PEARSON v HUNTINGTON
[2012] FMCA 854
•14 September 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PEARSON v HUNTINGTON | [2012] FMCA 854 |
| BANKRUPTCY – Bankruptcy notice – validity – whether conditional order – whether creditor in a position to issue execution – attachment of judgment or order relied on – non-attachment of judgment or order relied on. |
| Bankruptcy Act 1966, ss.40(1)(g), 40(3) Supreme Court Act 1991, Schedule 2 Uniform Civil Procedures Rules 1999, rr.690, 737, 740, 796, 903 |
| Abigroup Ltd v Abigano (1992) 39 FCR 74 ANZ Banking Group Ltd v Menso [2006] FMCA 1522 |
| Applicant: | KELVIN PEARSON |
| Respondent: | HEATHER HUNTINGTON |
| File Number: | BRG 88 of 2012 |
| Judgment of: | Jarrett FM |
| Hearing date: | 23 February 2012 |
| Date of Last Submission: | 23 February 2012 |
| Delivered at: | Brisbane |
| Delivered on: | 14 September 2012 |
REPRESENTATION
| The Applicant appeared in person |
| Solicitor for the Respondent: | Mr Waters |
| Solicitors for the Respondent: | MHR Lawyers |
ORDERS
That bankruptcy notice BN 8751 issued on 22 November, 2011 be set aside.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 88 of 2012
| KELVIN PEARSON |
Applicant
And
| HEATHER HUNTINGTON |
Respondent
REASONS FOR JUDGMENT
This case concerns the validity of a bankruptcy notice issued at the request of the respondent against the applicant.
Having regard to the submissions by each party, the issues appear to be:
a)Whether the respondent possesses a final judgment, the execution of which has not been stayed, against the respondent for the purposes of s.40(1)(g) of the Bankruptcy Act 1966;
b)If so, whether the applicant is entitled to go behind the judgment so as to demonstrate that, in truth, there is no debt owed by the applicant to the respondent;
c)Whether the bankruptcy notice is defective because the judgment issued consequent upon an assessment of costs has not been attached to the bankruptcy notice.
Background
The applicant was the respondent’s solicitor in certain proceedings issued by the respondent from the Magistrates Court at Bundaberg against one Alexander. The proceedings concerned injunctive relief in respect of trees growing on Alexander’s property and which were encroaching upon the respondent’s property. By the time the matter came to trial, the offending trees were removed, or were in the process of being removed and the only outstanding issue was the costs of the investigations incurred by the respondent when investigating the effect of the trees and their roots on her property.
The proceedings went badly for the respondent and on 10 August, 2010 judgment was given against the respondent in favour of Alexander. The Court found that her claim against Alexander was without jurisdiction. The proceedings were dismissed on that basis.
The respondent was ordered to pay Alexander’s costs of and incidental to the application on an indemnity basis. The Learned Magistrate who dealt with the proceedings ordered that the respondent’s solicitor, the applicant in these proceedings, “re-pay” the costs that the respondent was ordered to pay to Alexander. The precise terms of the Magistrates’ order are:
“1. The applicant pay the respondent’s costs of and incidental to the application to be assessed on an indemnity basis.
2. The applicant’s solicitor be ordered to repay the costs payable by the applicant pursuant to order 1 hereof.”
It is clear from the transcript of the hearing before the Learned Magistrate on 15 September, 2012 (p1 – 9) that order 2 was an exercise of the power provided for in rule 690 of the Uniform Civil Procedures Rules 1999 (Qld). By that rule:
The court may order a lawyer to repay to the lawyer’s client all or part of any costs ordered to be paid by the client to another party if the party incurred the costs because of the lawyer’s delay, misconduct or negligence.
Although the form of the order does not precisely follow the rule, it is clear, I think, that the order was made pursuant to UCPR 690.
The material reveals that on 10 January, 2011 Alexander’s solicitor’s served a costs statement upon the respondent (at the applicant’s office as he was still her solicitor at that point) claiming $23,703.90. On a date which is not revealed in the material, the applicant acting on behalf of the respondent objected to the costs statement.
