Re Coveos, Sia Ex Parte Sevastos, Steve & Anor
[1995] FCA 1056
•15 DECEMBER 1995
CATCHWORDS
BANKRUPTCY - Application to review decision of registrar to refuse to set aside bankruptcy notice - whether judgment debt stayed under Pt 27 r2(13) of the Local Courts (Civil Claims) Rules - whether default in payment accelerates payment under consent orders pursuant to Pt 27 r1(2) and r3(2) - whether consent orders "otherwise provide" - whether silence as to acceleration means there shall be no acceleration - whether court order is an "agreement" - construction - whether entitled to interest on balance outstanding from time to time - whether timely payment was condition precedent to the foregoing of interest.
Local Court (Civil Claims) Rules 1988 Pt 12 r3, Pt 27 r2(13), r3(2), r1(2)
Bankruptcy Act 1966 (Cth) s 40(1)(g), s 41(3)(b)
In Re HB (1904) 1 KB 94
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Deputy Commissioner of Taxation v Hadidi (1994) 51 FCR 453
RE: SIA COVEOS
EX PARTE: STEVE SEVASTOS AND MARIA SEVASTOS
No NN2416 OF 1995
Tamberlin J
Sydney
15 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )No. NN2416 of 1995
BANKRUPTCY DISTRICT )
OF THE STATE OF NEW SOUTH WALES
RE: SIA COVEOS
EX PARTE: STEVE SEVASTOS and
MARIA SEVASTOS
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 15 DECEMBER 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The application be dismissed.
The applicant to pay the respondent's cost of the application.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION ) No. NN2416 of 1995
BANKRUPTCY DISTRICT )
OF THE STATE OF NEW SOUTH WALES
RE: SIA COVEOS
EX PARTE: STEVE SEVASTOS and
MARIA SEVASTOS
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 15 DECEMBER 1995
REASONS FOR JUDGMENT
This is an application to review a decision of Registrar Quinn, made on 21 November 1995, refusing an application to set aside a bankruptcy notice issued on 3 August 1995.
The application is made on two bases.
The first is that as at the time the bankruptcy notice was issued on 30 August 1995 the judgment debt on which it was based was not due and payable because there was a stay in force arising from the Local Courts (Civil Claims) Rules 1988 ("Local Court Rules").
The second submission is that an excessive amount of interest has been claimed.
The facts, are not in dispute. They are in short compass and can be set out as follows.
On 1 September 1993, judgment was entered by consent in the Local Court in the following terms:
" Consent Orders
Verdict & Judgment for the Plaintiff in the sum of ($22,000) Twenty Two Thousand Dollars.
Each party pay their own costs of these proceedings.
The defendants to pay the judgment by two instalments of ($11,000) Eleven Thousand Dollars. The first instalment to be paid to the plaintiffs on or before the 1st day of March 1995 and the second instalment to be paid on or before the 1st September 1996.
And the Court notes the agreement between the parties that no interest shall accrue on the judgment debt provided that the defendants pay the instalments on or before the due dates for payment.
Dated 1st September 1993
Signed ........ ....... Signed ........ .......
Counsel for Plaintiffs Counsel for the Defendants "
Section 40(1)(g) of the Bankruptcy Act 1966 ("the Act") requires that the judgment or order in relation to which a bankruptcy notice is issued must be "one the execution of which has not been stayed". Section 41(3)(b) prohibits the issue of a bankruptcy notice if, at the time of the application for its issue, the judgment or order to which it relates has been stayed.
Accordingly, if the applicants' first submission is correct and the judgment of the Local Court was stayed the Notice must be set aside.
The first instalment due under the judgment was required to be paid on 1 March 1995. It was not paid on that date. It was paid on 10 April 1995.
The creditor's case is that as a result of this failure to pay on the due date, as required by Order 3 quoted above, the whole debt of $22,000 became immediately due and payable, together with interest on monies outstanding until payment as from 1 September 1993. The stay imposed under the Local Court Rules was lifted as a result of the failure.
The debtor says that the late payment did not accelerate the $11,000 payment agreed to be made on 1 September 1996, and that the amount claimed in the Bankruptcy Notice was not then due and payable.
The first question calls for a consideration of the relevant Local Court Rules. These are set out below.
Part 12 rule 3 provides that:
"3 (1)At any time before judgment in an action -
(a) ...
