is a copy of a deed of assignment of the said judgment debt, interest accruing thereon and $10,000.00 from the costs entitlement.
4.I served a copy of the said letter by delivering it to the solicitors for the respondent, Macquarie Legal Practice, 17th floor, 68 Pitt Street, Sydney, on 28 November 2005 at approximately 5.00 pm.
5.The respondent caused the bankruptcy notice to be served on me which is the subject of a pending application to have it set aside in these proceedings. At the time the bankruptcy notice was served and when my application to set it aside was first filed I did not have the right to enforce recovery of the said judgment debt interest and costs.
6.The said judgment debt is the subject of an order for payment by instalments at the rate of approximately $00 per month. However, the residual unpaid judgment debt, accrued interest and the $10,000.00 costs would comfortably exceed the sum of $19,614.00 claimed in the said bankruptcy notice. I seek to set off the said debt assigned to me against the amount claimed in the bankruptcy notice.
7.I now intend to take steps to enforce payment of those amounts in my own right and propose to forthwith begin proceedings to obtain a declaration that I am the party now entitled to enforce those rights, absent an admission by the respondent that he is liable to pay those sums to me.
8.In the circumstances I seek to amend my application to set aside the bankruptcy notice to include a further ground, namely that I have a counter-claim, set-off or cross demand exceeding the amount claimed in the bankruptcy notice as is referred to in paragraph 40(1)(g) of the Bankruptcy Act. I also seek an extension of the time for compliance with the bankruptcy notice until after I have been able to obtain the said declaration or otherwise satisfy a Court of competent jurisdiction as to my entitlement to enforce such a counter-claim, set-off or cross demand.”
There are a number of observations which may be made in relation to the First Deed. First, it is observed that the witness to the Deed was not called to give evidence and nor was any affidavit provided. Secondly, the assignor was not called to give evidence, and nor was any affidavit provided by the assignor. It is also noted that the recitals whilst referring to a claimed payment of $400.00 per month to the assignor "since about May 2002 towards the said judgment order" by Mr Jones does not otherwise seek to provide a total of those payments. The recitals do not seek to specify interest claimed to be on "the said judgment" which it is asserted "continue to accrue" nor are any details provided as to the money purportedly advanced by the assignee "from time to time since about 2001" advanced allegedly to the assignor.
The letter dated 28 November 2005 from Gita Khera to the Respondent Creditor simply states,
“Take Notice that on 28 November 2005 I have assigned the balance of the above judgment debt, interest accruing and $10,000.00 towards costs to Jaswant (Jess) Khera.
I enclose a copy of the Deed of Assignment of Debt for your conference.”
It is further observed that the affidavit of the Applicant Debtor dated 29 November 2005 annexing the First Deed, post-dated the filing and service of the application to set aside the Bankruptcy Notice which as indicated earlier in this judgment had initially referred to what might be described as the wrong provisions sought to be relied upon under the Bankruptcy Act. The First Deed was entered into after the application to set aside the Bankruptcy Notice and it should be noted, after a further affidavit sworn 21 November 2005 had been filed by the Applicant Debtor in this court. That affidavit did not refer to any assignment of debt but rather referred to the proceedings involving the Respondent Creditor and Gita Khera and otherwise made assertions concerning what may happen in the event that the Applicant Debtor succeeded in proceedings before the Court of Appeal of the Supreme Court of New South Wales. The affidavit of the Applicant Debtor though not read or tendered before this court appears on the Court file and as noted earlier includes Exhibits comprising 222 pages which mainly appear to be correspondence between the parties.
