Miller v Devren Pty Ltd
[2015] FCCA 1062
•29 April 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MILLER & ANOR v DEVREN PTY LTD | [2015] FCCA 1062 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – where there were concurrent proceedings on foot – where there was a likelihood of a costs order in the concurrent proceedings – where the applicants claim a set-off. |
| Legislation: Federal Circuit Court (Bankruptcy) Rules, r.3.02 Corporations Act 2001 Bankruptcy Act 1966, s.40(6A), s.40(1)(g) |
| Cases cited: Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53 Wiltshire-Smith v Olsson (1995) 57 FCR 572 In Re Sedgwick, Ex parte Sedgwick (1888) 5 Morrell 262 |
| First Applicant: | PETER JOHN FRANCIS MILLER |
| Second Applicant: | SUSAN MARY MILLER |
| Respondent: | DEVREN PTY LTD A.C.N. 124 794 127 |
| File Number: | BRG 182 of 2015 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 20 April 2015 |
| Date of Last Submission: | 20 April 2015 |
| Delivered at: | Brisbane |
| Delivered on: | 29 April 2015 |
REPRESENTATION
| The First Applicant appeared on his own behalf |
| There was no appearance by the Second Applicant |
| Solicitor for the Respondent: | Mr Byrne |
| Solicitors for the Respondent: | Lillas & Loel Lawyers |
ORDERS
The application filed on 26 March 2015 be dismissed.
The time for compliance with bankruptcy notice BN 178449 be extended to 4.00 p.m. on 19 May 2015.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 182 of 2015
| PETER JOHN FRANCIS MILLER |
First Applicant
| SUSAN MARY MILLER |
Second Applicant
And
| DEVREN PTY LTD A.C.N. 124 794 127 |
Respondent
REASONS FOR JUDGMENT
This is an application to review a decision of a registrar which dismissed the applicants’ application to set aside a bankruptcy notice. The bankruptcy notice was served upon them on 8 February, 2015. It was issued upon the application of the respondent.
The bankruptcy notice was issued on the basis of an order made by the Supreme Court of Queensland on 5 December, 2014. By that order the applicants were ordered to pay the respondent’s costs of certain proceedings in the Supreme Court of Queensland assessed at $15,849.45. The amount claimed in the bankruptcy notice, inclusive of interest, was $16,070.91.
The costs order against the applicants arose out of some unsuccessful proceedings in the Supreme Court of Queensland wherein the applicants sought a winding up order against the respondent. That litigation was part of broader litigation which has ensued between the parties and which arose out of a joint venture agreement entered into by a corporate entity, Tenth Zecore Pty Ltd associated with the applicants and the respondent in about 2008. The joint venture was for the development of some residential land. The joint venture parties were to be equally entitled to the profits of the project.
The aim of the joint venture has been all but completed. All but two lots of the residential subdivision have been sold. The remaining two lots have been retained on a temporary basis as a drainage detention basin to meet local government requirements. The two lots retained as the drainage detention basin were the subject of special provision in the joint venture agreement. Without delving into the particulars of that agreement, it seems that in the event that neither lot could be sold, one lot would be given to the respondent in these proceedings and the other to the applicants, or to an interest controlled by them.
The applicants in these proceedings are the directors and shareholders of the company which owned the land the subject of the joint venture agreement – Old Coach Developments Pty Ltd. As I understand the evidence, Old Coach Developments Pty Ltd remains the registered proprietor of the two retained lots. The applicants are also the directors and shareholders of Tenth Zecore Pty Ltd. The applicants assert that Tenth Zecore has an interest in the relevant land or the “equity” in the joint venture, as some of the material puts it.
The life of the joint venture was far from trouble free. There was dispute between the joint venture parties and dispute between the sometime directors of the respondent company. From time to time, a Mr Hobson and a Mr Clair were the directors and shareholders of the respondent. They fell into dispute with each other and initially Mr Clair ceased to be a director of the respondent. He was later reappointed when the two settled their differences. The joint venture continued, but all the while Messrs Hobson and Clair intended to bring action against the applicant’s (using the respondent company) for alleged mismanagement of the joint venture project. The evidence suggests that the applicants knew nothing of the plan by Messrs Hobson and Clair to sue the applicants or their companies.
As the joint venture project neared completion, funds were required to finish the remaining work. Mr Miller was persuaded to fund the remaining development costs in return for a one half share in the respondent’s entitlement to the remaining joint venture profits. Thus Tenth Zecore would become entitled to 75% of the profit to be realised from the remaining work and the respondent 25%.
Messrs Clair and Hobson fell out again. Mr Clair was removed as a director of the respondent company, but the applicants were not informed of that fact. The parties had by this time tired of each other’s company and an agreement was struck whereby the applicants would surrender their (or their company’s interest) in the joint venture agreement to the respondent in exchange for $15,000. The parties reduced their agreement to writing and it was executed by each of them. However, it was executed by Mr Clair for the respondent at a time when he was not a director of that company.
In June, 2012 the respondent commenced proceedings in the Supreme Court of Queensland against the applicants, Old Coach Developments and Tenth Zecore. The proceedings were supplemented by other proceedings between the parties – the applicants unsuccessfully applied to have the respondent wound up. They also unsuccessfully applied to have a caveat lodged by the respondent over the title to land in which the applicants or one of their corporate vehicles had an interest removed. That application too was unsuccessful.
The substantive proceedings between the applicants, their related entities, and the respondent has now been finalised by a judgment of the Supreme Court of Queensland: Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53. The applicants’ position was vindicated and the respondent’s position found to be untenable by the trial judge. However, the trial judge ordered that there be no order as to costs for those proceedings.
