Rookharp Pty Limited v Webb & Anor
[2011] FMCA 801
•14 October 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ROOKHARP PTY LIMITED v WEBB & ANOR | [2011] FMCA 801 |
| BANKRUPTCY – Creditor’s petition – whether bankruptcy notice must be issued in the names of all joint creditors – whether all joint creditors must be named as petitioners – scope of s.40(3)(d) of the Bankruptcy Act – whether respondents solvent – whether overstatement in bankruptcy notices or creditor’s petition – whether bankruptcy notices invalid as imposing interest on professional costs. |
| Bankruptcy Act 1966 (Cth), ss.40, 41, 44, 52, 306, 308 Civil Procedure Act 2005 (NSW), ss.3, 101, 136 Corporations Act 2001 (Cth), s.568A |
| Abigroup Limited v Abignano (1992) 39 FCR 74; [1992] FCA 567 Apps & Anor v Campbell [2010] FMCA 1 Corney v Brien (1951) 84 CLR 343; [1951] HCA 31 Dudzinski v Kellow [2003] FCAFC 207 Emerson and Another v Wreckair Pty Ltd (1992) 33 FCR 581; (1992) 109 ALR 539 Maher v CBA [2007] FMCA 400 McDonnell v Fernwood Fitness Centre Pty Ltd [2005] FMCA 877 McIntosh v Shashoua (1931) 46 CLR 494; [1931] HCA 56 McIntyre v Gye and Another (1994) 51 FCR 472; 122 ALR 289 Oliveri v Stafford and Others (1989) 24 FCR 413; [1989] FCA 486 Re Bowen; Ex parte The Australian Workers Union & Ors (1945) 13 ABC 275 Re Hamor; Ex parte Deamer and Another (1968) 11 FLR 261 Re Longo; Ex Parte Longo (1995) 57 FCR 523; [1995] FCA 1324 Re Pollnow (1993) 12 ACLC 88 Re Richards; Ex parte Sommers (1947) 14 ABC 112 Re Thompson; Ex parte Thompson v Grimley Pty Ltd and Others (1995) 61 FCR 544; (1995) 135 ALR 700 Sandell v Porter and Another (1966) 115 CLR 666; [1966] HCA 28 Satchithanantham v Multilink Investments Pty Limited [2002] FCA 1277 Scook v Sims Construction Pty Ltd (2004) 3ABC(NS) 43; [2004] FCAFC 306 Wilson v Hambrook [2009] FMCA 991 Wren v Mahony (1972) 126 CLR 212; [1972] HCA 5 |
| Applicant: | ROOKHARP PTY LIMITED |
| First Respondent: | ELAINE THERESE WEBB |
| Second Respondent: | IVAN JOHN WEBB |
| File Number: | SYG 2268 of 2010 |
| Judgment of: | Barnes FM |
| Hearing dates: | 8 April 2011, 21 April 2011, 27 April 2011, 5 July 2011 |
| Last date for Submissions: | 19 July 2011 |
| Delivered at: | Sydney |
| Delivered on: | 14 October 2011 |
REPRESENTATION
| Solicitors for the Applicant: | McLean & Associates |
| Counsel for the Respondents: | Mr N Allan |
| Solicitors for the Respondents: | Ziman and Ziman Solicitors |
ORDERS
The creditor’s petition is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2268 of 2010
| ROOKHARP PTY LIMITED |
Applicant
And
| ELAINE THERESE WEBB |
First Respondent
| IVAN JOHN WEBB |
Second Respondent
REASONS FOR JUDGMENT
These proceedings
The applicant, Rookharp Pty Limited (Rookharp) filed and presented a creditor’s petition in relation to Elaine Therese Webb and Ivan John Webb on 20 October 2010. In the creditor’s petition it was claimed that Mrs Webb owed Rookharp the amount of $191,529.90. This was calculated as including an amount of $158,339.19 which was for goods hired and sold by the applicant to Mrs Webb and due under a final judgment obtained in the District Court at Dubbo on 8 October 2008 (less a payment of $10,000), interest thereon and enforcement costs, together with the amount of a costs order made by the District Court on 24 May 2010 and the applicant’s costs of an earlier creditor’s petition. Allowance was also made for payments of $17,000 on 20 March 2009 and $5,000 on 12 July 2010.
The act of bankruptcy committed by Mrs Webb was said to be her failure to comply on or before 31 May 2010 with the requirements of a bankruptcy notice served on her on 10 May 2010.
In the creditor’s petition Mr Webb was said to owe Rookharp $190,022.56 consisting of an amount of $157,069.31 for goods hired and sold by Rookharp to Mr Webb and due under a final judgment obtained in the District Court at Dubbo on 11 September 2008 (less a payment of $10,000) with interest thereon and enforcement costs, together with the amount of the 24 May 2010 costs order and the applicant’s costs of the earlier creditor’s petition. Again, allowance was also made for payments of $17,000 on 20 March 2009 and $5,000 on 12 July 2010.
In Mr Webb’s case, the act of bankruptcy was said to consist of a failure to comply on or before 15 June 2010 with the requirements of a bankruptcy notice served on him on 26 May 2010.
The creditor’s petition was before the court on a number of occasions. On 10 December 2010 the respondents were ordered by a registrar of the court to file and serve a notice of opposition and supporting affidavits by 24 December 2010. They did not do so until 1 February 2011, on which date they were given time to file further evidence by 22 February 2011. No such evidence was filed. Their then lawyers filed a notice of intention to withdraw on 3 March 2011. On 15 March 2011 (and thereafter) a supporting creditor (BOQ Equipment Finance Pty Ltd) appeared. The respondents did not appear on 15 March 2011 but their son sought to appear on their behalf when the matter came before me as duty Federal Magistrate. In those circumstances I listed the matter for hearing on 8 April 2011. Further orders were made for the filing of affidavits. Mr and Mrs Webb each filed an affidavit outside the time provided for in those orders (on 8 April 2011).
On 8 April 2011 Mr Allan of counsel appeared for the respondents but informed the court that he had only come into the matter some 30 minutes earlier and sought time to provide submissions.
The matter was adjourned part heard. On the next court date the respondents sought to rely on an amended notice stating grounds of opposition. A draft of this document was provided to the court. Leave was given for the respondents to file and rely on the proposed amended notice. The respondents have not filed a copy of the amended notice. However the hearing proceeded on the basis of the draft amended notice stating grounds of opposition. The applicant was given the opportunity to file further evidence in relation to fresh matters raised by the respondents. This necessitated a further adjournment. The parties were also given the opportunity to make post-hearing submissions.
There are four grounds in the amended notice of opposition as follows:
1. the respondents are solvent within the meaning of section 52(2)(a) of the Bankruptcy Act
2. The amount asserted as owing in the Creditors Petition is overstated in that:
(a) No amount is properly owing and the judgment debts upon which the Petition is based are not in truth and reality debts due to the petitioning creditor; alternatively
(b) The petitioning creditor’s judgment amount is offset by the value of its ownership of a Kobelco Crane which it purchased as part of the alleged agreement upon which its Judgment in the District Court is based.
(c) The first respondent debtor’s debt is limited to a principal amount of $70,000.00.
3. The Petition is void ab initio in that Mr David Rooke, a joint creditor, has not joined in the Petition and has not been joined as a respondent.
4. The creditors Petition is based upon non-compliance with Bankruptcy Notices that are invalid and/or nullities because both impose interest on professional costs ordered upon entry of Default Judgments. This is contrary to section 101 of the Civil Procedure Act.
It is necessary to consider first the circumstances leading up to the issue of the creditor’s petition and the history of transactions and litigation between Mr and Mrs Webb and Rookharp and also Mr David Rooke.
Relevantly, on or about 11 July 2008, Rookharp and Mr Rooke, who is a director of Rookharp, commenced proceedings in the District Court of New South Wales at Dubbo against Mr and Mrs Webb and a company known as Thornban Pty Ltd (now in liquidation) of which Mr and Mrs Webb were directors seeking damages for breach of contract, conversion and under the Fair Trading Act 1987 (NSW) or, in the alternative, damages for breach of a Deed.
Those proceedings arose out of circumstances in which cranes were said to have been hired by Mr and Mrs Webb and/or Thornban. It was pleaded that the hire agreement in question was entered into on 31 May 2007 and that the defendants were indebted to the plaintiffs pursuant to the agreement. In the alternative, by an agreement being a Deed executed by the plaintiffs and delivered to the defendant’s solicitors on 15 May 2008 made between all the parties, it was said to have been agreed that the defendants would pay $80,000 in settlement of a dispute. The defendants (the Webbs) paid the plaintiffs the amount of $10,000 and the plaintiffs sought payment of the balance of $70,000. The Webbs did not file a defence.
On 11 September 2008 Rookharp and Mr Rooke obtained a default judgment against Mrs Webb in the District Court proceedings. The certified copy of the default judgment refers to a total of $167,069.31 made up of an amount of $164,321.01 and costs of $2,748.30. Similarly, default judgment was obtained against Mr Webb in the District Court proceedings on 8 October 2008 for a total of $168,339.19 made up of an amount of $166,141.29 and costs of $2,197.90. These are the judgments on which the bankruptcy notices NN4538/08 and NN4539/08 issued on 24 November 2008 were based.
The bankruptcy notices were served on each of Mr and Mrs Webb on 5 December 2008. The Webbs paid $17,000 to the creditors on 20 March 2009.
On 30 March 2009 a creditor’s petition was presented in this court in proceedings SYG742 of 2009 by Rookharp and Mr Rooke against Mr and Mrs Webb (the first creditor’s petition proceedings).
On 4 May 2009 the first creditor’s petition proceedings were adjourned to enable negotiation between the parties. There were four further adjournments. A notice of motion to set aside the District Court judgments was filed in June 2008.
A Deed of Acknowledgment of Debt and Settlement and Release (the Deed) was signed by Mr and Mrs Webb, in September 2009.
On 6 October 2009 it was ordered that the petition be dismissed and that there be no order as to costs. Mr Rooke and Rookharp did not execute the Deed until 1 April 2010. A copy of the Deed is in evidence before the court. It recites the history of proceedings between the parties and negotiations for resolution of the matter. It contains an acknowledgement by Mr Webb that he was indebted to Mr Rooke and Rookharp for the amount of $167,069.31, being the judgment against him obtained in the District Court proceedings and by Mrs Webb that she was indebted to Mr Rook and Rookharp for the amount of $168,339.19, being the judgment obtained against her in the District Court proceedings.
The Deed also recited that:
By way of compromise and in full and final satisfaction of all claims in the District Court proceedings against [Mr and Mrs Webb] and including costs in the Federal Magistrates Court proceedings and including costs in the District Court proceedings [Mr Rooke] and Rookharp will accept the sum of $117,000.00 on the condition that payment of the said sum is made in accordance with paragraph 1 below with time being of the essence for each payment.