It is noted that the Applicant Debtor filed an affidavit sworn by him on 20 January 2006 though again, apart from making reference to that affidavit in affidavits tendered before this court, did not otherwise rely upon the affidavit. The affidavit of 20 January 2006 referred to pending proceedings in the New South Wales Court of Appeal and concerns of the Applicant Debtor regarding recovery of the amount then required to be paid to the Respondent Creditor. Reference was again made to the First Deed. I refer to his affidavit simply as part of the chronology and do not otherwise rely upon it save to note that the Respondent Creditor appears to have addressed that affidavit in his affidavit sworn 27 January 2006 (Exhibit R3). It is that affidavit which for the first time appears to address the question of the First Deed. Curiously it deposes as follows:
“2.Annexed hereto and marked ‘A’ is a copy of a letter dated 24 January 2006 forwarded to the Assignor of the Deeds of Assignment dated 28 November 2005 and 19 January 2006.”
It will be noted from that paragraph that the deponent refers to a letter dated 24 January 2006. The letter marked as annexure "A" I note appears to be incorrectly dated “24 January 2005” and has been assumed by the deponent to be dated “24 January 2006”. That is obviously a correct assumption given that the letter refers to correspondence dated “29 November 2005” which was “received on 3 December 2005.” In the letter of 24 January 2005 the Respondent Creditor states:
“I note your claim that on 28th November 2005 you sent me via ordinary mail a Notice of Assignment of the balance of the judgment debt in the above proceedings, and a copy of the (Deed of) Assignment of Debt. I never received this letter and its enclosed documents despite it being correctly addressed. I do not believe that this letter was sent.
Your letter dated 29th November last did however include a copy of the Notice of Assignment which you had signed again in original blue pen. Accordingly I acknowledge receipt of that Notice on 3rd December 2005 and accept it as including your original signature.”
Whilst the extract in the letter set out above refers to a copy of what I take to be the First Deed, I could not identify any deed of assignment bearing a date "19 January 2006" and nor does the Applicant Debtor assert that there is in existence a Deed of that date.
Nonetheless the Respondent Creditor in his affidavit sworn 27 January 2006 (Exhibit 3) does take issue with a document which appeared to be exhibited to the affidavit of the Applicant Debtor sworn 20 January 2006 which I note was not an affidavit relied upon in these proceedings. The Exhibit marked annexure "JK10" appears to be a letter dated 5 January 2006 addressed to the Respondent's firm of solicitors from the Applicant Debtor enclosing what is described as, "a copy of the spreadsheet containing all the relevant information in relation to the payments made by Mr Jones to Gita Khera and the balance due in connection with the judgment delivered by Magistrate Stapleton on 22 May 2001." The letter goes on to state, "You will note that the balance due is $24,805.15" The author then asks the recipient of the letter to advise "if there are any errors or omissions". The letter dated 5 January 2006 from the Applicant Debtor to the Respondent's firm then relevantly states:
“Please ensure Mr Jones makes all future payments to me and not to Gita Khera.”
It is that spreadsheet enclosed with the letter that the Respondent Creditor in his affidavit of 27 January 2006 (Exhibit R3) takes issue, and specifically deposes:
“3.In relation to the Spreadsheet submitted by the debtor marked ‘JK 10’ I say that the debtor has incorrectly prepared the schedule and spreadsheet as he has claimed interest on interest by adding further interest to the interest component of $13,684.24 granted in the 22 May 2001 Local Court judgment in addition to interest on the principal component of $15,868.05.”
In the same affidavit the Respondent Creditor annexes what is described as a copy of the Mortgage of Professional Man's Practice dated 4 March 2003 which the deponent claims was the document, "on which the said Local Court judgment is based." Reference was made to clause 1 of the mortgage described as "a covenant requiring payment of the principal before interest, and payment of interest as set out therein 'as well after as before judgment' on the principal remaining unpaid until the principal shall have been fully repaid."
