Smits v Lillas and Loel Lawyers
[2015] FCCA 1092
•25 September 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SMITS v LILLAS & LOEL LAWYERS PTY LTD | [2015] FCCA 1092 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – where benefit of order on which bankruptcy notice issued assigned – where assignee procured the issue of the bankruptcy notice – where assignee did not have leave to enforce judgment pursuant to Uniform Civil Procedure Rules 1999 (Qld) – bankruptcy notice not issued in respect of a final judgment or order the execution of which had not been stayed – bankruptcy notice set aside. |
| Legislation: Bankruptcy Act 1966, ss.40(1)(g), 40(3), 40(3)(d), 41 Duties Act 2001 (Qld) ss.9, 10, 34, 35, 36, 487 |
| Abigroup Ltd v Abigano (1992) 39 FCR 74 Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 Franks v Warringah Council (2003) 131 FCR 281 Ivory v Telstra Corporation Limited & Ors [2010] FMCA 123 |
| Applicant: | LEONARDUS GERARDUS SMITS |
| Respondent: | LILLAS & LOEL LAWYERS PTY LTD |
| File Number: | BRG 985 of 2013 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 23 February 2015 |
| Date of Last Submission: | 20 May 2015 |
| Delivered at: | Brisbane |
| Delivered on: | 25 September 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Edwards, directly instructed by the applicant |
| Solicitor for the Respondent: | Mr Byrne |
| Solicitors for the Respondent: | Lillas & Loel Lawyers Pty Ltd |
ORDERS
The application filed on 31 October, 2013 is dismissed.
The applicant pay the respondent’s costs of and incidental to the application, including reserved costs if any, to be taxed and paid in accordance with the Federal Circuit Court (Bankruptcy) Rules 2006.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 985 of 2013
| LEONARDUS GERARDUS SMITS |
Applicant
And
| LILLAS & LOEL LAWYERS PTY LTD |
Respondent
REASONS FOR JUDGMENT
This is an application which principally seeks that a bankruptcy notice caused to be issued by the respondent against the applicant be set aside. The applicant seeks a number of orders in the alternative if the bankruptcy notice is not set aside.
The bankruptcy notice the subject of this application was issued by the Official Receiver on 14 October, 2013. The bankruptcy notice asserts that the applicant owes the respondent the sum of $237,415.83 together with interest of $482.96 pursuant to an order of the Supreme Court of Queensland.
Leaving aside the amount claimed for interest, the amount claimed in the bankruptcy notice is an amount for costs that arises under an order made by Margaret Wilson J in the Supreme Court of Queensland on 23 February, 2011 in Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd & Ors(No 2) [2011] QSC 21. By that order Togito Pty Ltd and the applicant before me, Mr Smits, were ordered to pay Pioneer Investments (Aust) Pty Ltd and James Conomos’ costs of and incidental to the claim in those proceedings on the standard basis.
On 29 July, 2011 Pioneer Investments (Aust) Pty Ltd assigned the benefit of the costs order to the respondent. That assignment was effected by a deed dated 29 July, 2011 and executed by James Loel on behalf of Pioneer in his capacity as sole director of that company and also on behalf of the respondent in his capacity as sole director of that company.
In accordance with the Uniform Civil Procedure Rules1999 (Qld), on 19 September, 2013 a costs assessor certified the amount of costs payable by the applicant and Togito Pty Ltd to Pioneer Investments (Aust) Pty Ltd pursuant to the order of Margaret Wilson J.
Consequent upon the filing of the certificate of assessment on 26 September, 2013 a deputy registrar of the Supreme Court made an order that quantified the costs to be paid by the applicant to Pioneer Investments (Aust) Pty Ltd pursuant to r.740(1) of the UCPR. That order takes effect as a judgment of the Supreme Court: r.740(2) of the UCPR. The order of the deputy registrar was:
1. The plaintiff and third defendant added by counterclaim pay the first defendant’s costs pursuant to:
(a) the order of the of Justice Wilson dated 23 February, 2011; and
(b)The certificate of the costs assessor filed 19 September, 2013;
assessed in the sum of $237,415.83 (two hundred and thirty seven thousand four hundred and fifteen dollars eighty-three cents).