(b) ... the plaintiff and the defendant,
may enter into an agreement as to the judgment to be entered in the action as between the parties to the agreement and as to the terms and conditions (if any) on which the judgment is to be satisfied.
(3) Where -
(a) the Registrar enters up a judgment under subrule (2);
(b) a judgment debt arises by virtue of the judgment; and
(c) the agreement specifies by what instalments payable at what times the judgment debt or part of the debt is to be paid,
the registrar shall forthwith order that the judgment debt or part be paid by such instalments payable at such times as are so specified.
(4) An order made under subrule (3) shall be deemed to be an order made under Part 27 rule 2(7) pursuant to an agreement referred to in Part 27 rule 2(1)(b)
Part 27 Rule 2(13) provides:
Where the court or the registrar makes an instalment order under this rule, the order shall, while it remains in force, operate as a stay of enforcement of the judgment in respect of which the order was made, except enforcement by way of a garnishee order to which section 48 of the Act applies made before the order under this rule was made."
Part 27 Rule 3(2) provides:
An order made under rule 1 or 2 in respect of a judgment debt shall, subject to the agreement .... consequent on the filing of which the order was made under rule 2(7)(b), cease to be in force if the judgment debtor fails to make any payment in accordance with the order, and thereafter the judgment may except where otherwise directed by the court or provided in the agreement ... be enforced for the balance of the judgment debt owing to the judgment creditor." (Emphasis added)
The Court has not "otherwise ordered" under rule 3(2).
The submission of the applicant is that Rule 3(2) does not apply in the present case because the agreement, consequent on the filing of which the instalment order was made, has "otherwise provided". This proposition is based on the premise that "the agreement" which comprised the Court order 3 did not require payment of the second instalment of $11,000 until 1 September 1996. Therefore, it is said, that when the Bankruptcy Notice was issued on 3 August 1995, the debt claimed to exist was not then due and payable by reason of the stay resulting from rule 2(13) with the result that the respondent was not entitled to demand payment due to the assigned effect by the Local Court Rules to an order for payment by instalments.
In my view this argument should not be accepted.
The starting point for a consideration of this matter is that Part 27 r1(2) provides that, subject to Part 27, every judgment debt shall be payable forthwith. That is to say, for present purposes, unless there is an agreement to the contrary or the order otherwise provides, the judgment debt is immediately due and payable. It is therefore necessary to consider how and on what basis the judgment debt has been stayed.
The "agreement" referred to in Part 27, r3(2) in the present case was made in the form of Consent Orders 1 to 3 when read together with the note made by the Court as to the agreement between the parties in relation to "interest". The document was intituled as a Court order. It was dated and signed by counsel for each party on 1 September 1993.
The third order provides for payment by two instalments. There is, as counsel for the applicant submitted, no provision for acceleration of payment in order 3 in the event of late payment of an instalment. However, in my opinion, there is no need for such a provision. The effect of Part 27 r3(2) is that the stay ceases upon failure to pay on the due date and the judgment can be enforced for the balance of the judgment debt. At the time of the failure in this matter, that balance was $22,000, which was reduced shortly thereafter to the sum of $11,000, together with any interest payments.
There is nothing, in my opinion, contained in any "agreement" which "otherwise provides" in the sense that in the event of default, the balance of the judgment debt may not be enforced immediately under subrule 3(2). Mere silence as to acceleration does not constitute a provision that there shall be no acceleration. Consent Order 3 does not provide that in the event of failure to pay in accordance with the judgment or orders, the balance owing under the judgment shall not be enforced.
The result is that Order 3 was an order for payment by instalments within the meaning of subrule 2(13). It required payment of the first instalment on 1 March 1995 and there was an admitted failure to pay in accordance with this order. Accordingly, by force of subrule 3(2) enforcement of the judgment was no longer stayed. Therefore, the entitlement to immediate payment of the balance outstanding under the judgment ceased to be stayed. By the date of issue of the bankruptcy notice the sum of $11,000 had been paid so that at that time the amount due was $11,000 together with accrued interest.
In the course of argument I was referred to the decision of the Court of Appeal InRe HB (1904) 1 KB 94. This decision was referred to with approval by the High Court in Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 and was applied by the Full Federal Court in Deputy Commissioner of Taxation v Hadidi (1994) 51 FCR 453.