The affidavit sworn 27 January 2006 then deposes that even after allowing for a set off of the balance due by the Respondent Creditor to Gita Khera, there is an outstanding amount due to the Respondent Creditor of $3425.85. That amount was subsequently corrected in a further affidavit of the Respondent Creditor sworn 29 January 2006 (Exhibit R4) where a schedule has been relied upon entitled, "Schedule prepared of creditor's payments and dates". That schedule is very detailed and sets out payments made which do not appear to have been contradicted by the Applicant Debtor but resulting in a revised balance owing on the Bankruptcy Notice of $3,111.33. It is that sum which is relied upon in submissions by the Respondent Creditor to which reference will be made later in this judgment.
It is appropriate at this stage, however, to note the evidence in relation to what is claimed by the Respondent Creditor to be an outstanding amount due to the Respondent Creditor even if allowance is made by way of set-off for any amounts due and payable to Gita Khera as purported assignor exceeds her claim.
In submissions relied upon by the Applicant Debtor filed 4 December 2006, it is submitted that there were in fact three purported assignments. Apart from the First Deed, to which reference has already been made, it was claimed that there was another assignment dated 31 October 2006 (the Second Deed). The Second Deed had not been annexed to any affidavit nor produced in evidence in any way before this court.
It is further submitted however, that there is a third assignment dated
3 December 2006 (the Third Deed). The Third Deed was exhibited to the affidavit of the Applicant Debtor sworn 13 December 2006 (Exhibit A2). It is relevant to set out the recitals in the Third Deed as follows:
“A.On 22 May 2001, The Assignor obtained a judgment order against Ian Robert Durston Jones (hereinafter referred to as ‘Mr Jones’) in the Local Court at Downing Centre in the sum of $29,552.29 in relation to proceedings number 10280/93.
B.In relation to the said Local Court proceedings, Mr Jones was also ordered to pay the Assignor’s costs. These costs have been assessed at $21,187.50. In addition, the Costs Assessor determined that Mr Jones should pay the costs of assessment in the sum of $1,185.71, making the total amount payable by Mr Jones to Gita Khera $22,373.21.
C.Between about May 2202 and 2005/6 Mr Jones paid to the Assignor, by way of instalments of $400.00 per month, towards the said judgment order.
D.Interest on the said judgment order continues to accrue.
E.The Assignee has from time to time, since about 2001, been advancing money to the Assignor.
F.Without any prejudice to the Assignee as to any benefits or rights conferred upon him by the said Deeds of Assignment dated 28 November 2005 and 19 January 2006, this Deed of Assignment replaces the Deed of Assignment dated 28 November 2005 and the Deed of Assignment dated 19 January 2006. This Deed of Assignment is not in addition to the said Deeds of Assignments dated 28 November 2005 and 19 January 2006.”
The Third Deed also then provides the following:
“THIS DEED WITNESSES:
1.In consideration of the Assignee having advanced money to the Assignor as referred to in recital E above, the Assignor hereby assigns and transfers to the Assignee:
(i)the balance of the judgment order referred to in recital A above.
(ii)$10,000.00 out of $22,373.21 of the costs assessed which is referred to in recital B above.”
It is to be observed that the Third Deed in recital "F" also refers to another deed of assignment dated 19 January 2006 which has not been produced in these proceedings. It does refer to the First Deed and claims that the Third Deed "replaces" that Deed and the deed of assignment dated 19 January 2006. The Third Deed specifically states that it is "not in addition to the said deeds of assignments dated 29 November 2005 and 19 January 2006."
Curiously the submissions on behalf of the Applicant Debtor then claim as follows:
“5.Assignment 3 dated 3 December 2006 is intended to replace, and is not in addition to Assignment 1 and Assignment 2, dated respectively 28 November 2005 and 31 October 2006 respectively.”
Perhaps, not surprisingly, that submission when read in the light of the recital of the Third Deed, has lead to a great deal of confusion.
At best the court may conclude that ultimately a Deed was executed on 3 December 2006 purporting to replace earlier deeds of assignment. That may well appear to be a somewhat generous interpretation given the confusion regarding the dates of the earlier Deeds and in particular whether there was a Deed dated 19 January 2006 or as asserted in the submissions by the Applicant Debtor, an assignment "dated 31 October 2006".