On 14 April, 2011 an Acting Magistrate at Bundaberg appointed a cost assessor to assess Alexander’s costs statement pursuant to the relevant statutory costs regime. The cost assessor so appointed made some directions and entered into correspondence with the parties. The applicant, on behalf of the respondent, made certain objections to Alexander’s costs statement. The objections included an argument that the costs statement delivered by Alexander went beyond the costs that were ordered by the Magistrate and purported to include costs which had been incurred by Alexander prior to the commencement of the relevant proceedings. Those objections were considered by the cost assessor and on 2 August, 2011 the cost assessor issued a certificate pursuant to UCPR 737 certifying that the costs payable by the respondent to Alexander were $17,872.25 comprising:
a)Professional fees of $14,575.55 (including $294.25 being the costs of the assessment);
b)Disbursements of $3,296.70 (being the cost assessor’s fees of $3,285.15 and other disbursements of $11.55).
On 9 August, 2011 a Registrar of the Magistrates Court of Queensland at Bundaberg issued an order pursuant to UCPR 740 that the respondent pay Alexander the sum of $17,872.25.
The evidence reveals that on 28 September, 2011 the respondent paid the sum of $17,984.87 to Alexander. By that time Alexander had issued a bankruptcy notice against the respondent. There was no explanation in the material as to why she paid $17,984.87 and yet the judgment for costs against her was for $17,872.25.
A debtor commits an act of bankruptcy 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 a bankruptcy notice under the Bankruptcy Act 1966 and the debtor does not comply with it (s.40(1)(g) of the Bankruptcy Act 1966).
For the purposes of s.40(1)(g) a person who is, for the time being, entitled to enforce a final judgment or final order for the payment of money is deemed to be a creditor who has obtained a final judgment or final order (s.40(3) of the Bankruptcy Act 1966). It could scarcely be argued that the respondent does not fall within s.40(1)(g) and is a creditor who has obtained a final judgment or final order, even though the applicant was not a party to the proceedings in the Magistrates Court. If that view be wrong, then it seems to me that by operation of s.40(3) of the Bankruptcy Act 1966, the respondent is deemed to be a creditor who has obtained a final judgment or final order against the applicant because she is entitled, it would seem to me to enforce order 2 against the applicant.
In Abigroup Ltd v Abigano (1992) 39 FCR 74 at [79] – [80] the Full Court of the Federal Court of Australia considered the operation and effect of s.40(1)(g) and 40(3) of the Bankruptcy Act 1966 in its historical context. Their Honours said:
“It is clear from the reported cases and the text books on Bankruptcy, in particular the writings of the early text writers (where the English Bankruptcy Act of 1883 as amended by the 1890 Act were considered) that the ground of non compliance with the requirements of a Bankruptcy Notice now embodied in section 40(1)(g), is available only, to borrow the words of Bowen LJ in Blanchett (at 307):
‘To a creditor who has prosecuted his claim to judgment, and if execution on the judgment has not been stayed – to a creditor between whom and the full fruition of his claim there stands only a process of the law uncompleted. It is only this kind of creditor who is now entitled to issue a Bankruptcy Notice. This affords an excellent reason for not extending the construction of subs (1)(g), beyond the plain letter of the words.’
Woodall, Ide and Re Richards; Ex parte Sommers (1947) 14ABC 112 are all examples of numerous cases where execution had not been stayed, but the judgment creditor had not put himself in the position of being able to issue execution, so execution was deemed or considered to be stayed on the ground that he was not entitled at the date of the issue of the Bankruptcy Notice to issue immediate execution on the judgment: see also Re Pannowitz (supra) at 291.
…
These are the well established principles referred to in a long line of cases and accepted by many of the early writers on Bankruptcy Law. It is against this background we now examine whether the Appellant is a Creditor who has obtained a final judgment against the respondent upon which execution has not been stayed.”
The order that the applicant re-pay the respondent the costs payable by her pursuant to order 1 of the relevant judgment is, I accept, a final judgment or order. Its intention, however, is not at all clear. The use of the word “re-pay” tends to suggest that an obligation to pay does not arise until the respondent has first paid Alexander pursuant to order 1. However, the use of the word “payable” might suggest that the obligation for the applicant to pay the respondent exists, whether she has paid Alexander, or not.
Having regard to the UCPR 690 and the use of the word repay in that rule, and in order 2, in my view, the obligation of the applicant to pay anything to the respondent is conditional on at least two things happening. The first is that the quantum of costs ordered to be paid by the respondent to Alexander be assessed in the way provided for in the order. The second is the respondent paying to Alexander an amount which is “the costs of and incidental to the application…assessed on an indemnity basis”.
The next issue that arises is whether the respondent had, at the date of the issue of the bankruptcy notice, put herself in the position of being able to issue execution upon the final order that she has against the applicant. If not, execution on that judgment is, for the purposes of s.40(1)(g) deemed to be stayed and it cannot be said that she was entitled to issue immediate execution on the final order (see Abigroup Ltd v Abigano (above)).