The applicant raises a number of matters which he suggests must lead to the bankruptcy notice being set aside. They are:
a)The bankruptcy notice does not attach a copy of the order of Margaret Wilson J, but only the order issued by a deputy registrar following the assessment of the relevant costs. The absence of the order of Margaret Wilson J is a fatal defect in the notice, not capable of remedy.
b)The costs order was an order made jointly in favour of Pioneer Investments (Aust) Pty Ltd and Conomos. Conomos has not joined in the issue of the bankruptcy notice. All joint creditors must join in the issue of a bankruptcy notice based upon a joint debt. That too, is a fatal defect incapable of remedy.
c)Conomos compromised the joint debt by reaching a settlement of his own costs with Togito or the applicant. In those circumstances, the respondent cannot now pursue the joint debt against the applicant.
d)Pioneer Investments (Aust) Pty Ltd compromised the joint debt, or its ability to seek payment of the debt, by seeking to be substituted as a creditor in another creditor’s petition brought against the applicant and then agreeing to the dismissal of that petition.
e)The respondent has no title to the debt because it was not a party to the proceedings in which the costs order was made.
f)To the extent that Pioneer Investments (Aust) Pty Ltd has assigned its interest in the costs order to the respondent, the assignment is ineffective because no notice of the assignment has been given to the applicant by Pioneer Investments (Aust) Pty Ltd and the only notice of the assignment that it has received came with the bankruptcy notice.
A preliminary matter
The respondent argues that the application is incompetent because it does not comply with r.3.02 of the Federal Circuit Court (Bankruptcy) Rules2006 in that it was not accompanied by an affidavit that set out the grounds of the application, and specifically, the grounds of any counter-claim, set-off or cross demand that the applicant wished to make in answer to the bankruptcy notice.
However, in my view the application is competent. The affidavit, drawn by the applicant who was representing himself at the time, is less than perfect but it articulates with sufficient clarity the grounds relied upon by the applicant to have the bankruptcy notice set aside. The affidavit was not accompanied by the annexures to the affidavit, but that irregularity was cured when the applicant caused those annexures to be filed when the application came on for hearing.
Was the correct costs order attached to the bankruptcy notice?
In his written submissions, counsel for the applicant sets out the first basis upon which the bankruptcy notice should be set aside as follows:
1. The primary costs order was not attached to the Bankruptcy Notice, a fatal formal defect. The primary Costs Order was made by Justice Wilson against Togito Pty. Ltd. (Togito) and the Applicant in favour of both James Conomos and Pioneer Investments (Aust) Pty. Ltd. (Pioneer). However what was attached to the Bankruptcy Notice was the derivative and secondary order of the Deputy Registrar relating to the assessment by the relevant costs assessor to the costs payable only to Pioneer, purporting to present Pioneer as the sole beneficiary of the costs orders made by her Honour and seeking to conceal the necessity of obtaining the consent of James Conomos as co-creditor to the issuing of the Bankruptcy Notice.
(faithfully reproduced)
In the present case, the costs order of Margaret Wilson J was not required to be attached to the bankruptcy notice. It was sufficient to attach only the order made by the deputy registrar.
Whether an initial order that one party pay costs yet to be quantified by assessment or taxation to the other, or a subsequent order issued after the assessment or taxation of those costs should be attached to a bankruptcy notice depends upon the particular regime in force in the relevant jurisdiction for the assessment and recovery of legal costs: Franks v Warringah Council (2003) 131 FCR 281 at [17]. In Franks Branson J pointed out that the status of an order of an officer of a court authorised to assess an amount payable under an order of a court which requires the payment of unquantified legal costs is dependent on the terms of the statutory instrument governing the relevant order or certificate.