In any event a number of observations may be made in relation to the recitals in the Third Deed. Again it would appear that reference is simply made to instalments of "$400 per month towards the said judgment order" and a reference made to "interest" on the said judgment order continues to accrue. No details are given or an attempt made to quantify amounts which might arise from those recitals. Recital "E" is couched in vague terms identical to the recital in the First Deed referred to earlier in this judgment, namely that, "the assignee has from time to time, since about 2001, been advancing money to the assignor". I note again that there is no evidence from the assignor, who it appears to be common ground is the wife of the Applicant Debtor, though again there is no direct evidence of that fact. For present purposes I will not regard it as relevant.
After some significant delay in the filing of further documents, it appears that the parties, unable to resolve their differences, continued with the exchange of affidavits.
The Respondent Creditor relied upon an affidavit sworn 7 December 2006 (Exhibit R5). That affidavit relevantly deposes as follows:
“2.Annexed hereto and marked with the letter ‘A’ is true copy of the Certificate of Determination of Costs in the amount of $21,187.50 and a Certificate of Determination of Costs of Costs Assessment in the amount of $1,185.71.
3.The Cost Applicant, Gita Khera registered the Costs Determinations as referred to in paragraph 2 herein as proceedings number 1316 of 2006 and 1317 of 2006 in the North Sydney Local Court. Annexed hereto and marked with the letter ‘B’ are true copies of letters received from the Sheriff’s Office where Gita Khera has issued a Writ for Levy of Property for the total of the two (2) judgment debts as at 8 November 2006.
4.Annexed hereto and marked with the letter ‘C’ is a true copy of a letter dated 4 December 2006 received from the North Sydney Local Court granting my Application to pay the total of the two (2) judgment debts of $22,373.21 by instalments of $400.00 per month.”
It will be noted from the extracts from that affidavit set out above that Gita Khera had issued a writ of levy of property for the total of the two judgments "as at 8 November 2006" on the chronology set out earlier in this judgment.. That means that on 8 November 2006 Gita Khera appears as the "costs applicant" and the Respondent Creditor in these proceedings appears as "costs respondent". That occurred almost 12 months after the date of the First Deed.
It is further noted from the extract of the affidavit set out above of the Respondent Creditor that the Respondent Creditor successfully obtained an order for payment by instalments of $400.00 per month.
It is also evident from the chronology that after the judgments had been registered by Gita Khera and the writ for levy of property issued, those two judgments as at 8 November 2006, the Third Deed was executed purporting to assign from Gita Khera to the Applicant Debtor “the balance of the judgment order” of $29,552.29 obtained by Gita Khera against the Respondent Creditor in the Local Court and “$10,000 out of $22,373.21 of the costs assessed” in the Local Court proceedings numbered 10280/93.
Submissions
Applicant Debtor's submissions
The Applicant Debtor relied upon the Third Deed and after reciting the background details set out earlier in this judgment, submitted that the Applicant Debtor had a counterclaim or set-off equal to or exceeding the amount of the judgment debt relied upon by the Bankruptcy Notice which it is claimed is one which could not have been set up in the action in which the judgment order was obtained. It was submitted that "the debtor must show that he or she has a prima facie case, even if at that point of time he or she cannot adduce the relevant admissible evidence which would make out the prima facie case before a court trying his or her counterclaim, set-off or cross-demand (see Ebert v Union Trustee Co. Australia Ltd (1960) 104 CLR 346 at 350. It was argued that the affidavit evidence of the Applicant Debtor and in particular his affidavit sworn 4 December 2006 (incorrectly referred to as "3 December 2006" in the submissions) and supporting annexures provide a prima facie case "for a counterclaim and therefore satisfies the threshold test and the application to set aside the Bankruptcy Notice should succeed."