In paragraph one of the operative part of the Deed it was provided that Mr and Mrs Webb would make payments to the solicitors for Mr Rooke (referred to as “David” in the Deed) and Rookharp “as follows”. Reference was made to $17,000 already paid (apparently pursuant to the earlier attempt to settle the matter on about 20 March 2009) and the Deed provided for further payments of 10 instalments of $10,000 on each of 30 September 2009, 30 October 2009; 30 November 2009; 31 December 2009; 29 January 2010; 26 February 2010; 31 March 2010; 30 April 2010, 31 May 2010 and 30 June 2010. The Deed provided that time was of the essence with regard to each of these payments and stated in paragraph three:
In the event that any payment referred to in paragraph 2 above is not received by the stipulated date, then each of David and Rookharp shall immediately become entitled to:
i. enforce the judgment obtained in the District Court proceedings as against Ivan for the amount referred to at paragraph G [$167,069.31] above together with interest calculated in accordance with Schedule 5 of the Uniform Civil Procedure Rules as enacted pursuant to the Civil Procedure Act 2005 from the date of the entry of judgment until the judgment debt is satisfied; and
ii. enforce the Judgement (sic) obtained in the District Court proceedings against Elaine for the amount referred to at paragraph H above [$168,339.19] together with interest calculated in accordance with Schedule 5 of the Uniform Civil Procedure Rules as enacted pursuant to the Civil Procedure Act 2005 from the date of the entry of judgment until the judgment debt is satisfied; and
iii. any costs incurred in the District Court proceedings, including any costs which remain payable pursuant to the judgements (sic) obtained respectively against Ivan and Elaine in the District Court proceedings; and
iv. any costs incurred in the Federal Magistrates Court proceedings.
As discussed further below, it is this provision that is relied on by the applicant as authorising it to enforce the judgments, obtain the issue of bankruptcy notices in its sole name and be the sole creditor named in the creditor’s petition.
The Deed continued:
In the event that David and Rookharp become entitled to rely on paragraph 3 above then Ivan and Elaine shall be entitled to be credited with any payments made by them or on their behalf to David and Rookharp but only on the total amount owing for the judgment debt, interest and costs.
However, importantly, under paragraph five the Deed was “not [to] become binding until it [wa]s executed by all parties”. It was not executed by Mr Rooke and Rookharp until 1 April 2010.
The Deed also provided that on execution of the agreement the first creditor’s petition proceedings would be dismissed with no order as to costs and the then current notice of motion in the District Court proceedings seeking to set aside the default judgments was to be dismissed with no order as to costs. Both such proceedings were dismissed.
It was also acknowledged that “David [Mr Rooke] and Rookharp shall not enforce the judgments obtained against” Ivan and Elaine “unless there is default in the payment of any monies referred to in paragraph 1” of the Deed. Each party acknowledged that he, she or it had the opportunity to seek independent advice prior to executing the Deed and each accepted it as fair and reasonable in settlement of the matters referred to in the Deed. The Deed also provided that if any provision was or became void or unenforceable the remaining provisions continued to be of full force and effect.
It is not in dispute that no payments by either of the Webbs to Rookharp, Mr Rooke or their solicitors were made after the $17,000 paid in 2009 except for $5,000 paid on 12 July 2010.
As set out in the creditor’s petition presented on 20 October 2010 allowance was made by Rookharp in calculating the Webbs’ indebtedness for the payment of $10,000 made before the judgments as well as for the two later payments.
On or about 7 April 2010 the Webbs made a further application to set aside the District Court judgment. That application was dismissed. Finally a further such application was made and dismissed during the course of these proceedings.
Whether both creditors had to be named as creditors in the bankruptcy notices and as petitioner in the creditor’s petition
It ultimately emerged that this was the main ground relied on by the Webbs, although it was not raised in the original notice of opposition or, indeed, until after the hearing commenced. The manner in which this issue was raised occasioned the need for the applicant to seek leave to file further evidence and led to adjournment of the hearing.
Ground three in the amended notice of opposition is as follows:
The Petition is void ab initio in that Mr David Rooke, a joint creditor, has not joined in the Petition and has not been joined as a respondent.
As it emerged in submissions, the respondents submitted that on the authority of Australian Workers’ Union and Others v Bowen (1946) 72 CLR 575; [1946] HCA 24, as Mr Rooke and Rookharp were joint creditors it was necessary for both of them to apply for the issue of the bankruptcy notices on which the creditor’s petition was based and, in turn, to be named as creditors in the creditor’s petition. As the former had not occurred it was submitted that the failure to join Mr Rooke in the petition could not be addressed by an amendment to the petition as the bankruptcy notices on which it was based were invalid.
The respondents relied on the remarks of Latham CJ in Bowen at 583 that:
Only one writ of execution can be issued for the one judgment debt to which joint judgment creditors are entitled, and a bankruptcy notice in the case of such creditors can be effective only when issued by or on behalf of all the judgment creditors. So also a bankruptcy petition must be presented by all the joint judgment creditors.
Similarly, Dixon J stated at 590:
The right to enforce the judgment was vested in those persons jointly, and not severally, and, therefore, it was necessary that it should be obtained in the names of all of them by a person authorized either in fact or in law so to obtain it …
The petition for sequestration, as it was framed, is entirely irregular, because it is not signed by or on behalf of all of the petitioners.
It was pointed out that Bowen had been followed in relatively recent decisions of the Full Court of the Federal Court. In Dudzinski v Kellow [2003] FCAFC 207 the Full Court dismissed an appeal from a sequestration order. The grounds of appeal included contentions that the petition was not signed by the creditors but by their solicitor, that only one of the joint creditors “caused issuing of the petition” and that the petition “was not signed by all judgment creditors or with their authority” (at [12]). The Court observed at [19]:
Pursuant to s 44 of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act") a creditor's petition may be presented by a creditor who is owed an amount of not less than $2,000 [as the law then stood]. Where a debt is owed to more than one creditor jointly, all must present the petition. See Australian Workers' Union & Ors v Bowen (1946) 72 CLR 575.
In Scook v Sims Construction Pty Ltd (2004) 3ABC(NS) 43; [2004] FCAFC 306 a differently constituted Full Court of the Federal Court allowed an appeal from a decision of a Federal Magistrate dismissing an application to set aside a bankruptcy notice on a ground raised for the first time on appeal that the bankruptcy notice was invalid due to it being issued in the name of one, but not all, of the joint creditors. The court’s consideration of this ground was as follows (at [22]):
The appellant supports the ground by reference to Australian Workers’ Union v Bowen…That is an authority for the proposition that a bankruptcy notice given by only some of the judgment creditors is invalid. The authority has been regularly followed and was recently applied by the Full Court in Dudzinski v Kellow…The respondent does not contest the effect of the authority or submit that it was not followed in the formulation of the bankruptcy notice relevant to this proceeding. (citations omitted)
The respondents submitted that these authorities demonstrated that the principle in Bowen was still applicable. It was also submitted that it was not open to a party to somehow participate in a creditor’s petition by way of agency, but that in any event Mr Rooke’s evidence did not establish that Rookharp was authorised to collect the debt as agent for Mr Rooke by obtaining the issue of a bankruptcy notice and creditor’s petition in its name. It was suggested that this case could be distinguished from cases in which bankruptcy notices had been signed by a solicitor and the issue was whether the solicitor had the authority of all of the named creditors (see, for example, Maher v CBA [2007] FMCA 400), as both joint creditors were not named in the bankruptcy notices in question.
The applicant submitted first that it was relevant to have regard to s.44(1) of the Bankruptcy Act 1966 (Cth) which provides that:
(1) A creditor’s petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $5,000 or 2 or more debts that amount in the aggregate to $5,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $5,000;
(b) that debt, of each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity;
(ii) is payable either immediately or at a certain future time; and
(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
It was submitted that the wording in s.44(1)(a) was permissive and not mandatory in the sense that it allowed for the presentation of a petition by a creditor or by several creditors. It was submitted that the applicant creditor, Rookharp, was prima facie entitled to present the petition as a creditor in circumstances where there was a debt owing by each debtor to it which amounted to more than $5,000 and each of which was a liquidated sum due at law and payable now or at a future time in circumstances where acts of bankruptcy had been committed within six months prior to presentation of the petition.
It was also submitted that Bowen could be distinguished on the facts because in this case there was evidence that Mr Rooke had authorised the issue of the bankruptcy notices and the creditor’s petition as attested in his affidavit of 27 April 2011 and as was said to be implicit in his verification of the petition and swearing of the affidavit of debt. It was also submitted that it had been held by this court in Maher that where a joint creditor acted with the authority of the other creditors Bowen was distinguishable and that this was clear authority which the court should follow.
Subsequently, reliance was placed on the Deed of Acknowledgment of Debt said to have been executed by the Webbs in or about September 2009 as amounting to ostensible consent by the respondents to the action of the applicant and also as allowing the applicant creditor to fall within the ambit of s.40(3)(d) of the Bankruptcy Act which provides:
a person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed to be a creditor who has obtained a final judgment or final order.
The applicant submitted that it was relevant that at common law a joint creditor was wholly entitled to seek payment of a debt by a debtor and that this would discharge the whole of the debt to both creditors. (See McIntyre v Gye and Another (1994) 51 FCR 472 at 479; 122 ALR 289 at 295). It was contended that to say that a bankruptcy court would require joint creditors to both issue a bankruptcy notice and a creditor’s petition when the law would not otherwise require joint enforcement would seem to be an absurd result.
The applicant also submitted that because of the unique factual circumstances of this case the authorities cited by the respondents were not such as to prevent Rookharp being the only creditor named on the bankruptcy notices or on the creditor’s petition, in essence on the basis that by agreement made after the default judgments in question the respondents themselves ostensibly consented to the action of the applicant of which they now complain and because at all times the applicant was said to have acted with the express knowledge and authority of its co-creditor.
It is convenient to consider first the applicant’s submission that Bowen does not compel a conclusion that in the particular circumstances of this case the creditor’s petition (and, for that matter, the bankruptcy notices) had to be presented by both Mr Rooke and Rookharp and that it could be distinguished on the authority of Maher.
What was in issue in the High Court in Bowen was whether two of the persons named as creditors on a bankruptcy notice had authorised the issue of the bankruptcy notice on the application of a solicitor in the name of all of the creditors. In addition, the two creditors in question had not signed the creditor’s petition. In the absence of such signature, there was an issue about the effect of the absence of attestation of each of the signatures of the petitioning creditors, contrary to the then applicable requirement of the Bankruptcy Rules. The Court of Bankruptcy had dismissed the creditor’s petition on the ground that the bankruptcy notice was invalid and on the further ground that the petition had not been presented by all the persons to whom the debtor owed the judgment debt upon which the bankruptcy notice was based. The majority of the High Court dismissed the appeal (Starke J dissenting).
As all of the joint creditors were named in the bankruptcy notice and the petition in Bowen, the question of whether each person who had been a party in relation to the judgment on which the bankruptcy notice (and hence the creditor’s petition) was based had to be named as a creditor in a bankruptcy notice and as a petitioner in the creditor’s petition was not directly in issue before the High Court. However in the course of their judgments their Honours addressed this issue in considering whether the issue of the bankruptcy notice had been authorised by all the creditors.
Latham CJ had regard (at 583) to the fact that the retainer of the solicitor who obtained the issue of the bankruptcy notice did not entitle him to institute bankruptcy proceedings on behalf of his clients. Hence it was prima facie invalid. His Honour found that two of the named creditors had not authorised the solicitor to issue the bankruptcy notice on their behalf. The petition, which was not signed by either of these two creditors, was said to have been rightly dismissed on this ground and, relevantly for present purposes, on the further ground that all the joint creditors entitled to the judgment debt were not petitioners.