Branson J’s observations were applied by Wilson FM in ANZ Banking Group Ltd v Menso [2006] FMCA 1522. In that decision, his Honour, with respect, undertook a very thorough review of the relevant authorities. His Honour concluded that the regime for the assessment of costs ordered to be paid by a court pursuant to the Uniform Civil Procedure Rules1999 (Qld) (as they then stood) was such that it was the initial order for costs made by the Court that was required to be attached to the bankruptcy notice, not the order made by the registrar assessing those costs. A bankruptcy notice that attached only the latter order was not valid.
However, soon after his Honour’s judgment, the UCPR were amended. His Honour had cause to consider the amended form of those Rules in Ivory v Telstra Corporation Limited & Ors [2010] FMCA 123. At paragraph 14 of that decision his Honour said:
As Senior Counsel for the respondent explained, in his excellent written submissions, the costs provisions of the Uniform Civil Procedure Rules (Qld) were changed on 10 December 2007, such that the issued addressed by me in Australian and New Zealand Banking Group Limited v Menso [2006] FMCA 1522 are no longer apposite. Now, the effect of the Uniform Civil Procedure Rules is that the order signed by the Deputy Registrar after an assessment of legal costs takes effect as a ‘money order’ and is enforceable in its own right. UCPR 740 makes it clear that the order made by the Deputy Registrar after the assessment of costs itself takes effect as a judgment of the court. The fact that the order of the Registrar is a money order, as defined in Schedule 2 to the Supreme Court Act 1991 means that it is a final judgment or order as required by s.40(3)(b) Bankruptcy Act 1966. I accept the submissions of the respondent and find that the Bankruptcy Notice is not defective by reason of the attachment only of the order of the Deputy Registrar made 3 September 2008.
There is no reason to think that the decision of Wilson FM in Ivory v Telstra is clearly wrong. Indeed, and with respect, it is clearly correct. Counsel for the applicant did not argue that the decision was wrong and that I ought not to follow it. It was not necessary for Margaret Wilson J’s order to have been attached to the bankruptcy notice. The appropriate order to be attached to the bankruptcy notice was that made by the deputy registrar on 26 September, 2013. That was the judgment that was attached to the bankruptcy notice.
Joint judgment creditors
The next ground relied upon by the applicant is expressed in paragraphs 2, 3 and 4 of counsel’s written submissions:
2. The primary costs order was made by Justice Wilson in the Supreme Court of Qld on 23.02.11 against Togito and the Applicant jointly in favour of James Conomos and Pioneer. By Deed of Settlement in October 2012 Conomos released Togito and the Applicant from the joint debt relating to all outstanding costs in Supreme Court proceedings 5352/08 and 159/2011 and which debt cannot be assigned in part of split. Conomos did not reserve any of Pioneer’s rights.
3. As a joint judgment creditor, Conomos gave no authority for the issue of the Bankruptcy Notice on 14.12.13.
4. Conomos lost the right to authorise the issue of the Bankruptcy Notice following the release of October 2012.
(faithfully reproduced)
The argument expressed in those paragraphs proceeds from a flawed premise. The order for costs made by Margaret Wilson J was not an order that was made jointly in favour of James Conomos and Pioneer Investments (Aust) Pty Ltd. The order was in the following terms:
1. That the plaintiff and Leonardus Gerardus Smits pay the first and second defendants’ costs of and incidental to the claim on the standard basis.
Pioneer Investments (Aust) Pty Ltd and James Conomos were the first and second defendants in the proceedings respectively.
No authority was cited to support the proposition that the order for costs in the terms pronounced by Margaret Wilson J meant that it was a joint entitlement of Conomos and Pioneer Investments to receive their costs rather than a several entitlement to each have their costs assessed and paid.