It was argued there had been a valid assignment of debt including the assignment of the costs assessment which it was argued was valid from the date of the judgment "irrespective of the fact that the specific amount of the costs are not issued by the costs assessor until 7 September 2006."
The Applicant Debtor after referring to relevant authority submitted in the present case the Applicant Debtor had a genuine commercial interest in enforcing the cause of action properly and validly assigned to him by Gita Khera the assignor.
It was argued that the Applicant Debtor had more than "a mere personal interest in the assignment".
It was specifically submitted that:
“17.Gita Khera, as assignor of the costs assessment is both shareholder and one of the directors of Integra Finance Pty Limited, a company that provides the assignee with a range of office services, including the provision of office space, equipment, stationary and the like. The assignee in turn provides legal services to Integra Finances Pty Limited and to Gita Khera. If the respondent creditor fails to fulfil his obligations regarding the debt to Gita Khera, there is a strong possibility that she will suffer severe financial hardship and in turn Integra Finance Pty Limited will suffer equally because it relies in part for its financial well being on funding provided by Gita Khera.”
That submission having been made it should be noted was not supported by evidence from Gita Khera nor supported by any detailed evidence from a proper officer of Integra Finance Pty Ltd.
Reference was made again to the affidavit of the Applicant Debtor sworn 4 December 2006 (Exhibit A1) and in particular the following paragraph,
“15.Annexed hereto and marked ‘D’ is copies of correspondence entered into between Gita Khera and Mr Jones between 3 September 2004 and 29 March 2005. Towards the middle of 2005 Gita Khera said to me words to the following effect:
‘I am fed up dealing with Ian Jones. He is threatening to get me involved in further litigation by making an application to pay the debt owed to me in Court.’”
It was then submitted:
“18.… It follows that the applicant debtor has either, a genuine and substantial interest in the success of the litigation, or alternatively, has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit.”
It was then specifically submitted as follows,
“21.It can hardly be denied that the applicant debt has a genuine commercial interest in the enforcement of the judgment and what the applicant debtor has assigned are debts due and payable and not a bare right of action. The assignments are therefore valid.
22.It is asserted by the applicant debtor and in turn accepted by the respondent creditor at paragraph one of his submission that the assignment of a portion of the judgment debt from Ghita Khera to Jaswant Khera, the Applicant Debtor is in accordance with section 12 Conveyancing Act (NSW) 1919 and therefore valid. However, in succeeding paragraphs the respondent creditor argues that assignment of portion of the costs assessment is only assignment of a part of a debt and therefore only effective in equity.
23.An assignment of a legal debt or part of a legal debt for value which fails at law can be assigned in equity provided there is consideration paid or executed (see Meagher, Gummow & Lehane, Equity Doctrines & Remedies (4th ed, 2002) at 227. The consideration in this case is at least two fold. First, in the sums of money the applicant debtor has advanced from time to time to Gita Khera. And second as a result of the applicant debtor assuming responsibility, trouble and expenditure for the collection of the debt therefore relieving the assignor of these burdens.
24.The Local Court judgment amount of $29,552.29 is inclusive of principal and interest which was payable to Gita Khera and it being a judgment order it attracts interest.
25.Accordingly, the combination of the balance of the judgment debt combined with partial assignment of the costs as assessed from the Local Court action exceeds the judgment on which the bankruptcy notice is based and the application to set aside the bankruptcy notice should succeed.”
Other issues were raised during the course of submissions concerning the issue of whether the Respondent Creditor had received notice of the assignment of debts and in particular the Third Deed. For reasons which will become apparent the court is not concerned to resolve that issue, nor to embark upon a detailed analysis of whether what is sought to be assigned in the Deeds as a matter of law can be assigned, hence, I do not propose referring in further detail to the cases referred to by the Applicant Debtor nor indeed those referred to by the Respondent Creditor.