The bankruptcy notice had been issued in relation to only one of the persons liable under the judgment on which it was based. It was in those circumstances that Latham CJ referred to the fact that the debtor’s liability under the judgment which formed the basis for the bankruptcy notice (a costs orders) was joint and several and stated at 583 that:
In such a case a bankruptcy notice may be issued against one of the joint judgment debtors without including the others and failure to comply with the notice would be an act of bankruptcy on the part of that judgment debtor.
However this highlights the distinction between the position of joint creditors in whose favour a judgment is given who have a right to enforce the judgment jointly and not severally and that of debtors whose liability under a judgment is joint and several.
Relevant to the applicant’s contentions about the language of the Bankruptcy Act, Latham CJ referred to the forerunner to s.41 of the Bankruptcy Act (s.52(j) of the 1924 Act which provided (as does s.41) that a bankruptcy notice may be issued upon the application of “a creditor” who has obtained a final judgment. However His Honour stated (at 583):
A judgment creditor can issue a bankruptcy notice only if he is in a position to issue execution (Ex parte Woodall; In re Woodall; Ex parte Ide; In re Ide). Only one writ of execution can be issued for the one judgment debt to which joint judgment creditors are entitled, and a bankruptcy notice in the case of such creditors can be effective only when issued by or on behalf of all the judgment creditors. So also a bankruptcy petition must be presented by all the joint judgment creditors: Ex parte Owen; In re Owen; Brickland v. Newsome and see Re Tucker; Ex parte Tucker. The decision in Re Darby that one of a number of joint judgment creditors was entitled to obtain the issue of a bankruptcy notice in the name of all the creditors cannot be supported as against the authorities to which I have referred. (emphasis added, footnotes omitted)
On this view a bankruptcy notice must be issued by or on behalf of all the judgment creditors. The applicant submitted that insofar as Latham CJ relied on early English authorities in support of the general proposition that a bankruptcy notice given by only some of the judgment creditors was invalid (see Scook at [22]) the circumstances of those cases could also be distinguished. Whether or not that is so, Latham CJ in Bowen expressed a clear view in this respect. Furthermore Scook is directly in point and binding on this court. As in Scook the bankruptcy notices in this case were issued in the name of one of a number of joint creditors.
Latham CJ also addressed a contention that only one of the judgment creditors was beneficially interested in the judgment debt, on the basis that that creditor had paid all the costs which were sought to be recovered from the debtor and the other defendants had no liability to pay any of the costs of recovery. It was contended that on the offer of an indemnity against costs to the two creditors in question, those creditors were bound to allow their names to be used in the bankruptcy proceedings.
However, there was no suggestion that it would not be necessary for the names of these two joint creditors to be used in the bankruptcy notice and creditor’s petition. In any event, Latham CJ found (at 584) that there was “no satisfactory ground for holding that the other joint creditors ha[d] released their interest in the debt” created by the judgment to the individual creditor and that there was no evidence of any offer of indemnity.
Dixon J agreed in Bowen that the petition was rightly dismissed in circumstances where the solicitor had no express authority from two of the named creditors to issue the bankruptcy notice.
Indeed, while Dixon J accepted that only that creditor was beneficially entitled to any money recovered from the debtor, he found that such beneficially entitled creditor would be entitled to require the other creditors to “lend their names” to any proceedings for the enforcement of the order, including proceedings in bankruptcy (at 589). This would suggest that even where there was some form of authority to one creditor from other joint creditors to obtain the issue of the bankruptcy notice it would still be necessary for the bankruptcy notice applied for by one creditor with the authority of another to include the names of both joint creditors.
As his Honour found (at 589):
… except where [a person] has the express or implied authority of the party in whose name he desires to proceed, the person beneficially entitled in the subject of the proceeding must, as a general rule, seek the consent of the nominal party and offer him a sufficient indemnity against any liability for costs to which the use of his name might expose him. Unless the real actor does this, or unless special circumstances exist excusing him from doing so, the courts will not permit him to join, or proceed in the names of, nominal parties without their actual authority, express or implied.
Dixon J regarded an indemnity as a condition of the beneficially entitled creditor to be allowed to proceed in the names of all the creditors. There was no such indemnity. It was in that context that his Honour stated (at 589):
It could not be said that the bankruptcy notice was applied for as required by s.52(j) of the Bankruptcy Act 1924-1933 by the persons entitled to enforce the decree for costs, if one or some only of them applied without an authority in law or in fact from all the others which was complete and absolute.
Insofar as the applicant relied on these remarks to suggest one creditor could authorise another to proceed in his or her sole name, this was not the context in which these remarks were made. Rather, as his Honour went on to state, the context was a bankruptcy notice in which the names of two creditors were used without their express or implied authority (at 589). In this case the bankruptcy notices named only one creditor and were applied for by a solicitor as authorised agent for that one creditor.
Dixon J continued (at 590):
The solicitor was, it may be assumed, retained by each and all of the defendants, including Miller and Dalton, for the defence of the suit; but such a retainer would not ensure or avail to authorize him to take on their behalf proceedings in bankruptcy for the recovery of costs awarded by the decree in the suit. No indemnity appears to have been offered to Miller or to Dalton and indeed it is not even proved that they were requested to lend their names. Upon an application, therefore, by them or by the respondent, the bankruptcy notice might have been set aside. As the authority of the solicitor who obtained it was in question, it would seem that an independent application would have been the more regular way of attacking it: see Banco de Bilbao v. Sancha, to which Williams J. referred in this Court. But in the Federal Bankruptcy Court that question was gone into upon the hearing of the petition without objection, and the facts then appearing showed that the bankruptcy notice was not authorized by all the persons who were for the time being entitled to enforce the order for the payment of the debt relied on; see s. 52 (j) of the Bankruptcy Act 1924-1933. The right to enforce the judgment was vested in those persons jointly, and not severally, and, therefore, it was necessary that it should be obtained in the names of all of them by a person authorized either in fact or in law so to obtain it. As the authority of Miller and of Dalton was not given in fact and the appropriate steps were not taken to secure an authority in law, or rather equity, for the use of their names, the bankruptcy notice could not stand. (footnotes omitted, emphasis added)
Similarly, the right to enforce the judgment debts of Mr and Mrs Webb was invested in Mr Rooke and Rookharp jointly and not severally.
On this reasoning, unless the Deed in some way changed the position, it was necessary that the bankruptcy notice be obtained in the names of both of them, albeit one could have been authorised by the other to obtain the bankruptcy notices in the names of both joint creditors.
Dixon J did state that if all but one of the creditors had no beneficial interest in the costs order and those others were in the position of absolute trustees of their rights under the order for the one creditor, it may be that the one creditor became a creditor to whom the debt under the decree was due in equity and that in that case perhaps the petition might be presented in the name of that creditor alone. There is however no suggestion in this case that Mr Rooke had no beneficial interest in the judgment debt or that there had been an equitable assignment of the debt (cf McIntosh v Shashoua (1931) 46 CLR 494 at 506 – 507; [1931] HCA 56 per Starke J (but cf 504, 517 and 519).
Williams J in Bowen referred to the fact that the costs order in question created a “joint right” in the creditors to be paid and found that it was the creditors “jointly and not severally who were persons for the time being entitled to enforce the order as a final judgment” (emphasis added) within the meaning of the Bankruptcy Act (at 591). His Honour found that “[a]s the solicitor had no authority to apply for the issue of the bankruptcy notice on behalf of [all the named creditors, the debtor had been] served with a notice issued on behalf of some only of the joint creditors” (at 592). While his Honour was of the view that a joint creditor who was unwilling to join in the presentation of the petition after being offered an indemnity against costs may be made a respondent to the petition, there was said to be “no rule which authorizes some of the joint creditors of a judgment debt to issue a bankruptcy notice” (at 593).
Moreover, while Williams J acknowledged there was some evidence that one creditor had paid the costs in issue and had therefore become solely entitled to the benefit of the judgment debt in equity, in the circumstances of the case all the creditors were “still the persons who have the right in law to issue execution to enforce the judgment and so to issue a bankruptcy notice” (at 593). His Honour observed in this context that while it may be that that creditor could apply to the Supreme Court under the then applicable rules for leave to issue execution on the judgment, (which if granted might mean that that creditor became the person for the time being entitled to enforce the judgment within the meaning of the Bankruptcy Act, issue a bankruptcy notice, and to then present a creditor’s petition) that had not occurred. There is no suggestion in this case that Rookharp sought leave under the Uniform Civil Procedure Rules to issue execution on either of the judgments against the Webbs as discussed further below in relation to s.40(3)(d) of the Bankruptcy Act.
Starke J (dissenting) found that the persons who obtained the issue of the bankruptcy notice were entitled as joint creditors with the two named creditors to join them in the proceeding and to authorise their solicitor accordingly and that while the petition was irregular because it had not been signed by the two named creditors and was not attested as required by the bankruptcy rules, this was a formal defect or irregularity which could be cured if they signed the petition. His Honour was of the view that if they refused to do so, the other joint creditors could act in their names, indemnifying them against costs as required (at 587). However this view also reinforces the need for all joint creditors to be named in the bankruptcy notice and creditor’s petition.
It was submitted that in this case Mr Rooke authorised the issue of both the bankruptcy notice and the creditor’s petition (as stated in his affidavit of 27 April 2011). This was also said to be implicit in the fact that he had verified the petition as director of Rookharp and sworn an earlier affidavit of debt filed in these proceedings. However there is a distinction between authorising one creditor to obtain a bankruptcy notice in the names of both creditors (which, according to Bowen, is permissible) and one joint creditor obtaining the issue of a bankruptcy notice in the sole name of that creditor. Such authority would only assist the applicant if both creditors were named in the bankruptcy notice.
The applicant contended that Bowen was distinguishable because in Bowen both the bankruptcy notice and the creditor’s petition were issued in the names of all the joint creditors when two of those creditors had not authorised the issue of the bankruptcy notice or the creditor’s petition and had not signed the petition. However the judgment in Bowen proceeded on the basis and has been treated by the Full Court of the Federal Court as authority for the propositions that it is necessary that a bankruptcy notice be obtained in the names of all joint creditors and that all joint creditors must present the petition.
The applicant submitted that the decisions of the Full Court of the Federal Court relied on by the respondents did not explore the application of the principles considered in Bowen. That is so, but it does not overcome the fact that two recent decisions of the Full Court of the Federal Court have proceeded on the basis that a bankruptcy notice given by only some of the judgment creditors is invalid (as Dixon J stated in Bowen) and that where a debt is owed to more than one creditor jointly, all must present the petition. In Dudzinski there were ten creditors named in the creditor’s petition. The costs order which gave rise to the debt that was the basis for the bankruptcy notice was made in favour of all of them. It was in that context that the Full Court of the Federal Court (at [19]) referred to Bowen in support of the proposition that “[w]here a debt is owed to more than one creditor jointly, all must present the petition”.
Notably, in response to an argument that only one of the creditors was the true creditor (as it may have paid the costs which were the subject of the order on which the bankruptcy notice was based), their Honours stated (at [46]):
However the true point is that the costs order was made in favour of all of the respondents. It does not matter that they may have made some private arrangement as to how the costs were to be met as amongst themselves.
This reinforces the need for all those in whose favour a judgment in question was made to be named as creditors in a bankruptcy notice. Moreover, contrary to the applicant’s contention that s.44 of the Bankruptcy Act allows for the presentation of a petition by one creditor or by several creditors in Dudzinski the court (at [19]) referred to s.44 before making the point that: “Where a debt is owed to more than one creditor jointly, all must present the petition”.
