Slater v Watts - [2007] FMCA 1722

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SLATER v WATTS

[2007] FMCA 1722

BANKRUPTCY – Bankruptcy notice – based upon judgment for defendant against third party for contribution or indemnity – principal judgment in favour of plaintiff never satisfied – enforcement of judgment debt subject to stay under Local Court rules – bankruptcy notice served on third party set aside.

Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(3)(b)
Local Courts (Civil Claims) Rules (1988) NSW, Pt.19, r.5(3)
Uniform Civil Procedure Act (2005) NSW, Sch.6, Cl.5,10
Uniform Civil Procedure Rules (2005) NSW, r.9.11(1)

Bank of WA Ltd v Loiterton [2006] FMCA 361
DL Collections v Nguyen [2006] FMCA 427

Franks v Warringah Council (2003) 131 FCR 287

Applicant:

ROBERT SLATER

Respondent:

JAMES WATTS

File Number:

SYG 1881 of 2007

Judgment of:

Smith FM

Hearing date:

8 October 2007

Delivered at:

Sydney

Delivered on:

8 October 2007

REPRESENTATION

Counsel for the Applicant:

Mr M Fitzgerald

Solicitors for the Applicant:

Helliars City Solicitors

Counsel for the First Respondent:

Mr B Gower

Solicitors for the Respondent:

Insight Litigation

ORDERS

Bankruptcy Notice NN1953/2007 issued on 16 May 2007 is set aside.
The respondent must pay the applicant’s costs, including reserved costs, as agreed or taxed under the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
The applicant must provide a copy of this order to the Official Receiver within 2 days.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1881 of 2007