Rather I have set out those submissions relating to what I regard as the central issue in this matter, namely, whether there is a counterclaim or set-off which exceeds the amount claimed in the Bankruptcy Notice and which otherwise satisfies the requirements of s.41(7) of the Bankruptcy Act.
Respondent Creditor's submissions
The Respondent Creditor during the course of the hearing submitted that on the affidavit evidence referred to earlier in this judgment, the calculations reveal that even if the court were to accept the legitimacy of the counterclaim or set-off based as it is on the assignment, then there is still a deficiency of $3,111.33 and that accordingly the Applicant Debtor has not established that he has a counterclaim, set-off or cross‑demand "equal to or exceeding the amount of the judgment debt or sum payable" as required by s.40(1)(g) of the Bankruptcy Act referred to in s.41(7) of that Act. It was argued that that then "would be the end of the matter."
Again, detailed arguments were raised in relation to the capacity of the assignor to assign the debt to the assignee, and in turn for the assignee to rely upon the assignment. The key and central issue however in my view relied upon by the Respondent Creditor having regard to the chronology of events set out earlier including the obtaining of a writ for levy of property by the assignor after the First Deed, it was ultimately submitted that the Applicant Debtor does not have a genuine commercial interest. It is perhaps useful to set out an extract from the oral submissions of the Respondent Creditor as follows:
“MR SKINNER: In other words, there are two separate judgments, so two separate orders for payments by instalments.
HIS HONOUR: Yes, I see that.
MR SKINNER: And of course there were two separate writs issued.
HIS HONOUR: Yes.
MR SKINNER: Now, your Honour, what we say is firstly there is no proper evidence of assignment in accordance with section 12 for the sum of $10,000. Secondly, we say that Mr Khera has registered the judgments, has caused writs to be issued and so to now assert that on 3 December she assigned $10,000 of those judgment debts we say is inconsistent with her actions - there is an inconsistency between what she has done in the local court and what she has purported to by the deed of assignment. Therefore, we respectfully submit, your Honour would pay no heed to an assignment dated 3 December at the heel of the hunt which - details of which were the subject of an affidavit sworn yesterday and served yesterday.
So that would then mean, in our respectful submission, your Honour would need to deal with two deeds of assignment, one dated 28 November 2005 about which I've already addressed you and the one purported assignment dated 3 December and for the two reasons, the two bases for which I've made submissions you would not have regard to that assignment for the $10,000. That then brings me, your Honour, to the two parts of submissions which were filed by - on behalf of my client. Those submissions were filed in court in accordance with directions dated 31 October and so obviously they don't deal with what has occurred yesterday and today and the assignment of 3 December.
Now, dealing with the two parts of the submissions, we deal with interest on interest submissions and we respectfully submit it's a question of construction of the instrument itself and that at the end of the day, however, we would respectfully submit that your Honour would be satisfied with the interest calculation which was attached to the affidavit of Mr Jones and the affidavit sworn 29 January and we would respectfully submit that the judgment had been extinguished and did not represent a set-off that equals or exceeds the judgment on which the bankruptcy notice is based.
Now, then we deal with our second part of our submissions in the part 2 and to an extent those matters have been overtaken by reason of what we would say is an ineffective assignment on 3 December this year. However, what we respectfully submit, set out in the second part, deals with an attempt to assign a portion of the costs assessment. We would respectfully submit this to your Honour, that until and unless the costs determinations are registered it is not possible to have an assignment. The - and for the reasons which we've set out and we respectfully differ with my learned friend on the question of the need for qualification and the fact that we say it's the operation of the Legal Profession Act itself.
As to the issue of genuine commercial interest, it is our respectful submission that the machinations between Mr and Mr Khera, which date back to 28 November last year culminating in what we say is a belated attempt on 3 December, if your Honour has regard to that tortuous process of conduct we would respectfully make the submission that there is no genuine commercial interest in the assignment to Mr Khera. It is simply, we would respectfully submit, as a matter of proper inference, not commercial interest but simply a means of avoiding a judgment in favour of Mr Jones and a device to avoid that course of action and therefore the reported decisions in Trendtex and Poulton are really not of great assistance because it is a factual issue and that is the factual basis, we would respectfully submit, as to what you would find as to what all of this is about.”