The applicant also submitted that Scook did not address the issue of whether one creditor could give authority to another to obtain the issue of a bankruptcy notice in its own name or to present a creditor’s petition in its own name. It is the case that there was very limited discussion in Scook of this issue. However, the appeal to the Full Court succeeded on the basis that “a bankruptcy notice given by only some of the judgment creditors is invalid” (at [22]). I consider that I am bound to follow this approach (even if Bowen and the English cases to which Latham CJ referred did not involve exactly the same circumstances as arise in this case and the remarks in Dudzinksi were obiter). Consistent with these cases, Mr Rooke could authorise Rookharp to apply for the issue of the bankruptcy notices but the notices would still have to be in the names of both joint creditors. That is not what occurred.
According to the applicant, an ex tempore judgment of O’Dwyer FM in Maher provides support for the proposition that Bowen may be distinguished where a joint creditor has acted with the authority of the other creditor. In Maher a costs order was obtained in favour of three parties: the Commonwealth Bank of Australia and two persons who were employed by or acted for the Bank. The costs order formed the basis for a bankruptcy notice issued on the application of the Commonwealth Bank alone.
What was in issue in Maher was a contention by the debtor that the bankruptcy notice should be set aside because it did not demand that payment be made to “all parties”. O’Dwyer FM rejected the submission that the bankruptcy notice was confusing because it demanded payment to one party where “the other parties named as jointly entitled to the costs could each make a claim for the full costs” (at [28]).
His Honour accepted that “the costs orders [we]re joint orders in respect of the three parties” but found that the demand in the bankruptcy notice to pay all of the costs to one party was not confusing, having regard to Re Hamor; Ex parte Deamer and Another (1968) 11 FLR 261 at 264 per Gibbs J (at [29] – [30]) in which a bankruptcy notice issued in the name of two joint creditors required payment to one or the other of those creditors. In that context Gibbs J referred to the fact that payment to one of two joint creditors is a good discharge of the joint debt in finding that the bankruptcy notice was not defective (and see McIntyre at 479). However in contrast to the situation in this case, in Hamor the debtor “could see on the face of the notice that the judgment had been obtained by [both named creditors]” (Gibbs J at 264).
Moreover there is a distinction between whether the names of all joint creditors must be included in a bankruptcy notice and whether a bankruptcy notice issued in relation to a debt owed to joint creditors could require payment to one of those creditors only. Indeed, it is not clear from the judgment in Maher whether the other two creditors (who are referred to as “parties”) were named as creditors in the bankruptcy notice.
O’Dwyer FM did not address whether the bankruptcy notice in question had been or had to be issued in the names of or on behalf of all three creditors. Rather, his Honour was considering whether the bankruptcy notice “should have demanded that payment be made to all parties” (at [32]).
His Honour accepted (at [34]) that the solicitor who applied for the issue of the bankruptcy notice had the authority of all the creditors to obtain the issue of a bankruptcy notice with a demand that full payment be paid to the bank only. It was in that context that his Honour stated at [35] that:
Bowen was determined on a question of fact, namely that two of the parties in whose name the notice was said to have been issued had not in fact authorised the issue of that notice. In contradistinction with Bowen, in this case I am satisfied as a matter of fact that the respondent was authorised to collect all of the costs on behalf of the other two.
In reaching this conclusion O’Dwyer FM referred not only to the fact that the applicant debtor relied on Bowen but also to what was said to be an “obiter” observation from Spender J in Re Thompson; Ex parte Thompson v Grimley Pty Ltd and Others (1995) 61 FCR 544; (1995) 135 ALR 700 which was said to be as follows:
Where there is a joint order in favour of parties one party cannot demand payment under a bankruptcy notice unless authorised by the others to do so. Likewise, it can be said, in my view, the Bowen case stands for the same proposition that one can only act for the others with a joint order in their favour when all of the parties agree.
Insofar as the applicant in this case relied on these remarks in support of the proposition that joint creditors could agree that a bankruptcy notice could be issued in the name of one creditor only, Spender J did not make an observation in that form in Re Thompson.
In any event, what was in issue in Re Thompson was a bankruptcy notice which purported to be issued on behalf of (that is, in the names of) all the joint creditors, but which was obtained on the application of only one of the joint creditors. In the course of holding that the Federal Court had no jurisdiction to make an order staying the execution of orders made by the Queensland Court of Appeal, Spender J referred to the fact that the bankruptcy notice directed to the debtor had been issued on the application of one of two joint creditors. However both creditors were referred to as judgment creditors in the body of the bankruptcy notice.
After finding that the debtor had a counter-claim, set-off or cross demand within s.40(1)(g) of the Bankruptcy Act, Spender J canvassed issues in relation to the validity of the bankruptcy notice. In that context his Honour expressed the view (at 708) that “the order for costs” which was the foundation of the bankruptcy notice was an order “which gave the judgment creditors a joint right to the costs and not a joint and several right”. The nature of the costs order was said to be the same as the order considered by Clyne J (the judge at first instance) in Re Bowen; Ex parte The Australian Workers Union & Ors (1945) 13 ABC 275. Spender J referred to the decision of Clyne J and of the High Court on appeal and to the fact that Bowen had been followed by Burchett J in Re Pollnow (1993) 12 ACLC 88, in which a bankruptcy notice was held to be defective “because it was not issued on behalf of all of the joint creditors” (at 554).
Spender J continued in Re Thompson (at 709 – 710):
In this particular case the bankruptcy notice purports to be issued on behalf of the joint creditors, but the bankruptcy notice was obtained on the application of one only of the joint creditors, and there is nothing in the material to indicate that Grimley was entitled, in law or in fact, to apply on behalf of both itself and Cableski. Consistent with the observations to which I have referred in Bowen, at first instance and on appeal, and the judgment of Burchett J in Re Pollnow, in my opinion, the bankruptcy notice, issued as the result of an application by one only of two joint creditors, would be invalid.
Similarly, in this case the orders of the District Court in favour of Mr Rooke and Rookharp gave them joint, but not joint and several, rights. However the bankruptcy notices which were obtained on the application of the solicitor for Rookharp did not purport to be issued on behalf of both creditors. The approach taken by Spender J in Thompson does not support the view that a bankruptcy notice may be issued in the name of one of two joint creditors, albeit his Honour left open the possibility that one of a number of joint creditors may be authorised to obtain a bankruptcy notice in the names of all the joint creditors.
Similarly in Re Pollnow Burchett J applied Bowen and pointed out (at [16]) that where the judgment or order on which a bankruptcy notice was based created a “joint right” it was not open to “issue a bankruptcy notice which ignored the joint nature of the obligation actually expressed by that order”.
In the face of such Federal Court authority and having regard to the actual issue before the court in Maher, I am not persuaded that Maher is clear authority for the proposition that a bankruptcy notice can be issued in the name of only one joint creditor (as distinct from the view that a bankruptcy notice issued in the name of all joint creditors can demand payment to one creditor if this is done with the authority of all creditors). If it were to be taken as supporting such a proposition (as the applicant submitted), it would not be supported by or consistent with the approach taken by the High Court and Federal Court in Bowen, Re Thomson, Re Pollnow, Dudzinski and Scook and should not be followed (and also cf McDonnell v Fernwood Fitness Centre Pty Ltd [2005] FMCA 877 at [18] – [20] and Wilson v Hambrook [2009] FMCA 991 at [6] – [7]).
While Mr Rooke’s evidence is that he authorised the issue of both the bankruptcy notices and the creditor’s petition, the bankruptcy notices (and the petition) should have been issued in the names of both Rookharp and Mr Rooke, even if they could have been obtained by Rookharp (with Mr Rooke’s authority) and directed payment to one or the other of the creditors (see Re Hamor) or to Rookharp on the basis that it was authorised by Mr Rooke to collect payment of the debt by the Webbs. This is not what occurred. Hence the bankruptcy notices were invalid on the authority of Bowen, Dudzinski and Scook.
As discussed below, neither the Deed nor s.40(3)(d) of the Bankruptcy Act leads to a different conclusion in the circumstances of this case. Notwithstanding that there was no application to set aside the bankruptcy notices, the creditor’s petition cannot be based on such invalid bankruptcy notices. Hence no issue arises of permitting an amendment to the creditor’s petition to add the name of Mr Rooke as petitioner as this would not overcome the invalidity of the bankruptcy notices.
The effect of the Deed
The applicant submitted in the alternative that through the terms of the Deed (rather than any independent agreement for the assignment of a debt) Rookharp fell within s.40(3)(d) of the Bankruptcy Act as a person who at the time of the issue and service of the bankruptcy notices was entitled to enforce each of the judgments of the District Court against Mr and Mrs Webb and hence was deemed to be “a creditor who has obtained a final judgment” within s.40(1)(g) of the Act and as such entitled to obtain the issue of bankruptcy notices in relation to each of the Webbs in its name only (see s.41(3)(a) of the Act).
It was submitted that by operation of a contractual arrangement between the relevant parties arising from the Deed, it was agreed that if Mr and Mrs Webb defaulted in any payment under the Deed then each of Mr Rooke and Rookharp “shall” (this being mandatory) become immediately entitled to enforce the judgments. On this basis it was said that on a plain English reading of s.40(3)(d) each of Mr Rooke and Rookharp fell within that provision and was each deemed to be a creditor for the purposes of s.40(1)(g).
The applicant contended that the Deed was entered into in circumstances where, after the first creditor’s petition proceedings had commenced, an offer was made for the settlement of all of the issues between Mr Rooke, Rookharp and Mr and Mrs Webb and that it was executed by all of the parties concerned after the conclusion of those negotiations. The respondents were legally represented at the time of the negotiation of its terms and an acknowledgement was given in the Deed by each party to the effect that each had the opportunity to seek independent advice prior to executing the Deed and each accepted it “as fair and reasonable in settlement of the matters referred to” therein.
It was submitted that the Deed had been performed on the part of the applicant in the most fundamental of ways, in that on 6 October 2009 the first creditor’s petition proceedings were dismissed with no order as to costs (fulfilling clause six) and the Webbs’ first notice of motion of 10 June 2009 seeking to set aside the default judgments was dismissed in the District Court with no order as to costs (fulfilling clause seven). Hence it was said that the Webbs had received the benefit of compliance with the terms of the Deed by Mr Rooke and Rookharp.
It was submitted that at no time had the Webbs questioned or sought to set aside the Deed.
According to the solicitor for the applicant, the wording of clause three of the Deed was a clear contractual agreement that on its ordinary meaning permitted each of Mr Rooke and Rookharp to immediately enforce the judgments obtained in the District Court to the full extent permitted by the Deed. It was submitted that the word “each” had the meaning of “every one taken separately” (see the Concise Oxford Dictionary, Fifth Edition, Oxford University Press 1964) and that there was “no ambiguity on the face of the words contained in clause 3 of the Deed”.
It was also submitted that the Deed was not in any way internally inconsistent or unable to be construed properly by the inclusion of those words and that these clauses did not give rise to any ambiguity. It was submitted that clause three was not inconsistent with clauses eight or nine (which limited enforcement of the judgment by “David [Mr Rooke] and Rookharp” unless there was default in payment of any monies referred to in paragraph one of the Deed).