ROBERT SLATER

Applicant

And

JAMES WATTS

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

Mr Watts was the sole defendant in two proceedings in the Local Court of New South Wales brought by Kodicom Australia Proprietary Limited. He did not contest his liability, but in each proceeding he served third party notices against Mr Slater pursuant to the then Local Courts (Civil Claims) Rules (1988) NSW, Pt.19. These claimed contribution towards, or indemnity for, each judgment recovered against Mr Watts by Kodicom, on the basis that his liability was a joint liability under a partnership agreement with Mr Slater.
The liability of Mr Slater to provide indemnity or contribution was litigated in a contested hearing, and gave rise to an ex tempore judgment by the Local Court Magistrate. A full transcript of the judgment given on 24 October 2003 is not in evidence. However, from the concluding part which is in evidence, and from the terms of the two orders or judgments entered in each of the actions on the third party notices, I conclude that he made findings in favour of Mr Watts in respect of the third party notices. Although the terminology of each of the certified copies of the judgments or orders is not identical, their effects, in my opinion, are the same.
In Case Number 1138 of 2002 the order/judgment is described as:
Verdict for the Defendant. Order 3rd party indemnify and/or contribute as to a 50% share in relation to judgment obtained by Plaintiff against Defendant. Costs to be paid by 3rd party as agreed or assessed.
It is not contested that the judgment amount entered against Mr Slater is shown as $14,275.37, with a handwritten annotation indicating that this is 50 percent of an amount of $28,550.75, being the judgment in favour of Kodicom against Watts in that proceeding.
In Case Number 1139 of 2002 the intended 50 percent liability is more explicit on the face of the certified judgment or order. This reads:
Orders/ Judgment: Judgment for the Defendant against the 3^rd party. 3^rd party to indemnify and/or contribute 50% share in relation to judgment obtained by Plaintiff against Defendant.
Total Judgment: $37,506.85 (50% share equates to $18,753.42). Costs to be paid by 3^rd Party as agreed or assessed. Such Orders being confirmed by the Supreme Court on 7^th June 2004.
Total:$18,753.42
There is before me correspondence from the liquidator of Kodicom Australia Proprietary Limited (in liquidation), indicating that, in February 2007 and also at 12 July 2007, the liquidator had not received any payment pursuant to its judgments against Mr Watts.
Notwithstanding this fact, which is not contested before me, a bankruptcy notice was issued at the request of Mr Watts directed at Mr Slater on 16 May 2007, being Bankruptcy Notice NN1953/07, demanding the payment of an amount of $43,675.83. The attached calculations and judgments indicate that the debt consists of the two amounts entered under the third party notices in the two Local Court cases, plus amounts of interest calculated up to 9 May 2007.
The bankruptcy notice has been served, and an application to set aside the notice was filed in this Court. It has, after some adjournments, been listed for hearing today.
No issue has been taken in relation to formal matters in the bankruptcy notice, nor in relation to its service. However, the applicant foreshadowed an argument based upon the construction of the terms of the judgments, that they were conditional upon the prior payment by Mr Watts of at least 50 per cent of the judgment obtained by Kodicom. Alternatively, he argued that the issue of the bankruptcy notice was an abuse of process, by reference to principles of equitable contribution.
At the start of today's hearing, I drew attention to a simpler response to the Bankruptcy Notice, being the provisions of the Local Courts (Civil Claims) Rules (1988) NSW in Pt.19, r.5(3), as they stood at the time of the judgment. This provided in relation to the third party notice procedures:
A defendant shall not, except by leave of the court (which leave may be granted on terms), enforce any judgment given in the defendant’s favour against a third party until any judgment given in favour of the plaintiff against the defendant in the same action has been satisfied.
As I have indicated, it is not in dispute before me that, in fact, the judgments given in favour of the plaintiff had not been satisfied at the time of issue of the bankruptcy notice. There is no evidence before me that any leave of the Court to enforce the judgment on the third party notice has been obtained.
That rule was replaced upon the promulgation of the Uniform Civil Procedure Rules (2005) NSW by a rule which, it appears to me, is to the same effect. In rule 9.11(1) it is provided:
If a defendant makes a cross-claim for contribution or indemnity in respect of a claim made against the defendant in the proceedings , judgment on the cross-claim :
(a)is not to be entered except by leave of the court, and
(b)is not to be enforced until any judgment in the proceedings against the defendant has been satisfied.
As with the Local Court’s previous rule in relation to third party notices, there is a conditional prohibition on enforcement. There is no express reference to this being subject to dispensation by way of grant of leave, but a power to dispense would be found elsewhere in the Uniform Civil Procedure Rules.
Under the transitional provisions in relation to rules, continuity in relation to procedures having the same effect is effected by Schedule 6 to the Uniform Civil Procedure Act (2005) NSW, and in particular, clauses 5 and 10. These, in my opinion, would make enforcement of the present 2003 judgments under the third party notices subject to the prohibition in Uniform Civil Procedure r.11(1)(b) as well as, or instead of, being subject to the prohibition in the previous rule, Pt.19, r.5(3) (cf. the discussion of the transitional provisions in Bank of WA Ltd v Loiterton [2006] FMCA 361).
The consequence, in my opinion, is that at the time of issue and service of the Bankruptcy Notice, Mr Watts did not have a “judgment or order the execution of which has not been stayed” within s.40(1)(g) of the Bankruptcy Act, and the prohibition against the issue of the notice under s.41(3)(b) of the Bankruptcy Act was in effect (see the relevant authorities cited by Raphael FM in D L Collections v Nguyen [2006] FMCA 427; and also note Franks v Warringah Council (2003) 131 FCR 287 at [26]).
I am therefore satisfied that the applicant is entitled to an order setting aside the bankruptcy notice.
The applicant sought costs on an indemnity basis, and referred to correspondence in which such a claim had been foreshadowed prior to the application. However, in my opinion, particularly taking into account that I have set aside the bankruptcy notice upon a simple basis which had not been pointed out in any correspondence, nor foreshadowed prior to today, I consider that the normal principle in relation to costs should be followed.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Michael Abood

Date: 17 October 2007