In my view, the decision in the HB case has no application in the present circumstances. In that case there was no question raised as to the operation, construction, or effect of any rules of Court in relation to the judgment, such as arises in the present matter as a result of the application of the specific provisions of the Local Court Rules. Furthermore, in the HB case the position was that there had been negotiations between the debtor and the creditor which resulted in an agreement. That agreement was to the effect that the debtor owed a particular sum and that the sum was to be paid by instalments. There was also another agreement that, by way of collateral security for the due performance of that agreement, the debtor would consent to a judgment being signed against him. The decision of the Court of Appeal was that the bankruptcy notice issued in that case should be set aside because it was plain that under the agreement the amount claimed in the notice was not due when it was issued. The Court considered that the notice could only be justified by the agreement alleged to exist between the parties and that the notice was therefore not one founded on the judgment according to its terms. It was held to be founded on the judgment as modified by the agreement.
The present matter is not a case of a judgment or order which has been modified by a collateral agreement. Rather the position is that the judgment or order is itself the agreement. It is the very Order which is signed by the parties and made by the Court. There is no collateral agreement which can be said to "vary" the judgment or orders to which there was consent. I am here referring, of course, to the judgment and orders 1 to 3 and not to the agreement noted by the Court in relation to interest which is a separate matter. I will deal with the submission as to the effect of the agreement inter-partes as to interest, which was noted by the Court, later in these reasons.
Order 3, in the present case, does not provide for acceleration. It is the Local Court Rules which operate in relation to that judgment and they make express provision for acceleration. It is by reason of the operation of these rules, in relation to the local court judgment for payment by instalments, that acceleration results from a failure to pay on the due date.
In Kleinwort Benson, Mason CJ, Wilson, Brennan and Gaudron JJ said at 165 CLR 79:
"It is clear enough from the terms of s. 41(2)(a)(i) of the Act that a notice must require payment "in accordance with the judgment". A notice specifying payment in accordance with some other arrangement does not satisfy this requirement. On one view In Re HB merely gives expression to this requirement, making it clear that a judgment debt will not found the issue of a bankruptcy notice whilst ever the obligation to pay in accordance with the judgment is suspended or qualified by operation of an agreement. With that proposition we agree."
In the present case, the bankruptcy notice is not founded on a side agreement in different terms to the Court order, but rather on the order itself as it operates pursuant to the Local Court Rules, particularly Part 27 r(2)(13) and r3(2).
For the above reasons I do not accept the argument of the debtor on this point.
The second submission by the debtor is that the bankruptcy notice claims an incorrect amount because it claims an excessive amount in respect of interest. The claim in the notice is that:
"... the sum of $11,000.00 together with interest on the sum of $22,000.00 at the rate of 10.5% per annum from the 1st September, 1993 up to and including 28th February, 1995 and 12% per annum from and including the 1st March, 1995 up to an including 10th April, 1995 and on the sum of $11,000.00 at 12% from and including 11th April, 1995 up to and including the 31st July, 1995 which amounts to $4,150.75 making a total of $15,150.75 is due ....
The applicant's argument is that the only interest required to be paid is on the unpaid amount of $11,000 during the period 1 March 1995 when the first instalment should have been paid up to 10 April 1995 when the first instalment was in fact paid.
I do not accept this argument.
The agreement noted by the Court at the time when the orders were made on 1 September 1993 was that:
"... no interest shall accrue on the judgment debt provided that the defendant pay the instalments on or before the due dates for payment. (Emphasis added)
The intent and operation of the proviso, in my opinion, is that the applicant only agreed to forego interest on condition that instalment payments were made on or before the due date. In substance, timely payment of the instalments was a condition precedent to the agreement to forego interest. If the payment is not timely the interest is not foregone.
In the event of failure to meet the payments on time the effect of the agreement was that interest was recoverable on so much of the judgment as was outstanding from time to time until payment. In my view, the interest charged in the notice was calculated on the correct basis.
For the above reasons, I reject the submissions made on behalf of the debtor. I confirm the decision of Registrar Quinn and I dismiss the application for review with costs.
I certify that this and
the preceding ten (10)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 15 December 1995
Counsel for Applicant: Mr B Debuse
Solicitor for Applicant: Heaney Richardson & Nemes
Solicitor for Respondent: Duffield & Duffield
Date of Hearing: 12 December 1995
Date Judgment Delivered: 15 December 1995
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