Those clauses were said to confirm that both Mr Rooke and Rookharp could not enforce the judgments unless there was a default. However there was said to have been such a default so that the judgments were able to be enforced in the manner set out in clause three of the Deed.
The applicant submitted that the effect of the Deed was that Mr Webb and Mrs Webb agreed that Mr Rooke or Rookharp had a separate entitlement to enforce each judgment and that this resulted either in severing the joint nature of the requirement to enforce the judgment together or in allowing one or the other of Mr Rooke or Rookharp to act as the clearly disclosed and agreed agent for the other in the recovery of the judgment debts, albeit in his or its own name rather than the principal’s name.
It was accepted that there would never be an entitlement that would have been maintainable at law for both Mr Rooke and Rookharp independently to issue execution or a bankruptcy notice for the same debt at the same time, as equity would intervene and not allow the double payment of the one debt. However it was said that in this case this did not occur.
The applicant submitted that the respondents were bound by the terms of the Deed and should not now be permitted to seek to alter the wording or the effect of its terms because they now, with the benefit of hindsight, did not like the effect of the bargain into which they had entered.
It was also submitted that while a plain reading of s.40(3)(d) did not import an “immediate” entitlement, if the issue of immediacy was of significance, then there was an immediate ability in Rookharp to issue execution because of the contractual agreement with the respondents constituted by the Deed.
However, as pointed out for the respondents the Deed was not executed by all parties until 1 April 2010, when signed by Mr Rooke personally and also for Rookharp. The Deed provided in clause five: “This agreement shall not become binding until it is executed by all parties”. This calls into question the applicant’s submission that Mr and Mrs Webb were under an obligation to make any payments in satisfaction of the debt under clause one of the Deed before execution by all parties on 1 April 2010 or whether there was any default such as to bring clause three into play in such circumstances. The Deed became binding on 1 April 2010 and the bankruptcy notices were issued on 21 April 2010, before the first date for payment after 1 April 2010 – being 30 April 2010.
The applicant did not address the issue of whether, if the Deed did not come into effect until 1 April 2010, its terms could have any retrospective effect. The Deed was clearly expressed in terms that suggested it was not to have retrospective effect (cf Hawley Partners Pty Ltd v Commr of Stamp Duties (Qld) (1996) 96 ATC 4847; [1996] QCA 270 at 4851 – 4852 per Macrossan CJ and McPherson JA and at 4853 per Byrne J and see ING Funds Management Ltd v ANZ Nominees Ltd and Ors (2009) 228 FLR 444; [2009] NSWSC 243 at [144] in which Barrett J did not completely discount the possibility of deeds (which in that case were executed in a manner consistent with the Corporations Act) having retrospective effect). This issue was not dealt with in the applicant’s submissions, but on the basis that the parties did not intend that the provisions of the Deed should have retrospective effect, even if the Deed was not rendered invalid or void on the basis of uncertainty or impossibility (a matter also not addressed in submissions), the Webbs would not have been liable under the Deed to make any payments until 30 April 2010 because the Deed was not binding until 1 April 2010. The circumstances in which clause three would come into effect (a default under the Deed) would not have occurred at the time of the issue of the bankruptcy notices in Rookharp’s name on 21 April 2010 and the Deed could not operate to give Rookharp an independent right to issue those bankruptcy notices based on the judgments of the District Court in favour of Mr Rooke and Rookharp.
Moreover, even if the Deed had retrospective effect or was intended to operate before execution, I am not satisfied that clause three has the effect contended for by the applicant. It did not purport to operate as an assignment, either in law or in equity, or to create a situation in which only one creditor was beneficially entitled to the amounts owed by the Webbs. Nor did it operate as a release by Mr Rooke of his interest in either or both of the debts. While clause three could be seen as authorising Rookharp to obtain the issue of the bankruptcy notices in the names of both creditors and to demand payment to one creditor only, it has not been established that as a matter of construction the effect of the Deed is such as to overcome the well-established principle that a bankruptcy notice based on a judgment debt owed to joint creditors must be issued in the name of both such creditors (whether by way of some ostensible authority to that effect from the Webbs or otherwise). Clause three is not clearly drafted and such a reading is inconsistent with the joint nature of the interest expressed in clauses four, eight and nine. Clause four is as follows:
In the event that David and Rookharp become entitled to rely on paragraph 3 above then Ivan and Elaine shall be entitled to be credited with any payments made by them or on their behalf to David and Rookharp but only on the total amount owing for the judgment debt, interest and costs.
Similarly, clauses eight and nine provide that “David and Rookharp shall not enforce the judgments [against Mr and Mrs Webb] unless there is default in the payment of any monies referred to in paragraph 1 above” (emphasis added).
The judgment debts in question each created joint rights in Mr Rooke and Rookharp (not joint and several rights) (Kendle and Another v Malsom and Another (1998) 193 CLR 46 at 57; [1998] HCA 13 at [20] per Gummow and Kirby JJ). The debt was not held severally in ascertained shares and, as indicated, there is no suggestion that the Deed operated to sever the jointly owned debts to render Mr Rooke and Rookharp trustees jointly for themselves as beneficial owners of distinct portions of those debts as occurred in McIntyre v Gye.
As counsel for the respondents submitted, those who own a debt jointly do not have several rights to enforce it (Bowen at 591 and 593 per Williams J). Enforcement is distinct from payment to a joint creditor, by which the debtor gets a discharge from all joint creditors. There was no legal assignment of the debt from Mr Rooke to Rookharp (see s.12 of the Conveyancing Act 1919 (NSW)). Nor was there an equitable assignment of the debt.
Insofar as there now seems to be a suggestion from the applicant that the Deed resulted in allowing one or the other of Mr Rooke or Rookharp to act as agent for the other in the recovery of the judgment debts, the bankruptcy notices were applied for by a solicitor as the authorised agent of Rookharp, not by Rookharp as agent on behalf of Mr Rooke (cf s.308 of the Bankruptcy Act and see Deputy Commissioner of Taxation v Boxshall (1988) 19 FCR 435 at 438; [1988] FCA 355). The creditor’s petition in the name of Rookharp only was also signed by its solicitor as “Petitioner’s Lawyer”. It has not been established that the language of clause three of the Deed created an agency of the nature contended for by the applicant in post-hearing submissions.
Even if the Deed could and did sever “the joint nature of the requirement to enforce together” as the applicant submitted (or allow Rookharp to act as agent for Mr Rooke in the recovery of the judgment debts notwithstanding that the bankruptcy notices were issued in its sole name), there remains a further difficulty which prevents Rookharp relying on s.40(3)(d) of the Bankruptcy Act.
As the respondents submitted, in Re Richards; Ex parte Sommers (1947) 14 ABC 112 Clyne J distinguished the right to enforce a judgment from the right to issue a bankruptcy notice. The former is a pre-condition to the latter and as stated in McIntyre v Gye at 292:
… a legal assignee must be in a position, at the time of the issue of the bankruptcy notice, to issue immediate execution upon the judgment.
A legal assignee of a debt based on a judgment of the District Court of New South Wales or, that for that matter, a person said to be entitled to execution under the judgment on the basis of an agreement such as that said to be constituted by the Deed, is not in a position to issue immediate execution, but needs leave of the court that gave the judgment. Rule 39.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides:
1) A writ of execution may not be issued in the following circumstances except by leave of the court:
(a) if there has been any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise,
In McIntyre their Honours said of the equivalent Supreme Court rule at 293:
If a creditor who has taken a judgment debt as a legal assignee has not obtained the requisite leave, a bankruptcy notice cannot be issued at the instance of that assignee.
The applicant submitted that r.39.1 of the Uniform Civil Procedure Rules did not apply because there was no change in the persons entitled or liable to execution under the judgment because there was no assignment of the judgment debts in question either absolutely at law or alternatively in equity and no change in the ownership of the debt. Hence it was contended that the leave of the District Court would not be required and therefore that Rookharp at all times retained the ability to enforce judgment.
However r.39.1 also contemplates changes in “the persons entitled or liable to execution” brought about “otherwise” than by assignment. The applicant’s contention is that the Deed did effect such a change as it meant that one of two joint creditors had a separate entitlement to enforce each judgment. Hence if such a “change” in entitlement was effected by the Deed, the leave requirement would still be applicable. On the applicant’s contention there would have been a change in the persons entitled to execution under the judgment in that either one of the joint creditors would be so entitled notwithstanding that there was no assignment of the debt in law or in equity and no change in ownership.
Rookharp’s position would not improve if there had been a change in the equitable interests in the debts. As the court in McIntyre v Gye stated, an equitable assignor “should be a party to an action to recover the debt, either as plaintiff or defendant” (at 295). Mr Rooke was not a party to the “action” in the sense of being named in the bankruptcy notices or creditor’s petition. Indeed in McIntyre v Gye the court doubted that an equitable assignee could be granted leave to enforce a judgment, citing Forster v Baker [1910] 2 KB 636; [1908-10] All ER Rep 554:
an assignee who has taken part of the judgment debt under an equitable assignment thereof should not be given leave to issue execution; there should be but one execution upon the one judgment debt…
(and see Norman v Federal Commissioner of Taxation (1960) 109 CLR 9 at 29; (1960) 37 ALJR 49).
In the alternative, it was submitted that leave would not be required because of the contractual agreement between the parties. However, as indicated, it has not been established that the Deed operated in this way. Lastly it was submitted that, even if leave was required, immediate execution was still available simply by attaching a copy of the Deed to the Notice of Motion seeking execution (see Uniform Civil Procedure Rules r.39.1(2)) and that in the particular circumstances of this case, the debtors having expressly agreed that each of Mr Rooke and Rookharp shall be immediately entitled to enforce the judgment obtained in the District Court, there would be no impediment to the immediacy of the issue of that execution.
However, even if Rookharp was regarded as independently entitled to enforce the judgments by virtue of the operation of the Deed leave would be required.
Rookharp has not applied for leave to issue execution. It has not taken all steps which “entitled [it] directly to the benefits or fruits of the judgment or order” against the Webbs (see Abigroup Ltd v Abignano (1992) 39 FCR 74; [1992] FCA 567 at [51] and [53] and the discussion of the limited circumstances in which s.40(3)(d) operates and also see Philips Electronics Australia Ltd v Roberts (2006) 201 FLR 359; [2006] FMCA 911 at [9] – [16] and cases referred to therein).
The District Court has not granted leave to it to enforce the judgment or debt of either of Mr or Mrs Webb. Hence Rookharp is not a person who for the time being is entitled to enforce either final judgment of the District Court within s.40(3)(d) of the Bankruptcy Act. The fact that such leave might be readily obtainable is not relevant.
It has not been established that Rookharp can rely on the Deed or on s.40(3)(d) of the Bankruptcy Act to establish an entitlement to issue the bankruptcy notices in its name only.
As discussed above, neither under clause three of the Deed nor on the authority of Maher could Rookharp obtain the issue of the bankruptcy notices in its sole name. Hence the bankruptcy notices are invalid and the creditor’s petition should be dismissed on this basis.
However, as the other grounds in the amended notice of opposition were addressed in detail in submissions I have also considered them.
Solvency
Another ground in the amended notice of opposition is that the respondents are each “solvent within the meaning of section 52(2)(a) of the Bankruptcy Act”.
Under s.52(2)(a) of the Act, if the court is not satisfied with proof of any of the matters in s.52(1) of the Act or is satisfied by the debtor that “he or she is able to pay his or her debts” it may dismiss the petition. The respondents assert that they are able to pay their debts within s.52(2)(a) of the Act.
