Re McIntyre, N

[1994] FCA 176

Re: NEVILLE MCINTYRE; EX PARTE CLEMENT ANTHONY GYE and RAYMOND DAVID PERKES
No. NP1195 of 1991
FED No. 176/94
Number of pages - 7
Bankruptcy - Equity

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
HILL J

CATCHWORDS

Bankruptcy - bankruptcy petition based on certificate of taxation of costs - whether petition invalid on grounds that debt was as a result of severance of joint tenancy now owed to the petitioner severally and not jointly - existence of set-off - whether an appropriate case to exercise discretion to dismiss petition.

Equity - equitable assignment - severance of joint tenancy between creditors as to costs owed to them - whether severance of joint tenancy operated as a equitable or legal assignment.

Adamopoulos v Olympic Airways SA (1991) 25 NSWLR 75; distinguished.

In Re Palmer; Ex parte Brims (1898) 1 QB 419; discussed.

HEARING

SYDNEY, 11 March 1994
#DATE 11:4:1994

Counsel and Solicitors MR Alridge instructed by
for Debtor: Price Brent

Counsel and Solicitors VRW Gray instructed by
for Creditors: Gye Perkes and Stone

ORDER

The court orders that:

(1) A sequestration order be made against the estate of the debtor.

(2) Mr McIntyre pay fourth-fifths of the costs of Messrs Gye and Perkes as taxed, such costs to be paid in accordance with the Bankruptcy Act.

The Court directs that:

(3) A draft of this order be delivered to the Registrar within seven days in accordance with Rule 124 (2).

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

HILL J Before the Court is a bankruptcy petition presented by Messrs Clement Anthony Gye and Raymond David Perkes against Mr Neville McIntyre, the debtor. The act of bankruptcy upon which the petition is founded was a failure, on or before 8 April 1993 to comply with the provisions of a bankruptcy notice served on 25 March 1993. That bankruptcy notice was based upon a certificate of taxation obtained by Messrs Gye and Perkes against Mr McIntyre in the Supreme Court of New South Wales on 21 September 1990.

1. Subsequent to the expiry of the time for compliance with the bankruptcy notice, and in fact on 23 July 1993, the debtor paid the sum of $19,971.51 to Messrs Gye and Perkes in satisfaction of the amount claimed in the bankruptcy notice. However, the petition alleges that the debtor remained indebted to Messrs Gye and Perkes in a sum which is said as at the date of the petition to amount to $88,421.49, by virtue of various cost orders in the multitudinous litigation between the parties.

2. The debtor opposes the making of the petition on what are essentially two grounds. First, the bankruptcy notice is attacked because it is said that as a result of a certain conversation that took place between Mr Gye and Mr Perkes on or about 7 July 1992 there ceased to be a debt owing by Mr McIntyre to Messrs Gye and Perkes jointly, but instead each became entitled to a several debt of half of the amount formerly owing by Mr McIntyre to them. Second, it is alleged, that if that be incorrect, that Mr McIntyre is entitled to the benefit of various set-offs for costs orders which he has, or he and his wife have, obtained in his favour against either Messrs Gye and Perkes jointly or one or other of them severally. Finally, it is submitted that as a matter of discretion I should, in the circumstances, dismiss the petition. Subject to these matters, it is conceded that the evidence of the petitioning creditors would satisfy the requirements for the making of a sequestration order.

3. According to the uncontested evidence, on or about 7 July 1992 Mr Gye and Mr Perkes had a conversation to the following effect:
   

Gye: "We will split all moneys we get from the McIntyres and Carpenter under the cost orders made in our favour fifty/fifty between us." Perkes: "Yes, I agree."

1. Subsequent to that conversation, Mr Perkes was cross-examined before the prothonotary of the Supreme Court of New South Wales and a transcript of that cross-examination was in evidence before me. In the course of that cross-examination, Mr Perkes admitted that it was a consequence of what he referred to as the severance of the joint tenancy in the cost order, that he was no longer a joint tenant in relation to that costs order. A statement of alleged facts filed on behalf of Messrs Gye and Perkes states as follows:
   

"SEVERANCE OF JOINT TENANCY 13.1 On or before 8 July 1992 Gye and Perkes severed their joint tenancy of costs orders made in their favour."

1. Counsel for Mr McIntyre submitted that by the agreement reached between them and the admissions to which I have referred, Mr Gye and Mr Perkes had severed the joint tenancy between them as to costs and become entitled as tenants-in-common in equal shares each to 50% of the money payable to them. It is submitted that they have held themselves out and agreed as between themselves and Mr McIntyre that they were no longer jointly entitled to the whole fund but severally entitled to half of it. It was further submitted that it followed from the decision of the Court of Appeal of the Supreme Court of New South Wales in Adamopoulos v Olympic Airways SA (1991) 25 NSWLR 75 that there was no longer owing to Mr Gye and Mr Perkes jointly, immediately after the severance, the moneys claimed to be so owing in the bankruptcy notice.