In Australian Workers’ Union v Bowen (1946) 72 CLR 575, the High Court affirmed the proposition that only one writ of execution can be issued for the one judgment debt to which joint judgment creditors are entitled. A bankruptcy notice in the case of such creditors can be effective only when issued by or on behalf of all judgment creditors. In that case, the judgment creditors had secured an order for costs in their favour. On a proper construction of the orders, the judgment creditors’ entitlement was a joint entitlement rather than an entitlement which was joint and several. In those circumstances, where the bankruptcy notice was issued in the names of all judgment creditors, but without the authority of two of them, the bankruptcy notice was invalid. But the finding in that case depended upon on the proper construction of the order for costs that the judgment creditors were seeking to enforce. Because the primary judge, Clyne J in the Federal Court of Bankruptcy, had held that the judgment creditors were jointly entitled to costs under the judgment in the case before him, a finding not disturbed on the appeal, they all should have joined in the petition.
Australian Workers’ Union v Bowen has been followed on a number of occasions, including Dudzinski v Kellow [2003] FCAFC 207 and Scook v Sims Construction Pty Ltd [2004] FCAFC 306. What is apparent from those decisions, however, is that it is necessary to analyse the order pursuant to which the judgment creditors are entitled to the debt sought to be enforced in the bankruptcy proceedings and the statutory regime pursuant to which the costs order was made.
In my view, the order of Margaret Wilson J in this case was a several order in favour of each of Pioneer Investments and Conomos. I reach that conclusion having regard to her Honour’s reasons for judgment (Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd (No. 2) [2011] QSC 21). The applicant did not suggest in argument that it would be improper to have regard to those reasons. It is clear from those reasons that Pioneer Investments and Conomos were each separately represented in the principal proceedings by different counsel and solicitors. Moreover, each made separate applications for their costs of the proceedings against the applicant. Different factors concerned her Honour in relation to the costs sought by Pioneer Investments and the costs sought by Conomos. Conomos had the benefit of orders for security for costs against Togito Pty Ltd. Thus, whilst Conomos had a fund against which any costs orders secured in his favour against Togito might be satisfied (in whole or in part), Pioneer Investments did not have that benefit.
In my view, it is clear from a reading of her Honour’s reasons and from the form of order itself, that the order for costs in favour of Conomos and Pioneer Investments is a several entitlement to each of those parties to have their costs separately taxed and paid by Togito Pty Ltd and the applicant in these proceedings.
And that is what has occurred. Both Pioneer Investments and Conomos have had their costs separately assessed and a separate order has been issued in respect of Pioneer’s costs. There is no suggestion from the applicant that the separate assessment of each of their costs was not authorised by the order of Margaret Wilson J. The judgment issued by the deputy registrar based upon the cost assessor’s certificate is consistent with the several entitlements of Pioneer Investments and Conomos to their costs.
Moreover, given that it is the order made by the registrar pursuant to UCPR 740 which is the final judgment or order for the purposes of s.40(1)(g) of the Bankruptcy Act1966, the entitlement to the amount set out in that order is not an entitlement to which Conomos and Pioneer are jointly entitled. Conomos is not a party to that order in any relevant sense.
This ground must fail also.
Compromise
Mr Smits further argued in his Counsel’s written submissions that:
5. In proceedings in this Honourable Court BRG 670/2012 Warren Thomas Brown (Brown) sought orders against the Applicant and on 12.12.12 Pioneer sought to be substituted as supporting creditor, such application being stood over by Federal Magistrate Burnett (as he then was) to 01.03.13 for hearing. On 01.03.13 Brown, Conomos and Pioneer consented to the dismissal of the application, Pioneer thereby relinquishing any right of substitution and becoming estopped from further proceedings against the Applicant.
In respect of this argument Mr Smits swears in his first affidavit that a creditor’s petition was presented against him in 2012 by Warren Brown. Both Pioneer and Conomos appeared as supporting creditors.
On 4 October, 2012 the applicant and Conomos settled proceedings BRG843 of 2012. In those proceedings, the applicant had applied to set aside a bankruptcy notice issued by Conomos based upon a consent order that Conomos’s costs of the principal proceedings which were the subject of Margaret Wilson J’s order for costs be fixed in the sum of $250,000. The settlement is embodied in a deed of settlement that is in evidence before me. It records the various entitlements to costs enjoyed by Conomos and the credits that were allowed to the applicant for amounts paid by him (or his interests) pursuant to various orders for security for costs, both of the principal action and the applicant’s appeal against the principal order of Margaret Wilson J. A term of the settlement was that Conomos would no longer seek to appear in the Brown proceedings as a supporting creditor. Pioneer was not a party to the deed of settlement.