The debtors bear the onus of establishing solvency in the sense of the ability to pay debts within the meaning of s.52(2)(a) of the Act.
As stated in Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 at [17], it is not sufficient for a debtor simply to establish that he or she has assets which exceed his or her liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. As Barwick CJ pointed out in Sandell v Porterand Another (1966) 115 CLR 666; [1966] HCA 28 at [15], it is relevant to have regard to money that the debtor:
can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
The approach taken to solvency in Sandell v Porter has been said to be applicable in relation to the differently worded s.52(2)(a) of the Act (see International Alpaca Management Pty Ltd v Ensor [1999] FCA 72) (at [17] – [19]). Section 52(2)(a) also requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations (see Foyster at [19] per Hely J).
The evidence from the respondents in relation to their financial position consists of affidavits of Mr Webb sworn on 1 February 2011 and 7 April 2011 and an affidavit of Mrs Webb sworn on 7 April 2011.
In his affidavit of 1 February 2011 Mr Webb, who was at that time legally represented, claimed that he was the co-owner of eight properties with his wife, a commercial property at Yarrendale Road, Dubbo and seven residential properties and that on 25 January 2011 they entered into contracts for sale of the seven residential properties. The properties and the “contracted sale price” were attested to be as follows: 18 Chifley Drive, Dubbo ($220,000); 33 Chifley Drive, Dubbo ($250,000); 35 Chifley Drive, Dubbo ($220,000); 8 Morgan Street, Dubbo ($120,000); 14a Boronia Place, Dubbo ($340,000); 14b Boronia Place, Dubbo ($310,000); and, 806/261 Harris Street, Pyrmont ($810,000). He calculated that they were expecting gross proceeds from these residential sales of $2.270 million. Annexed to his February affidavit were copies of what were said to be the front pages of the contracts for sale of these properties, which showed the purchaser as BM & JA Family Trust and their solicitor as HWL Ebsworth, Brisbane. In fact it is apparent from title searches tendered for the applicant that the two Boronia Place properties are registered in Mr Webb’s name only. These documents show in each case a contract date of 25 January 2011. These contracts were said to be expected to settle in the second week of March 2011. They provided for a completion date 42 days after the contract date.
In his February affidavit Mr Webb also attested that on completion of these sales he and his wife intended to pay listed creditors said to be: the ANZ Bank, being the first mortgagee of all the residential property and the Yarrendale Road property for an amount of $1,460,106; Cash Resources Australia (Cash Resources), the second mortgagee of all the residential properties for an amount of $325,030; the petitioning creditor for an amount described as “$170,000 as required”; Bank of Queensland in the amount of $120,000; legal fees of $20,000; and, accounting fees of $8,000. On this basis it was calculated the total payments to be made were in the order of $2,103,136. It was claimed that this would “pay out all [their] known creditors” other than Mrs Webb’s $6,000 credit card debt (on a card with an $8,000 credit limit).
However the evidence before the court, including the affidavit evidence of Ms McLean the solicitor for the applicant and material tendered in these proceedings, reveals that the registered proprietor of the Yarrendale Road property is in fact a company called Portion Pty Limited. Included in the evidence before the court are documents produced by Nelson, Keane & Hemingway Lawyers in answer to a subpoena issued to them by the applicant creditor. Nelson, Keane & Hemingway were formerly solicitors for Mr and Mrs Webb. They wrote to the Webbs on 17 December 2010 observing that the registered proprietor of the Yarrendale property was Portion Pty Ltd, which was at that time under external administration. As at 1 February 2011 the Yarrendale Road property was subject to a mortgage to the ANZ Bank, a mortgage to Cash Resources and caveats by Cash Resources and Onesteel Trading Pty Limited (Onesteel). Portion Pty Limited is now in liquidation. As at 17 February 2011 the ANZ had not provided any consent to dealing with the Yarrendale Road property.
As disclosed in her April 2011 affidavit, Mrs Webb is employed as a printing assistant with an income in the order of $55,000 a year. In his affidavit of 1 February 2011 Mr Webb stated that he was unemployed. In his affidavit of April 2011 Mr Webb stated that he was employed as a boilermaker with an annual income of approximately $72,000 (consistent with payroll advice for the pay period 14 February 2011 to 20 February 2011 referring to an annual salary of $72,800). I accept Mr and Mrs Webb’s evidence in relation to their employment as at April 2011.
Mr Webb stated that their income had since 3 January 2011 been “supplemented by the rent from the Yarrendale property”. This appears to be a reference to the Yarrendale Road property of which the registered proprietor is Portion Pty Ltd. Annexed to the February affidavit of Mr Webb was a document said to be a copy of the lease from 3 January 2011 over that property from Mr and Mrs Webb as “joint owners” of the property (sic). It was claimed that this lease had been signed by Jeff Hort Engineering Pty Ltd as tenant (although Mr Webb’s solicitors had not received the executed lease). There was no explanation in that affidavit as to why rent was said to be payable to Mr and Mrs Webb as lessors in relation to a property owned by Portion Pty Limited. The quarterly rent is said to be $35,750 including GST.
Mr Webb also claimed that he and his wife had agreed to pay $15,000 to Rookharp within seven days of receipt of the rent due on 3 February 2011 (and $15,000 to the supporting creditor Bank of Queensland). There is no evidence of such payments.
It was also claimed that the Bank of Queensland had not “collected” machinery estimated to be worth $90,000.
Mr Webb claimed their assets included furniture and household items worth about $25,000, that Mrs Webb owned a 1998 Nissan Maxima with an estimated retail value of $5,000 and that he “used” a motorbike subject to finance with GE with an approximate retail value of $16,000 and $7,000 owing on it.
Mr Webb claimed their monthly living expenses were approximately $2,200 but that including the Yarrendale Road rent their monthly income in February was $14,113.33. He did not provide any evidence as to monthly mortgage or other payments to creditors.
However, in his April affidavit Mr Webb acknowledged that the Yarrendale Road property was in fact owned by Portion Pty Ltd (which I accept). He and Mrs Webb suggested and counsel for the respondents contended that as this property had been disclaimed by the liquidator of Portion Pty Ltd and as Mr and Mrs Webb were the only shareholders of the company, the property was “free to be transferred subject to the consent of the liquidator and the mortgagee”. It appears to be asserted that the Yarrendale Road property could be seen as in substance effectively an asset of the Webbs and that its value is relevant in considering the Webbs’ solvency. It was also suggested that the court could infer that the liquidator of Portion Pty Limited was not interested in this property and was treating the Webbs as though they could deal with the rent received in relation to that property in payment of the mortgage to ANZ Bank over the Yarrendale Road property.
However the evidence before the court does not support such contentions. The Yarrendale Road property is not owned by Mr and Mrs Webb, but rather by Portion, a company in liquidation. It is not clear why there is an unexecuted lease in evidence before the court which names the owners of that property as Mr and Mrs Webb. In any event, the disclaimer of onerous property by the liquidator, presumably on the basis that there was little or no equity in the property, was a notice given to the ANZ Bank as mortgagee of that property pursuant to s.568A of the Corporations Act 2001 (Cth) on the basis that the liquidator did not intend to exercise any property rights in that property, on the assumption that there was no equity interest in the property. The liquidator advised the ANZ Bank in a letter of 18 December 2008 that in the event that the company did have an interest in the property by virtue of a surplus raised over and above the amount owed under the security to the ANZ Bank, the bank was directed to forward that surplus to the liquidator of Portion Pty Limited with a full accounting of all dealings with the security. There is no evidence before the court as to any other liabilities of Portion Pty Limited. In these circumstances it is not open to infer that the Yarrendale Road property or any values of that property should be treated as an asset of Mr and Mrs Webb for the purposes of s.52(2)(a) of the Bankruptcy Act.
The properties at 14a and 14b Boronia Place are owned by Mr Webb (not Mr and Mrs Webb). Further, in addition to mortgages to ANZ Bank and Cash Resources, each of the residential properties is subject to a caveat by Cash Resources and Rookharp and the jointly owned properties are subject to caveats by Onesteel. Mr Webb’s February affidavit did not explain the position of Onesteel.
In his April affidavit Mr Webb claimed that his assets and liabilities, combined with his wife’s, included the same properties. However he attributed different values to these properties, being $215,000 for 18 Chifley Drive, $260,000 for 33 Chifley Drive, $230,000 for 35 Chifley Drive, $165,000 for 8 Morgan Street, $310,000 for 14a Boronia Place, $340,000 for 14b Boronia Place and $854,000 for Harris Street. In his April affidavit he disclosed a mortgage to ANZ Bank in the sum of $2.5 million and a second mortgage to Cash Resources in the sum of $271,886.20 as well as a personal loan (vehicle) of $11,980.
He claimed that they had “Cash” in the sum of $96,005.37 (although no bank statements or other evidence was provided to support this claim), furniture and effects of $35,000 and vehicles worth $31,500. Mrs Webb’s evidence in this respect was identical. There was no explanation for the difference between these amounts and those in Mr Webb’s February affidavit. No corroborative evidence has been provided.
Mr and Mrs Webb were not cross-examined. There are, however, significant inadequacies in their affidavit evidence and inconsistencies in Mr Webb’s evidence that are relevant to whether the court is satisfied that they are each able to pay their debts within s.52(2)(a) of the Bankruptcy Act.
Counsel for the respondents submitted that it would have been open to the applicant to cross-examine Mr Webb. However it is for the respondents to satisfy the court that they are each able to pay their debts under s.52(2)(a) of the Bankruptcy Act. In that context it is open to the court to have regard to shortcomings, gaps and inconsistencies in the evidence that they have chosen to put before the court about their financial position.
For example, no cash assets were disclosed in Mr Webb’s February affidavit, whereas in each April affidavit the Webbs claim to have an asset consisting of cash in the sum of $96,005.37. No bank or other statements have been produced in support of the claim in relation to such cash and there is no explanation as to the source of this amount. In his first affidavit Mr Webb disclosed joint furniture and household items worth about $25,000. In the April affidavits it was claimed that the couple had furniture and effects worth $35,000. No supporting documents are provided to support the amount disclosed in any affidavit.
In his first affidavit Mr Webb disclosed that his wife owned a Nissan Maxima with a retail value estimated to be $5,000 and that he owned a Harley Davidson motorbike subject to finance with GE with an approximate retail value of $16,000 with $7,000 owing on it. In his second affidavit (and in Mrs Webb’s affidavit) it was stated that vehicles were owned to the total value of $31,500 with a personal loan over (a vehicle) of $11,980, leaving a net equity in vehicles of $19,520. Again, there is no explanation for these discrepancies or evidence to support the ownership or amounts disclosed in either affidavit.
There is also a significant inconsistency in relation to disclosure of the Webbs’ liability to Cash Resources. Mr Webb’s February affidavit disclosed that Cash Resources was the second mortgagee of all of the seven residential properties disclosed in that affidavit and stated that the amount owed was $325,030. Mr Webb’s evidence in his April affidavit (and Mrs Webb’s evidence) was that the second mortgage to Cash Resources Australia was in the sum of $271,886.20. There is no explanation for the difference between the amounts said to be owed in February and in April. There is no supporting evidence to clarify this position or to support the amount disclosed in any affidavit or any claimed repayment.