Enforcement of judgments or orders made by the Magistrates Court of Queensland is dealt within Chapters 19 and 20 of the UCPR. Chapter 19 deals with enforcement of money orders. Chapter 20 deals with the enforcement of non-money orders.
In my view order 2 is clearly a conditional order. The condition is that referred to earlier and which arises from the use of the word “re-pay” in UCPR 690 and in order 2.
If order 2 is a money order as that term is defined for the purposes of the UCPR (found in schedule 2 to the Supreme Court Act 1991 at the time of issue of the bankruptcy notice, but which is now in the Civil Proceedings Act 2011) then UCPR 796 applies. It is in the following terms:
796 Conditional order
(1) A money order subject to a condition may be enforced only
if—
(a) the condition has been satisfied; and
(b) a court has given leave to enforce the order.
(2) Unless a court orders otherwise, if a person fails to satisfy a condition a court has included in a money order, the person entitled to the benefit of the order loses the benefit.
(3) The court may order otherwise for subrule (2) even on an application made after the date for satisfaction of the condition.
If the order is a non-money order as that term is defined for the purposes of the UCPR, then UCPR 905 applies. It is in the following terms:
905 Conditional order
(1) A non-money order that is subject to a condition may be enforced only if—
(a) the condition has been satisfied; and
(b) a court has given leave to enforce the order.
(2) Unless a court orders otherwise, if a person fails to satisfy a condition the court has included in an order—
(a) the person loses the benefit of the order; and
(b) any other person interested under the order may take any steps that—
(i) are warranted by the order; or
(ii) might have been taken if the order had not been made.
In either case, enforcement of a conditional order can only take place if a court has granted leave to enforce the order. There is no evidence that any such leave has been given.
Accordingly, the respondent does not have a final judgment of order, the execution of which has not been stayed, and so, was not entitled to issue the bankruptcy notice against the applicant. It must be set aside.
In light of that conclusion, it is unnecessary tot consider the second issue raised for consideration.
Whilst it is also unnecessary to consider the third issue raised for consideration, as it affords another ground for a successful challenge to the bankruptcy notice, I shall set out my conclusions about that issue.
The affidavit of service of the bankruptcy notice (sworn by Ian Sidney De Landre filed 6 February, 2012) has attached to it a copy of the bankruptcy notice served by him upon the applicant. That bankruptcy notice does not have attached to it a copy of the order of the Registrar issued on 9 July, 2011 pursuant to UCPR 740, by which it is ordered that the respondent pay to Alexander a particular sum being the costs assessed for the purposes of order 1.
The cost assessor’s certificate is attached to the bankruptcy notice together a cheque and a letter enclosing the cheque from the respondent’s solicitor’s to Alexander’s solicitors. The order made on 15 September, 2010 is also attached but the order of the Court whereby the respondent is ordered to pay to Alexander a particular amount is not attached. In my view, the absence of the order issued by the Registrar pursuant to UCPR 790 is a defect in the bankruptcy notice, which cannot be cured as a mere informality or irregularity: cf. ANZ Banking Group Ltd v Menso [2006] FMCA 1522.
The significance of the absence of the Registrar’s order from the bankruptcy notice becomes apparent when one considers that there is an inconsistency between the amount allowed in the cost assessor’s certificate and the amount paid by the respondent to Alexander. According to the cost assessor’s certificate the total amount of costs and outlays assessed is $17,872.25. The amount paid by the respondent to Alexander is $17,984.87 no explanation appears in the material for that discrepancy. In her affidavit filed on 15 February, 2012 the respondent annexes the order made by the Registrar on 9 August, 2011 issued pursuant to the certificate of the cost assessor. By that order (which was not attached to the bankruptcy notice) the respondent was ordered to pay Alexander’s costs assessed at $17,872.25.
The bankruptcy notice is invalid because:
a)As at the date of issue of the bankruptcy notice the respondent was not possessed of a final judgment or order, the execution of which has not been stayed, sufficient to authorise the issue of the bankruptcy notice; and
b)The bankruptcy notice was defective because it did not have attached to it a copy of the judgment or order by which the applicant was said to be liable to the respondent for the amount claimed in the bankruptcy notice; and
c)The defects are not minor defects or irregularities.
The bankruptcy notice must be set aside and I so order.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Jarrett FM
Date: 14 September 2012
0
2
3