The applicants say that the bankruptcy notice ought to be set aside because they have a set-off. Although the respondent says that the application to set aside the bankruptcy notice is incompetent because it does not comply with r.3.02(1) of the Federal Circuit Court (Bankruptcy) Rules 2006, there is nothing in that point. The respondent asserts that the incompetency arises because the application does not state the grounds upon which the notice should be set aside. But r.3.02(1)(a) does not require the application to do that. Rule 3.02(1)(b) requires the application to be accompanied by an affidavit stating the grounds in support of the application. Here the applicants filed an affidavit deposed jointly by them that set out the grounds of their application – namely that they had a set-off against the amount claimed in the bankruptcy notice.
In that respect, the evidence establishes that the applicants have the benefit of an order for costs made on 20 February, 2014 in related proceedings in the Supreme Court of Queensland against the respondent. Those costs have been assessed at $7,118.88. However, even after those costs are set-off against the costs claimed in the bankruptcy notice, there is a net sum owed by the applicants to the respondent of $8,952.03. That is an amount in excess of the statutory requirement of $5,000 to support a bankruptcy notice.
Before the registrar, the applicants asserted a likelihood that they would secure an order for costs in the principal proceedings in the Supreme Court of Queensland that would substantially exceed the amount claimed by the respondent in the bankruptcy notice. However, that likelihood evaporated with the determination by the trial judge in that case that there should be no order as to costs.
The applicants do not establish that they have a set-off that equals or exceeds the amount claimed by the respondent in the bankruptcy notice. There is nothing in this aspect of the matter which leads me to conclude that the bankruptcy notice ought to be set aside.
The applicants claim that the respondent is insolvent and for that reason the bankruptcy notice ought to be set aside. In argument it was suggested that the respondent is trading and incurring debts in breach of the Corporations Act 2001. However, whether or not that is correct, it is no answer to the issue of the bankruptcy notice. Indeed, even if the respondent is insolvent and should be wound up, a liquidator appointed to the respondent would be obliged to recover the debt owed by the applicants to the respondent and take whatever action was necessary to do so (subject to the proper exercise of the relevant discretions by the liquidator). Insolvent companies are entitled to have their debtors pay their debts.
The one aspect of the matter that concerned me and caused me to reserve my judgment was the applicant’s claim made in their most recent affidavit filed in support of these proceedings that the lodgement by the respondent of a caveat or caveats over land to which the applicants or their company are entitled effectively denied the applicants access to their assets thereby preventing them from paying the amount claimed in the bankruptcy notice.
Conduct by a judgment creditor which prevents a judgment debtor from paying the debt the subject of a bankruptcy notice may operate to disentitle the judgment creditor from proceeding to immediate execution. If the Court so holds, the bankruptcy notice is liable to be set aside because the judgment is not one within s.40(1)(g) of the Bankruptcy Act 1966 (Cth): Wiltshire-Smith v Olsson (1995) 57 FCR 572 at 585 – 586. In Wiltshire-Smith the Full Court referred to In Re Sedgwick, Ex parte Sedgwick (1888) 5 Morrell 262 where Lord Esher MR at 263-264 said:
… there is an equity laid down — a just equity which goes to the extent only that if a creditor gives a notice requiring payment in seven days and actually and in fact prevents the debtor from paying, such creditor cannot rely upon the notice and it will be set aside. The question is whether in the eyes of any person of ordinary fairness in business it will be said that the creditor has in a business sense prevented the debtor from paying. But the possibility that he may have prevented him is not sufficient. The question is whether the creditor has done something which prevents the debtor in fact from complying with the summons. He may do so in different ways. He may put a legal difficulty in the debtor's way, and although he puts no legal difficulty he may have done something which in fact may prevent payment. The question must be whether he has in fact prevented the debtor from complying. The fact that the creditor has made it more difficult for the debtor to pay than if the creditor had done nothing at all does not go to that extent.
However, invocation of the principle to which I have just referred is dependent upon evidence that the debtor’s access to funds has been effectively prevented by the actions of the creditor. In the present case, there is no such evidence. There is an assertion in the applicants’ written submission handed up to me for the purposes of the hearing before me, but even that assertion is short on particularity. There is no deposition on either of the applicants’ affidavits used in these proceedings that establishes that they were prevented from accessing their only available source of funds by the caveat or caveats that the respondent had caused to be lodged over the title or titles to the applicants’ land.
I am not satisfied that the bankruptcy notice should be set aside. No proper grounds, supported by evidence, have been made out. The registrar’s decision on that matter should not be disturbed.
This is a hearing de novo and I am required to consider the application afresh. I have available all of the powers that are available under the Bankruptcy Act 1966 (Cth) to make orders on the hearing of the application to set aside the bankruptcy notice. Notwithstanding that I have determined that on the evidence before me that the bankruptcy notice ought not to be set aside and the registrar’s decision not disturbed, I am still able to make orders extending the time for compliance with the bankruptcy notice.
Section 40(6A) of the Bankruptcy Act is engaged because an application to set aside the bankruptcy notice was filed before the time limited for compliance with it had expired: s.40(6A)(b) of the Bankruptcy Act. In my view it is appropriate to extend time within which to comply with the notice to a date which is twenty-one days from the date of this judgment because:
a)the caveats that the applicants complain prevent them from obtaining funds with which to meet the demands of the notice have now been, or will very soon be, removed from the relevant titles;
b)the applicants do not suggest that they will not comply with the bankruptcy notice if they have access to their funds or means of raising funds.
For the foregoing reasons, I make the orders set out at the commencement of these reasons.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Jarrett
Deputy-Associate:
Date: 29 April 2015
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