2. The facts in Adamopoulos were quite different to those of the present case. In that case moneys had been paid to a travel agent by customers on account of tickets issued by Olympic Airways SA ("Olympic") and Qantas Airways Limited ("Qantas"). In the proceedings at first instance judgment was given in favour of the two airlines jointly, the money being held by the agent in trust for the airline. There was some difficulty in determining the precise entitlements of the two airlines, although the parties subsequently agreed upon a basis for such a division.

3. In due course bankruptcy proceedings were commenced by a bankruptcy notice obtained at the instance of Olympic and Qantas, based on the order of the Supreme Court. There was a failure to comply with that notice and a bankruptcy petition was presented and a sequestration order made. Ultimately the sequestration order was set aside by the full Court of this Court on the basis that it should not have been made on the petition of judgment creditors when an appeal was pending against the judgment (Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 531). However, in the course of their judgment, Burchett and Gummow JJ drew attention to some difficulties in relation to the orders made at first instance in the Supreme Court.

4. In the Court of Appeal, that Court altered the judgment at first instance to reflect the several interests of Olympic and Qantas in the amount owing to them. It was held there was no difficulty in the airlines agreeing on a division of the chose in action. Handley JA, with whom Kirby P and Mahoney JA agreed, said (at 87):
   

"The division of a chose in action to recover mixed trust funds agreed upon between the two parties beneficially entitled (unless the agreement by chance reflects their strict entitlements) must operate as an assignment of part of the equitable chose in action of one party to the other.

A chose in action may be assigned while proceedings are pending to enforce it. In such a case the proceedings do not abate but the Court may make orders for the rearrangement of the parties and the further conduct of the proceedings... I see no reason why a compromise operating by way of assignment should not be recognised and orders made in accordance with the compromise, provided, as in this case, all the necessary parties are before the Court."

1. His Honour pointed out that an assignee of the chose in action would take subject to equities which, in a particular case, might prevent the Court in entering final judgment in accordance with the agreement of the beneficiaries.

2. The circumstances which arose in Adamopoulos were unusual. It does not, however, follow from that case that in law a judgment debt requiring payment to two joint debtors jointly and severally is to be treated as if a debt of one half to each of them severally merely because of an oral agreement entered into between the two judgment creditors.

3. Counsel for Mr McIntyre properly drew my attention to the decision of the Court of Appeal of the United Kingdom in In Re Palmer; Ex parte Brims (1898) 1 QB 419. In that case a judgment creditor had assigned in equity a judgment debt. The question which arose was whether the judgment creditor was, in these circumstances, entitled to issue a bankruptcy notice based upon the judgment debt. The Court was unanimously of the agreement that the bankruptcy notice was valid, whether or not there had been an equitable assignment. This was so because it was issued at the instance of a person who had obtained a judgment and who was still legally entitled to enforce it. An equitable assignee would not have been entitled to enforce the judgment although the equitable assignee could compel the assignor so to do.

4. It is unnecessary for me to determine precisely the effect of the discussion between Mr Gye and Mr Perkes. I am prepared to accept that it had the consequence of severing the joint tenancy as suggested and operated as an equitable assignment from the one to the other of 50% of the proceeds of the judgment debt. But it is not suggested that the facts supported a conclusion that there was a legal assignment of the judgment debt. There are two reasons for this. First, the provisions of s.12 of the Conveyancing Act 1919 (NSW) have not been complied with. Such compliance would require an assignment in writing with notice to the debtor. No assignment here was in writing. Second, it seems to me that the real effect of the agreement between them was to bring about the result that in law they remained the legal owners of the debt but held that debt for themselves as tenants-in-common in equal shares.

5. Whichever view of the transaction one takes, one is left with the proposition that Mr Gye and Mr Perkes were the persons who had obtained judgment and they were the persons, and they alone, who were legally entitled to enforce it.

6. The matter can be tested, as counsel for Messrs Gye and Perkes submitted, by reference to ordinary principle. There is no doubt that a judgment creditor can only issue a bankruptcy notice if he is in a position to issue execution: Australian Workers' Union v Bowen (1945-1946) 72 CLR 575 at 583. Unless the judgment or order was in some way altered, no individual judgment creditor where the amount is owing to two or more judgment creditors jointly would be entitled to obtain execution.

7. It follows, in my view, that the bankruptcy notice in referring to the joint debt of Mr Gye and Mr Perkes was valid and that this ground of opposition to the petition must fail.

8. The question of set-off is somewhat complicated. If one puts to one side the question of interest, the situation as I understand it is as follows:
   

* Mr and Mrs McIntyre jointly owe Mr Gye and Mr Perkes jointly $47,703.32.

* Mr McIntyre individually owes Mr Gye and Mr Perkes jointly $17,626.18.