On 12 December, 2012 an order was made in this Court in Mr Brown’s proceedings directing Mr Smits to pay a sum of $146,790 into court and for the sum of $135,953.85 to be paid out of court to Mr Brown. Despite the applicant’s deposition in his first affidavit filed on 31 October, 2013 that “Pioneer was joined as a supporting creditor in respect of the alleged debt” the application of Pioneer to be substituted as a supporting creditor was adjourned to a date in March of 2013.
On 1 March, 2013 the “application” (presumably the application by Pioneer for substitution) was dismissed by consent, with no order as to costs. That is not surprising because at that point Pioneer’s costs against the applicant and Togito Pty Ltd had not been assessed. It was hardly in a position to prosecute a creditor’s petition.
Having regard to those facts as they appear from the applicant’s own affidavit material, his submission that “On 01.03.13 Brown, Conomos and Pioneer consented to the dismissal of the application, Pioneer thereby relinquishing any right of substitution and becoming estopped from further proceedings against the Applicant” cannot be made out. The factual premise for the argument is not established – indeed, the applicant’s own evidence is to the contrary of the premise upon which his argument is based. The debt upon which the respondent now relies arose after the completion of the Brown proceedings.
Assignment and standing
The applicant further claims that the respondent has no standing to present a bankruptcy notice against him arising from the costs order. It will not have escaped attention that the present respondent was not a party to the Supreme Court proceedings. Nor is it a party to the costs order upon which the bankruptcy notice is based. However, there is evidence that by a deed of assignment made on 29 July, 2011 Pioneer assigned its rights arising from the costs order against Togito and the applicant to the respondent.
Three issues, raised by the applicant in his affidavit in support of the present application, arise from the assignment:
a)Can evidence of the assignment be adduced given that there is no stamped copy of the deed in evidence?
b)Is the assignment effective to assign the debt notwithstanding that no notice of the assignment was given to the applicant before the bankruptcy notice was issued? and
c)Does the respondent, as an assignee of the debt, need leave to issue execution on the costs order pursuant to the UCPR, and if so, does the absence of that leave mean that the order is not one within s.40(1)(g) of the Bankruptcy Act.
The stamp duty point was not well articulated in the submissions made to me by either the applicant or the respondent. I consequently directed the filing of further submissions dealing with:
a)whether the assignment of the benefit of the costs order was a dutiable transaction for the purposes of the Duties Act2001 (Qld) and consequently required the deed of assignment to be stamped; and
b)if so, and given that the deed appeared not to be assessed for stamp duty and stamped, whether a copy of it was admissible as evidence having regard to s.487 of the Duties Act.
The respondent’s written submissions persuade me that there is no merit in the point. The respondent concedes that the deed of assignment in this case is an instrument which transfers certain rights to it. A transfer of dutiable property is a dutiable transaction pursuant to s.9 Duties Act. Transfer includes an assignment: schedule 6 definition of transfer. Dutiable property is defined in s.10 of the Act as:
10 What is dutiable property
(1) Each of the following is dutiable property—
(a) land in Queensland;
(b) a transferable site area;
(c) an existing right;
(d) a Queensland business asset;
(e) a chattel in Queensland.