Further, there are some issues about the disclosure of indebtedness to ANZ. In the February affidavit Mr Webb stated that ANZ was the first mortgagee of the residential properties and the commercial property, being the Yarrendale Road property owned by Portion and that the Webbs’ indebtedness was $1,460,106.
In the April affidavit, a mortgage of $2.5 million to ANZ Bank was disclosed. The only supporting documentation in relation to this claim appears to be a priority agreement dated 22 November 2007 between ANZ and Cash Resources. However that agreement relates to moneys secured for the indebtedness of Mr and Mrs Webb, Benjamin Michael Webb (their son) and Portion in its own capacity and as trustee for the Webb Unit Trust. However I am satisfied on the basis of Annexure A to that document, that mortgages were given over the seven residential properties owned by the Webbs and a separate registered mortgage was given by Portion Pty Limited over the Yarrendale Road property, (consistent with the evidence that that property is not owned by Mr and Mrs Webb). In addition a registered mortgage was given by Benjamin Michael Webb over another property in Keane Avenue, Dubbo. The extent of Mr and Mrs Webbs’ indebtedness to ANZ Bank is not clear.
Mr and Mrs Webb each claimed in their April affidavits that they had entered into contracts for the sale of the residential properties to BM & JA Holdings Pty Ltd, which acted as trustee of the family trust BM & JA Family Trust of which their son, daughter in-law and grandson are beneficiaries.
Annexed to the April affidavit are copies of what are said to be the front pages of different contracts for sale for the same properties that were said to have been the subject of the contracts dated 25 January 2011 in Mr Webb’s February affidavit. These documents bear dates of 5 April 2011 and signatures for and on behalf of the named parties and state that a 10 per cent deposit had been paid in relation to each contract, that the properties were being sold with vacant possession and not subject to existing tenancies, that the vendor’s solicitors were Nelson, Keane & Hemingway and that the purchaser’s solicitor was HWL Ebsworth in Brisbane. The contracts provided for completion 42 days after the contract date.
The Webbs each stated in their April affidavits that they had “entered into the sale” of these properties and that the purchaser had an offer of finance and that the matters could settle within 3 weeks. That did not occur. The facility offer provides for security in the form of a registered first mortgage over the residential properties above, other residential properties and the Yarrendale Road property.
The only explanation for the existence of two sets of what are said to be signed contracts is as follows:
The finance and sale of these properties was to occur earlier however was delayed by the loss of a certificate of title and a discharge of mortgage document of a property to be used as security for the loan.
This appears to be a reference to the finance to be provided to the purchaser. The evidence in relation to a missing certificate of title relates to a property at 16B Grevillea Close, Dubbo, which is not one of the properties said to be owned by Mr and/or Mrs Webb. There is no material before the court to indicate that either the January or the April contracts for sale have resulted in completion of any such sales. There is no material to indicate whether the earlier contracts (with a different purchaser) were rescinded or terminated. The most recent evidence in this regard before the court was that the residential properties are still registered in the names of the respondent debtors as described above. That is so notwithstanding that the contractual time for completion of the sales passed while the hearing was adjourned. There is also no corroborative evidence before the court of any deposits having been received in relation to any of the suggested sales of these properties.
There is evidence that on 23 February 2011 the solicitor for the applicant creditor was informed that HWL Ebsworth Lawyers (who are named in the January contracts as solicitors for the purchaser) did not have instructions in relation to these contracts for the sale of the properties. Further, on 20 April 2011 the applicant’s solicitor was informed that HWL Ebsworth had no instructions to act on behalf of the purchasers named in the contracts dated 5 April 2011.
There is no valuation evidence in relation to these properties, other than the amount suggested by Mr Webb in relation to what are said to be contracts for sale of those properties, most recently to the trustee of a family trust of which Mr and Mrs Webb’s son, daughter in-law and grandson are beneficiaries. These cannot be said to be arms length transactions. There is no evidence as to any consent from the ANZ Bank which has a judgment giving it possession of all their properties.
The existence of two different sets of contracts for the sale of the residential properties with different purchase prices has not been satisfactorily explained. There is no clear evidence as to what has happened in relation to these properties. In particular there is no evidence that any contracts for sale of any of these properties have resulted in any payments being received by Mr and Mrs Webb.
The rather confusing and unsatisfactory evidence in relation to the proposed sales to a family trust, of which the beneficiaries are the respondents’ son, daughter-in-law and grandson, and in relation to which there is no evidence as to the receipt of any money whatsoever, is not such as to satisfy me that either of the Webbs have assets that have been realised or are realisable in the manner that appears to be contended for by them.
I am not satisfied that the evidence establishes that these properties are capable of ready realisation or that the claimed “sale” prices can be taken to be an accurate estimate of value. Further, the Yarrendale Road property cannot be regarded as an asset of or available to the Webbs in the context of a determination of whether either of them is able to pay his or her debts within s.52(2)(a) of the Act.
In his February affidavit Mr Webb also claimed that there was equipment that was said not to have been “collected” by the Bank of Queensland (a supporting creditor), consisting of a prime mover and a crane. It was said to be temporarily stored on the Yarrendale Road property. Mr Webb claimed that he intended to negotiate with the Bank of Queensland in relation to what was to be done with this machinery as his indebtedness to the Bank (which was said to be at $120,000) did not take into account the value of the machinery, which he estimated to be around $90,000. The notice of appearance of Bank of Queensland as the supporting creditor dated 14 December 2010 referred to an indebtedness of $129,184.12 (not in the order of $120,000 as Mr Webb suggested). Judgment was obtained on 6 February 2009.
However in his April affidavit Mr Webb stated that the plant and equipment in question were assets of Thornban Pty Ltd (in liquidation) which had been disclaimed. A letter from the official liquidator of Thornban to BOQ Equipment Finance Ltd dated 6 November 2008 enclosed a notice pursuant to s.568A of the Corporations Act in relation to a prime mover, trailer and crane, referred to an estimated auction realisable value for the prime mover and trailer of $42,000, with a lease payout figure of $46,665 and an estimated value for the crane of $40,000 with a lease payout figure of $76,497. This information is not up to date.
In any event, the evidence does not establish that such equipment can be regarded as an asset of Mr and Mrs Webb or that the value of any equipment should offset the Bank of Queensland debt as claimed.
ANZ holds a judgment of 13 October 2009 against the Webbs in the amount of $2,727,524.61, apparently based on a mortgage in an amount of $2,479,000 and unpaid interest. Moreover that judgment was also for possession of the properties discussed above owned by Mr and Mrs Webb, Mr Webb and Portion.
The Webbs disclosed credit card indebtedness on a credit card held by Mrs Webb with a balance of approximately $6,000 in February 2011. A mortgage in favour of Cash Resources was disclosed in February as over $325,000 and in April as just under $272,000. There is no indication as to how that amount was reduced in that time.
The respondent debtors did not disclose any indebtedness to Onesteel, although caveats have been lodged by Onesteel, in relation to five properties in their names. The 2008 documentation in relation to such caveat showed an indebtedness of $225,674.19 on the basis of their default under a mortgage and deed of charge.
Each of Mr and Mrs Webb is now indebted to the applicant creditor for an amount of over $199,000. The petitioning creditor’s judgments were obtained in September and October 2008. The Deed of Acknowledgment of Debt was executed by the Webbs in September 2009. The Webbs did not make subsequent payments in accordance with that Deed. Their applications to set aside the default judgments on which these debts were based have been unsuccessful.
The supporting creditor obtained judgment on 6 February 2009. ANZ Bank obtained a judgment on 13 October 2009. It is relevant to have regard to the respondent debtors’ inaction in the realisation of their claimed assets to satisfy their debts since 2008. (See Deputy Commissioner of Taxation v Eykamp [2009] FMCA 989).
Indeed, even if the April “values” for their assets suggested by the Webbs were accepted and it was assumed that their properties other than Yarrendale Road were available to them and readily realisable, their assets taken at their best would amount to $2,536,505.00, while as calculated in April 2011 their liabilities would be in the approximate order of $4,230,927.00. Hence even on these figures, the respondent debtor’s existing liabilities would significantly exceed any assets that they purport to have.
Mrs Webb’s debts also include a credit card debt of $6,000. Even accepting her argument that the amount she owed to Rookharp is limited, it would still be for a principal amount of $70,000 plus interest. On this basis her liabilities would still exceed her claimed assets by a significant amount.
While s.52(2)(a) does not depend on a simple matter of determining whether liabilities exceed assets, having regard to all the evidence before the court, including the evidence from Mr and Mrs Webb in relation to their current income, they have not satisfied the court that either of them is able to meet his or her debts as they fall due within s.52(2)(a) of the Act.
This ground in the amended notice of opposition is not made out.
Whether amount in Creditor’s Petition is overstated
The next ground in the amended notice of opposition is as follows:
The amount asserted as owing in the Creditor’s Petition is overstated in that:
(a) No amount is properly owing and the judgment debts upon which the Petition is based are not in truth and reality debts due to the petitioning creditor; alternatively,
(b) The petitioning creditor’s judgment amount is offset by the value of its ownership of a Kobelco Crane which it purchased as part of the alleged agreement upon which its Judgment in the District Court is based,
(c) The first respondent debtor’s debt is limited to a principal amount of $70,000.00.
The first particular to this ground appears, on its face, to be asking the court to go behind the judgments which are relied upon in the bankruptcy notices issued by the applicant. However in this context Counsel for the respondents took issue with the calculation of interest and whether or not a $10,000 payment, said to have been made before the commencement of the District Court claim, had been taken into account in the amount of the judgment in the District Court. It was said to flow from this that the calculation of post-judgment interest in the bankruptcy notice, which formed part of the amount claimed in the creditor’s petition, was also in error.
Secondly and in the alternative it was said that the applicant creditor had accepted a forklift or crane in partial satisfaction of the debt that formed the basis for the bankruptcy notice, probably before entry of the default judgment against Mr Webb, and very probably before entry of the default judgment against Mrs Webb and that the “judgment amount” was “offset” by the value of this crane. Thirdly, it was also submitted that Mrs Webb’s asserted liability to Rookharp in the District Court proceedings was limited to $70,000.
In submissions for the debtors there was also said to be a miscalculation of the number of days of post-judgment interest by four days in one of the bankruptcy notices which led to an understatement of interest. The bankruptcy notices were also said to have misapplied the payment that was made on 20 March 2009 to the principal sum instead of in accordance with s.136 of the Civil Procedure Act 2005 (NSW). No such grounds were raised in the amended notice of opposition.
Going behind a judgment
It is not in dispute that the court has power to go behind a judgment that forms the basis for a bankruptcy notice (and hence for a creditor’s petition) to determine whether it is founded on a real debt on the basis that a sequestration order should not be made on the petition of a person who is not a real creditor. What is in issue is whether in truth and reality there is a debt due which can found a bankruptcy notice.
In Wren v Mahony (1972) 126 CLR 212 at 224-5; [1972] HCA 5 at [16] Barwick CJ (with whom Windeyer and Owen JJ agreed) pointed out:
…the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
However the court will only go behind a judgment in this manner in order to determine whether the petitioning creditor’s debt should be struck out altogether, not merely to determine whether the judgment debt should be reduced, but rather to ascertain whether the creditor has a debt upon which the bankruptcy proceedings can be founded (see Oliveri v Stafford and Others (1989) 24 FCR 413; [1989] FCA 486 and Re Longo; Ex parte Longo (1995) 57 FCR 523; [1995] FCA 1324). The issues about calculation of interest and a payment of $10,000 are not such, even if made out, as to warrant going behind the judgment insofar as that is intended to be submitted for the debtor.