* Mrs McIntyre individually owes Mr Gye and Mr Perkes jointly $2,871.00.

* Mr Gye and Mr Perkes jointly owe Mrs McIntyre individually $21,037.93.

* Mr Gye and Mr Perkes jointly owe Mr and Mrs McIntyre jointly $17,371.84.

* Mr Perkes owes Mr and Mrs McIntyre jointly $10,709.08.

1. The above figures differ from those used by counsel for Messrs Gye and Perkes because they include not only amounts owing in respect of costs for which certificates have issued, but amounts owing for costs which have been taxed but where no certificate has yet issued.

2. When these figures are analysed the individual debt of Mrs McIntyre to Messrs Gye and Perkes and that of Messrs Gye and Perkes to Mrs McIntyre can be taken out of consideration. Mrs McIntyre is not a party to the present proceedings and there can hardly be a set-off involving persons not before the Court.

3. As a matter of mathematics, as at 11 March 1994 and when one takes into account both the joint debts and those debts in severalty, Mr McIntyre owes Messrs Gye and Perkes the sum of $64,699.35, together with interest continuing to run at the rate of $20.54 per day. This calculation is greatly in excess of that shown above for the very simple reason that the above figures contained no interest component. The figure of $64,699.35 takes into account the fact that Mr Perkes was indebted directly to Mr and Mrs McIntyre.

4. Two submissions were made on behalf of Mr McIntyre. First, it was said that given the litigation between the parties and the set-offs that existed for costs between them, the present was a case where no order should be made on the petition. I reject that submission. The fact is that Mr McIntyre, on the figures in evidence, owes at least $64,699.35 after all set-offs are taken into account. Merely because the parties have engaged in bitter litigation over an extended period of time does not mean that a sequestration order should not be granted. Fortunately that litigation is coming to an end and, so far as appears from comments made at the bar table, only one outstanding matter involving costs in the Supreme Court of New South Wales remains.

5. However, the existence of the set-offs would be relevant to my exercise of discretion whether a sequestration order should be made. Counsel for Mr McIntyre indicated that if I were of the view that a sequestration order should otherwise be made, his client would wish the opportunity to pay to Messrs Gye and Perkes the sum owing after set-off. I accordingly indicated that provided I were satisfied that Mr McIntyre was solvent, as a matter of discretion I would, having regard to the state of accounts between the parties, be prepared to dismiss the petition upon undertakings being given to the Court that Mr McIntyre will pay the sum of $64,699.35 within a reasonable time. I accordingly stood over the petition until today to enable Mr McIntyre to adduce evidence of solvency.

6. When the matter came before me to deal with the limited question of solvency, Mr Garling, who then appeared for Mr McIntyre, sought to reopen the evidence to demonstrate that, in respect to all or some of the amounts, a set-off had been made before either or both of the issue of the bankruptcy notice and/or the presentation of the petition. This was despite orders made by Sweeney J on 5 October 1993 directed at ensuring, inter alia, that all evidence would be filed and that the matter would be ready for hearing before it was set down and despite the fact that affidavits had been read and that I was told by counsel for both parties that the set-off figures were not in dispute.

7. In my view the application to reopen evidence was in these circumstances too late. The petitioning creditors would then have to reopen their case and the matter would not now proceed. I had deferred giving judgment only to afford Mr McIntyre the opportunity to demonstrate that he was solvent and had indicated the course I proposed to adopt, albeit that I had not yet delivered reasons.

8. An affidavit of Mr McIntyre dated 8 April 1994 was read. It stated that, apart from about $200 and personal effects, he had no assets and that apart from the cost orders applied against him he had no liabilities. His affidavit made it clear that he could not pay the $64,699.35. Although he said that his wife had "agreed to indemnify him" against the cost orders I was told that undertakings to this effect could not be obtained.

9. I am thus left with an uncontradicted (and admitted) debt of $64,699.35 owing by Mr McIntyre to the petitioning creditors and evidence of Mr McIntyre's inability to pay that debt. Mr McIntyre also admits that he has committed an act of bankruptcy. In these circumstances I would not exercise my discretion so as to refuse to make a sequestration order. Rather, I am satisfied that it is appropriate to make such an order.

10. Before today, this matter had been before the Court on four separate days. One of those days when the matter was listed for hearing, the hearing was aborted because it was necessary for the petition to be amended. On another of those days, although counsel was ready to hear the matter, by some mistake the matter had not been set down in the Court's lists for hearing and no judge was available to hear it. The remaining two occasions, both half days, have been before me. In these circumstances I would order Mr McIntyre to pay four-fifths of the costs of Messrs Gye and Perkes as taxed, such costs to be paid in accordance with the Act.

11. I have arrived at the ratio of four is to five as an attempt to avoid the complications which could arise by an order that the costs of the one day of Mr McIntyre be borne by Messrs Gye and Perkes.