The Respondent submits that the rights assigned by the deed of assignment are not an existing right for the purposes of the Duties Act. An existing right is (somewhat unhelpfully) defined in the dictionary to the Duties Act (found in schedule 6 of Act) as:
existing right means any of the following –
(a) an existing statutory licence, other than a statutory business licence, granted by the State;
(b) an existing statutory licence, other than a statutory business licence, granted by the Commonwealth if the rights under the licence are exercisable in Queensland;
(c) an existing right to use a statutory licence, other than a statutory business licence, granted by the State;
(d) an existing right to use a statutory licence, other than a statutory business licence, granted by Commonwealth if the rights under the licence are exercisable in Queensland;
(e) an existing concession or licence to conduct a business in Queensland, other than a franchise arrangement;
(f) an existing lease or licence of a business conducted in Queensland, other than a franchise arrangement;
(g) existing rights under a joint venture agreement if the joint venture has dutiable property not solely comprising chattels;
(h) an existing right of the holder of a mortgage, including the debt secured by the mortgage, other than the holder of a mortgage-backed security;
(i) an existing option to acquire dutiable property if the acquisition of the property would be a dutiable transaction;
(j) an existing right of pre-emption for dutiable property;
(k) an existing right to acquire dutiable property;
(l) an existing right to exploit dutiable property, other than a business asset that is intellectual property;
(m) an existing right to the income from dutiable property.
Of that list, the definitions contained in subclauses (k) and (l) are possibly apt to cover the assignment in this case. The difficulty with finally determining whether that is the case, however, is the circularity involved in the definitions of dutiable interest and existing right. Substituting the definition in schedule 6 for the words existing right in s.10 highlights the problem:
(1) Each of the following is dutiable property—
…
(c) an existing right to acquire dutiable property (using the definition in cl.(k)); or
(c) an existing right to exploit dutiable property, other than a business asset that is intellectual property (using the definition in cl.(l)).
Ordinarily, I would have thought that the term existing right would be apt to include a debt or a chose in action such as that represented by Pioneer’s entitlement to pursue assessment and payment of its costs. But the definition of existing right provided in schedule 6 is an exhaustive definition. So too is the definition of dutiable property.
However, the applicant does not focus upon the transfer of an existing right to engage s.10 of the Duties Act, but rather upon the relevant dutiable property being a Queensland business asset. Business asset is defined in s. 35 of the Duties Act as follows:
35 What is a business asset
(1) Each of the following is a business asset—
(a) goodwill;
(b) a statutory business licence used for carrying on a business;
(c) a right to use a statutory business licence used for carrying on a business;
(d) the business name used for carrying on a business;
(e) a right under a franchise arrangement used for carrying on a business;
(f) a debt of a business if the debtor resides in Queensland;
(g) a supply right of a business;
(h) intellectual property used for carrying on a business;
(i) personal property in Queensland of a business.
A Queensland business asset is a business asset of a Queensland business: s.34 of the Duties Act. A Queensland business is defined in s.36 of the Duties Act as:
36 What is a Queensland business
A Queensland business is a business—
(a) that is conducted on or from a place in Queensland; or
(b) the conduct of which consists wholly or partly of supplying land, money, credit or goods or any interest in them, or providing any service, to Queensland customers; or
(c) that has ceased but satisfied paragraph (a) or (b) at any time in the 1 year before a dutiable transaction that is the transfer, or agreement for the transfer, of an asset of the business.
There is a dispute between the parties about whether Pioneer carried on business in Queensland. The applicant asserts that it did, or perhaps still does. The only sworn evidence on the point is contained in the affidavit of James Loel filed on 11 March, 2015. He swears that Pioneer was incorporated in 1995 and was “only ever an investment vehicle that owned units in a unit trust”. It did not ever trade. It sold its interest in the unit trust in 2010 and apart from activities connected with the litigation involving the applicant, Pioneer “has remained entirely dormant since in or about that time”.
On the basis of that evidence, which I accept, I am satisfied that Pioneer has not carried on a business, whether it be described as a trade, calling, profession, vocation, employment or in any other way described as a business. Thus, the transfer of the right to recover the costs was not the transfer of a Queensland business asset.
Moreover, even if that finding is wrong and Pioneer did carry on a business, the rights transferred by the assignment were not a business asset within s.35 of the Duties Act. It was not goodwill of Pioneer’s business and, even if it could be construed as a transfer of a debt (s.35(f)), the debtor does not reside in Queensland. The applicant resides in New South Wales.