There is no evidence before the court such as to show a prima facie case of fraud, collusion, or a miscarriage of justice (see Corney v Brien (1951) 84 CLR 343 at 356-7; [1951] HCA 31).
It is the case that the judgments in question are default judgments and that as Lee and Hill JJ pointed out in Wolff v Donovan (1991) 29 FCR 480 at 486; [1991] FCA 222 at [15]:
Where a judgment is obtained by default the court in bankruptcy will more readily look behind the judgment than it would if the judgment were obtained following a hearing on the merits...
However, there must nonetheless be substantial reasons for doubting whether there was really a debt due to the petitioning creditor. The District Court judgments in this case were obtained on 11 September 2008 and 8 October 2008. The proceedings were against Mr Webb, Thornban Pty Ltd and Mrs Webb.
The Webbs applied to have these judgments set aside on three occasions. The notice of motion filed on 11 June 2009 was dismissed by consent, as referred to in the Deed executed by the respondent debtors in September 2009.
On or about 7 April 2010 the Webbs made a further application to set aside the respective judgments. This was heard and determined and dismissed with an order that they pay the applicant creditor’s costs. These costs are included in the calculation of the debt said to be owed to Rookharp in the creditor’s petition.
More recently the Webbs filed a further urgent ex parte notice of motion in the District Court to set aside the default judgments and seeking leave to file a defence to the statement of claim. The basis for this motion included assertions that each of the Webbs has a defence and that in the alternative their liability should be reduced by a pre-judgment payment of $10,000 in May 2008 which was not applied to the debt so that judgment was entered for the incorrect amount, by a post-judgment payment of $17,000 and by the $5,000 value of a forklift. In addition Mrs Webb asserted that liability was not alleged against her in the statement of claim. Both Webbs asserted they did not sign a 2008 Deed under which they agreed to pay $80,000 including $10,000 which was paid on 16 May 2008)). However, the Webbs were also unsuccessful in this notice of motion.
The respondents have had ample opportunity to have any issues which would warrant going behind the judgments considered by the District Court.
Furthermore, the respondent debtors executed the Deed of Acknowledgment of Debt in about September 2009. There is no suggestion of any application by them calling into question the liability recited in that Deed.
The Deed recited the payment of $10,000, the institution of the District Court proceedings, the judgments, the issue of writs for the levy of property against Mr and Mrs Webb, the issue and service of bankruptcy notices on the Webbs in late 2008 and the Webbs’ proposal to pay the judgment debt by instalments (and subsequent payment of $17,000).
What occurred thereafter was further recited, culminating relevantly in an acknowledgement by each of Mr and Mrs Webb that they were indebted to Mr Rooke and Rookharp for the amount of the judgments obtained against each of them in the District Court proceedings ($167,069.31 for Mr Webb and $168,339.19 for Mrs Webb).
In all the circumstances it has not been established that the issues raised by the Webbs amount to substantial reasons for questioning whether there is, in truth and reality, a debt due to the petitioning creditor. The issues raised that relate to quantification of the debt even if made out are not such as to establish that the court should not accept the judgments as proof of the existence of a debt upon which a creditor’s petition could be based (that is, a debt of $5,000) due to the petitioning creditor (subject of course to what is said above about identification of the joint creditors).
It is appropriate for the court to exercise its discretion to accept the judgments as satisfactory proof of the petitioning creditor’s debts. Substantial reasons have not been given for questioning whether behind those judgments there are in truth and reality debts due to the petitioning creditor. Paragraph (a) of this ground in the amended notice of opposition is not made out.
Similarly, paragraphs (b) and (c) of this ground in the amended notice of opposition ask the court to go behind the judgment on the basis that the judgment amount is overstated. For the reasons given above it has not been established that it is appropriate to go behind either judgment or consider the claims that the debtors now seek to raise.
In relation to the claim that the judgment amount was “offset” by the value of the creditor’s ownership of a Kobelco Crane (which was said to have been purchased as part of the alleged agreement upon which the judgment in the District Court was based) so that there was an overstatement in the creditor’s petition. No notice under s.41(5) of the Act was given in relation to any such asserted overstatement of the amount due in the bankruptcy notice.
Subsequently it was submitted that Rookharp failed to disclose the security it held in the crane in the creditor’s petition. However, insofar as the later submissions took issue with the disclosure of security in the petition the respondents did not seek leave to raise a fresh ground of opposition. Similarly the issues about the calculation of interest are not in the notice of opposition. In light of my findings I do not consider it necessary or appropriate to consider such additional contentions further.
Mrs Webb’s debt was said to be limited to a principal amount of $70,000, apparently on the basis of the drafting of the statement of claim in the District Court proceedings. Apart from this not being a basis for going behind the judgment in question, it does not otherwise establish a basis on which the creditor’s petition should be dismissed.
Even if these grounds of challenge were to be accepted, the amount of each judgment would not be reduced below a sum that was in excess of the minimum debt about on which a creditor’s petition can be based. Insofar as this ground is based on a suggested overstatement of the amount specified in either bankruptcy notice (and hence in the petition), there is no evidence that either of Mr and Mrs Webb gave notice under s.41(5) of the Bankruptcy Act disputing the validity of the bankruptcy notice on that ground. Neither bankruptcy notice is invalidated on this basis, even if there was such an overstatement of the amount due. As stated in Oliveri v Stafford (and also see Emerson and Another v Wreckair Pty Ltd (1992) 33 FCR 581; (1992) 109 ALR 539) where a bankruptcy notice accurately follows the judgment or judgments, as it does in this case, it can be valid notwithstanding that the judgment is said to overstate the amount due in the absence of sufficient reasons to go behind the judgment.
This ground in the amended notice of opposition is not made out.
Interest on professional costs
The last ground is as follows:
The creditor’s petition is based upon non-compliance with bankruptcy notices that are invalid and/or nullities because both impose interest on professional costs ordered upon entry of default judgment. This is contrary to section 101 of the Civil Procedure Act.
First, insofar as the respondents attempted in submissions to raise other issues under this ground (such as in relation to the number of days referred to in the bankruptcy notice and the calculation of interest), these matters are not raised in the amended notice of opposition.
In any event they are not such as to establish that the bankruptcy notices were invalid and/or nullities. Insofar as there was said to be an error because one bankruptcy notice stated the number of days for which interest was calculated to be 147 and the other stated the number of days to be 174, this reflected the fact that the judgments were obtained against each respondent on different dates (11 September 2008 and 8 October 2008). This cannot be said to have misled or confused either respondent debtor as to compliance with the relevant notice or as to the amount required to be paid.
Insofar as it was submitted that the interest calculation was overstated, again I note that there was no s.41(5) notice. It was suggested that the bankruptcy notices were incorrect because the judgment amount was incorrect and did not take into consideration the payment of $10,000 or an offset of an unknown value of goods (the forklift or crane referred to in ground one). Again, this does not establish a defect in either bankruptcy notice, each of which accurately reflected the amounts of the judgment in issue. The bankruptcy notices did take into consideration the payment of $10,000. The debtors appeared to take issue with whether the $10,000 payment was misallocated to interest first rather than to the principal judgment debt. However on the face of the bankruptcy notices the allocation was to the principal debts (and see in any event s.136 of the Civil Procedure Act 2005 (NSW)).
Moreover, even if there was a slight error in calculation of the interest, such as an understatement, this is not a case in which there has been shown to be a miscalculation that was so fundamental as to render the bankruptcy notice a nullity. Nor could anything of this nature be said to have misled the respondent debtors as to what it was necessary to do in order to comply with the requirements of the notice. Even if there was an understatement in conjunction with some other overstatement, what was said by the High Court in Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10 at [25] and [31] (by reference to Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71; [1988] HCA 34), is in point. As was stated in Kleinwort at [17]:
It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.
In this case it was clear that payment of the amount specified in each of the bankruptcy notices would constitute compliance with the notice. Insofar as there was any defect or irregularity, it is such that it could be corrected within s.306 of the Bankruptcy Act.
Further, it has not been established that the bankruptcy notices are invalid or nullities on the basis that they impose interest on professional costs. Insofar as this amounts to a contention that there was an overstatement of the debt due, no notice was given or served under s.41(5) of the Bankruptcy Act. That is a complete answer to such a proposition. This is not a case in which either bankruptcy notice has failed to meet a requirement made essential by the Bankruptcy Act in this respect or is such that it could reasonably mislead a debtor as to what is necessary to comply with the notice.
The respondents also contended that the bankruptcy notices were invalid and/or a nullity because they imposed interest on professional costs ordered upon entry of default judgments contrary to s.101 of the Civil Procedure Act.
The bankruptcy notice addressed to Mrs Webb claimed the amount of the judgment in the sum of $168,339.19. The judgment, in turn, was said to consist of an amount of $166,141.29 and costs of $2,197.90 being a total of $168,339.19 as set out in the certified copy of the default judgment. The same format, with slightly different figures, appears in the bankruptcy notice issued in relation to Mr Webb, which claimed an amount of judgment or orders in the sum of $167,069.31 in circumstances where the certified copy of the default judgment showed a total amount of $167,069.31 made up of an amount of $164,321.01 and costs of $2,748.30.
This case is not akin to the circumstances considered in Apps & Anor v Campbell [2010] FMCA 1 in which interest was claimed under a bankruptcy notice pursuant to s.101 of the Civil Procedure Act in relation to a period which commenced prior to the date of the judgment on which the bankruptcy notice was based. It was in those circumstances that the bankruptcy notice in Apps was said to be affected by a defect or irregularity, because s.101 of the Civil Procedure Act does not permit the calculation of post-judgment interest from an earlier date. No such issue arises in the present case. That case is not authority for the proposition that interest cannot be claimed on the total amount of the judgment.
It is the case that s.101(1) of the Civil Procedure Act provides that unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid. However, as the solicitor for the applicant pointed out, “judgment” is defined in s.3 of the Civil Procedure Act to include “any order for the payment of money, including any order for the payment of costs”. Where an order for costs is made separately to a judgment for a monetary amount, interest on such an order for costs would not commence until such time as the costs which were the subject of the costs order had been taxed or assessed. However in this instance there were orders for a fixed amount of costs (see the definition of “judgment debt” in s.3 of the Civil Procedure Act). The total amount of each judgment included a fixed assessed amount of costs to which interest was applicable. No further assessment of those costs was required. It was open to the creditor to calculate interest for the purposes of the bankruptcy notice on the whole of the judgment under each default judgment, including the fixed amount of costs.
If the respondents’ contentions in this respect were correct, this would merely result in an overstatement of the amount claimed in the bankruptcy notice because of miscalculation of the interest claimed. No s.41(5) notice was served (see Satchithanantham v Multilink Investments Pty Limited [2002] FCA 1277 at [16]). This ground is not made out.
Conclusion
While only one of the grounds in the amended notice of opposition is made out, the respondents have established that the bankruptcy notices were invalid and hence that the creditor’s petition should be dismissed.
Given the time, manner and circumstances in which this ground was raised my preliminary view is that there should be no order as to costs. I will however hear the parties if any costs order is sought.
I certify that the preceding two-hundred (200) paragraphs are a true copy of the reasons for judgment of Barnes FM
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