(Transcript p.28 lines 35 – 48 and p.29 lines 1 – 45)
Reasoning
In my view, while it is evident in the course of submissions that both counsel sought to pursue issues of some technicality concerning the assignment of a debt, the court is ultimately confronted with a chronology of events combined with vague recitals in at least the Third Deed, which lead me to the conclusion that the Applicant Debtor does not have a genuine commercial interest.
In my view the assignor who has not provided any sworn evidence before this court, has acted in a manner inconsistent with at least the contents of the First Deed by obtaining the levy of property and has then in vague terms sought in the Third Deed to purportedly assign a debt after a Bankruptcy Notice has been issued and served against the Applicant Debtor. I am satisfied that the Applicant Debtor has otherwise sought to merely pursue the purported assignment as a means of defeating the Bankruptcy Notice, but has done so in circumstances where I am not satisfied he has a genuine commercial interest in the assignment.
The assignor has conducted herself at least between the date of the First Deed and the Third Deed in a manner which would not be consistent with the existence of the First Deed.
I also note the Third Deed does not reveal the identity of the witnesses and still contains what I have described earlier as vague and unhelpful recitals. Whilst I am not prepared, as indicated during the course of the hearing in the absence of oral evidence in cross‑examination, to conclude that the Deeds are merely a sham, I am prepared to conclude that for the reasons given having regard to the chronology of events and the contents of the Deed, that the Applicant Debtor does not have a genuine commercial interest in those Deeds.
As indicated earlier that in part arises from what I find to be the inconsistent conduct of the assignor between the date of the First Deed and the Third Deed, and the non-production of what appears to be referred to as a Deed dated 31 October 2006 which likewise has not been produced. The Deeds appear to me to be somewhat vague and unhelpful and no doubt with the benefit of oral evidence, issues surrounding the creation of those Deeds could have been explored which may then have enabled the court to consider a finding that the Deeds were no more than a sham. However, I do not need to make that finding as I am satisfied for the reasons given that in any event the Applicant Debtor did not have a genuine commercial interest. Having regard to the authorities cited by counsel to rely upon the assignment purportedly made to him by the assignor as a means by which he can rely upon s.41(7) of the Bankruptcy Act.
In the event that I am in error concerning the lack of genuine commercial interest of the Applicant Debtor in the Third Deed, purporting as it does to replace earlier Deeds, I am otherwise further satisfied on the evidence before me and accept as submitted by counsel for the Respondent Creditor that in any event the calculations reveal that there is still an outstanding balance due and payable by the Applicant Debtor to the Respondent Creditor.
Accordingly I am satisfied and find that the Applicant Debtor does not have for the purpose of s.40(1)(g) of the Bankruptcy Act a "counterclaim, set-off or cross-demand equal to or exceeding the amount of the judgment debt ..." It follows having regard to that finding, as submitted by counsel for the Respondent Creditor that the application should fail.
A great deal of time and expense has been incurred by the parties in this matter and I am aware from the material that there is other litigation between the parties. Technical issues were raised concerning service of the deed of assignment, and other issues were raised even after the court proceedings were concluded. I acknowledge the technical submissions made by both parties when considering the validity of the assignment of deed. Given my finding that I regard the central issue concerns whether the Applicant Debtor had a genuine commercial interest and/or the finding accepting the calculations relied upon by the Respondent Creditor, it is not necessary for me to explore in further detail those other submissions.
Conclusion
For the reasons given it follows that the application as amended should be dismissed and that the Applicant Debtor should pay the Respondent Creditor's costs of and incidental to the application, including reserved costs if any, to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 24 August 2007