Accordingly, I have concluded that the deed of assignment is not liable to be assessed for transfer duty pursuant to the Duties Act and the lack of evidence that it has been assessed for duty does not prevent its reception in evidence.
The assignment of the benefit of the costs order purports to be an unqualified and absolute assignment. Until notice of the assignment was given to the applicant, the assignment was an equitable assignment of the matters dealt with in it. It was efficacious as between the respondent and Pioneer, but in the absence of notice of the assignment, only Pioneer Investments could give a good discharge for the debt created by the deputy registrar’s order.
Put another way, the respondent was not a creditor of the applicant. It did not become a creditor of the applicant until notice of the assignment had been properly given to the applicant of the assignment. Only a creditor can cause the issue of a bankruptcy notice: s.41(1) of the Bankruptcy Act. However, s.40(3)(d) of the Bankruptcy Act provides:
(3) For the purposes of paragraph (1)(g):
…
(d) 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 respondent had become, by force of the assignment, beneficially entitled to the costs order made by Margaret Wilson J. and the subsequent order made by the deputy registrar. It could enforce the costs order in its own right: Thomas v National Australia Bank Ltd [2000] 2 Qd R 448; Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18. In that sense then, the respondent was entitled to enforce a final judgment or final order for the payment of money.
An issue arises, however, as to the scope of the phrase entitled to enforce where it appears in that subsection. Whilst the respondent had title to debt by reason of the assignment, was it otherwise entitled to enforce the order? The issue arises because a creditor who derives their entitlement to the benefit of a money order through an assignment does not have an unqualified right to enforce that money order pursuant to the UCPR. Rule 799 UCPR provides:
799 Enforcement period
…
(2) In addition to another law requiring a court’s leave before an order may be enforced, an enforcement creditor requires a court’s leave to start enforcement proceedings if—
(a) it is more than 6 years since the money order was made; or
(b) there has been a change in an enforcement creditor or enforcement debtor, whether by assignment, death or otherwise.
(my emphasis)
For the purposes of UCPR 799(2)(b) the relevant change is a change in an enforcement creditor. The term enforcement creditor is defined as follows:
enforcement creditor means—
(a) a person entitled to enforce an order for the payment of money; or
(b) a person to whom the benefit of part of the order has passed by way of assignment or in another way.
The order for the payment of money for present purposes is the order of the deputy registrar made on 23 September, 2013. To understand that, it is necessary to say a little about the regime established by the UCPR for the assessment of costs in Chapter 17A of those rules. The commencement of the process of assessment is provided for in UCPR 705:
705 Costs statement
(1) A party entitled to be paid costs must serve a costs statement in the approved form on the party liable to pay the costs.
There is no evidence of when the costs assessment process was started by the service of a costs statement. That is to say, it is not clear whether it began before or after the assignment. But that does not matter. Notwithstanding the equitable assignment, the respondent was able to pursue the rights transferred to it in the name of the assignor – Pioneer Investments. No notice had been given to the applicant and so, only Pioneer Investments could give a good discharge for the liability. The respondent was not obliged to give notice of the assignment. The only purpose to be served by notice was to bind the applicant to the respondent and to preserve or protect the respondent’s priority: Thomas v National Australia Bank Ltd at [18] – [23].
The costs assessment process culminates in an order being made by a registrar of the court: UCPR 740(1). The order takes effect as a judgment of the court: UCPR 740(2).
Thus, it is the order of the deputy registrar which makes provision for the payment of an ascertained and specified sum which is the money order for the purposes of UCPR 799(2)(b). From the point in time of the issue of that order, there has been no change in the enforcement creditor, whether by assignment, death or otherwise.
The point is of some significance because the requirement to seek the Court’s leave before enforcement proceedings can be commenced may mean that the respondent is not entitled to enforce the money order for the purposes of s.40(3)(d) of the Bankruptcy Act.
Leaving aside the position under s.40(3)(d), the requirement to secure leave before issuing enforcement proceedings is relevant in another respect. The Official Receiver is only authorised to issue a bankruptcy notice the application of a creditor who has obtained against a debtor a final judgment or final order (or two or more final judgments or orders) that is of the kind described in paragraph 40(1)(g) of the Bankruptcy Act and which is for an amount of at least $5,000. Relevantly, s.40(1)(g) provides:
40 Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act …
A long line of authority establishes that if a judgment creditor requires leave to issue execution on the judgment supporting the bankruptcy notice and such leave has not been obtained, the judgment is not one that can be described as a judgment or order the execution of which has not been stayed. Any bankruptcy notice issued in respect of such a judgement or order will be set aside.
In Abigroup Ltd v Abigano (1992) 39 FCR 74 at [79] – [80] the Full Court of the Federal Court of Australia considered the operation and effect of s.40(1)(g) and 40(3) of the Bankruptcy Act in its historical context. Their Honours said:
It is clear from the reported cases and the text books on Bankruptcy, in particular the writings of the early text writers (where the English Bankruptcy Act of 1883 as amended by the 1890 Act were considered) that the ground of non compliance with the requirements of a Bankruptcy Notice now embodied in section 40(1)(g), is available only, to borrow the words of Bowen LJ in Blanchett (at 307):
‘To a creditor who has prosecuted his claim to judgment, and if execution on the judgment has not been stayed – to a creditor between whom and the full fruition of his claim there stands only a process of the law uncompleted. It is only this kind of creditor who is now entitled to issue a Bankruptcy Notice. This affords an excellent reason for not extending the construction of subs (1)(g), beyond the plain letter of the words.’
Woodall, Ide and Re Richards; Ex parte Sommers (1947) 14 ABC 112 are all examples of numerous cases where execution had not been stayed, but the judgment creditor had not put himself in the position of being able to issue execution, so execution was deemed or considered to be stayed on the ground that he was not entitled at the date of the issue of the Bankruptcy Notice to issue immediate execution on the judgment: see also Re Pannowitz (supra) at 291.
But as I have indicated, UCPR 799(2)(b) is not engaged on the facts of this case. This ground must also fail.
Set-off, cross-claim or cross-demand
The applicant argues that he has set-offs, cross-claims or cross demands against the respondent arising out of orders for costs that he has secured against Pioneer Investments in the Supreme Court proceedings. He also claims that he will institute proceedings in the Supreme Court for claims against Pioneer Investments and the respondent, having failed to successfully prosecute such proceedings in the Federal Court: see Smits v Loel [2014] FCA 1341.
However, the applicant’s claims for costs are unquantified. He has obtained no assessment of the costs that were awarded to him by Margaret Wilson J. Although he deposes to an estimate of those costs in a general sense and asserts that they exceed the amount claimed in the bankruptcy notice, there is no proper basis for that assertion.
I am not satisfied on the balance of probabilities that the applicant does indeed have a set-off, cross-claim or cross demand which would equal or exceed the amount claimed in the bankruptcy notice. The claims he asserts that he will pursue in the Supreme Court are even more nebulous.
Nor am I satisfied on the balance of probabilities that the applicant has a set-off, cross-claim or cross demand which would equal or exceed the amount claimed in the bankruptcy notice arising from the matter the subject of the claims that were dealt with by Rangiah J in Smits v Loel (above).
Abuse of Process
Finally, the application filed by the applicant asserts that the bankruptcy notice was an abuse of process. This aspect of the matter was not developed in argument. It is difficult to see how the bankruptcy notice is an abuse of process in the circumstances I have described above. The respondent is entitled to enforce the order for costs. The applicant has not met his liability under the order and the debt remains due and owing. To the extent that the applicant suggests that the bankruptcy notice is pursued for an improper purpose, the evidence is against that proposition. The respondent performed legal work for Pioneer Investments in the Supreme Court proceedings. It has not been paid for that work and the benefit of the costs order has been assigned to the solicitors. There is nothing improper about that.
This ground, too, is not made out.
Conclusion
The application to set aside the bankruptcy notice must be dismissed with costs.
I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 25 September, 2015.
Associate:
Date: 25 September 2015
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