Spry, F.A.B v Francis, S.M

[1994] FCA 833

833       9Y

JUDGMENT No. ........ . .. .... J ..U.WII

IN THE FEDERAL COURT OF AUSTFWLIA	)
l
VICTORIA DISTRICT REGISTRY	No. VN 1632 of 1994 No. VN 1616 of 1994
GENERAL DIVISION	1
B E T W E E N :

RE:	F A B SPRY	Judgment Cebtor
EX PARTE:	S M FRANCIS. N FRANCIS

and L FRANCIS Judgment Creditors

JUDGE :	Heerey J
m:	19 October 1994
PLACE :	Melbourne

EX TEWORE REASONS FOR JUDGMENT

This application concerns two bankruptcy notices numbered 1616 and 1632 of 1994, issued on 8 and 13 July 1994 respectively against the judgment debtor Francls Allan Bruce Spry (Mr Spry). The judgment creditors are Mr Spry's sister, Mrs Susan Francis, and her children, Mr Nicholas Francis and MS Louise Francis.

M r Spry seeks to satisfy the Court that within the meaning of

Francis, were trustees. The trusts were established by deeds	dated 15 May 1965. The beneficiary of the first trust was
Nicholas and of the second Louise. Both trusts were discretionary trusts under which the income could be applied at the discretion of the trustee for the benefit of the beneficiaries during their lifetime and upon their death by appointment.
As far as the evidence discloses, the trust property of the trusts was a large block of flats at 57 Darling Street, South Yarra.
In 1986 proceedings were commenced in the Supreme Court of Victoria. Mrs Francis obtained $120,000 as money lent to the trustees of the trusts. Nicholas and Louise alleged that breaches of trust had been committed by Mr Spry. The breaches alleged included speculative share trading, the transfer of a trust asset into Mr Spry's name and the refusal to permit the other trustee and beneficiaries access to records and a number of other matters. Mr Kendall Francis, as cc-trustee, was a defendant in the proceedings but effectively supported the
plaintiffs.
On 21 August 1991 the case was listed for hearing before Murphy J. Settlement was reached between counsel. However, there was subsequently a failure by the parties to reach agreement as to the recording of the settlement in written form. As a consequence the plaintiffs issued a summons which resulted in terms of settlement being executed by the parties, including Mr Spry, on 5 March 1992. One of the provisions of those terms was that Mr Spry should pay $25,000 towards the plaintiffs' solicitors for their costs. This amount was pald shortly afterwards. However, other terms of the settlement which required Mr Spry to execute transfers of some of the flats were not performed by him.
In August 1992 the plaintiffs issued a summons to compel Mr Spry to carry out the terms of settlement. That summons was the subject of a contested hearing before Beach J on
7 December 1993. His Honour made orders that, amongst other
things, the terms of settlement dated 5 March 1992 be specifically performed. There were various directions made about the execution of transfers and the discharge of mortgages and also an order that

s.40(l)(g) of the BankruptcyAct 1966 (Cth) (the Act) he has

"... a counter-clam, set-off or cross demand equal to or

exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, be~ng a counter-clalm, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained."

The disputes giving rise to these proceedings arose out of two trusts of which M r Spry and Mrs Francis' husband, Mr Kendall

"... the first-named defendant [Mr Spry] pay the plaintiffs'

costs of this applrcation, including all reserved costs and including all costs occasioned by the first-named defendant's failure to comply with the terms of settlement, such costs to be taxed on a solicitor and own cllent basls in default of agreement, but excluding the costs of the hearing on 17 November 1993."

amount is the subject of the first of the two bankruptcy	Those costs were subsequently taxed at $25,362.30. That	notices.
However, it was not long before the parties were back in court again. There was an allegation that, despite the orders of Beach J, Mr Spry had failed to execute some of the transfers or otherwise comply with the orders. The plaintiffs issued a summons seeking to conunit him for contempt of court. That application came on before Beach J on 10 March 1994, where the matter was apparently resolved on Mr Spry giving undertakings as to the existence of certaln documents. There was an order by consent that Mr Spry pay the plaintiffs' costs of the summons together with reserved costs to be taxed on a solicitor and own client basis.
Those costs were subsequently taxed at $18,073.90, which is the subject of the second bankruptcy notice.
On behalf of Mr Spry, it was said that he has a counter-claim, set-off or cross demand in the amount of some $50,000, to which he is entitled as costs incurred in the course of administering the trusts. The amount in question was said to be his costs incurred in the litigation to which I have referred.
It is true that the entitlement of a trustee to be indemnified out of the trust estate in respect of costs incurred in the administration of the estate can extend to costs incurred by the trustee in defending litigation brought against him in
that capacity. In National Trustees Executors and Agency Company of Australia Limited v Barnes (1941) 64 CLR 268 at 279, Williams J said:

"If a trustee is sued by beneficiar~es who complain of some act or omission by the trustee, he LS entitled to defend hss conduct as an incident of such administration ... [authority cited].

Even if he fails in the suit he may be allowed his costs out of the estate but if he succeeds, as in this case, he is clearly Even if he f a d s in the suit he may be allowed his costs out of the estate but if he succeeds, as in this case, he is clearly entitled thereto."

But to be of any benefit to Mr Spry for the purposes of s.40(l)(g), the counter-claim, set-off or cross demand would have to be against the judgment creditors who have procured the issue of the bankruptcy notice. It is clear enough that a counter-claim, set-off or cross demand has to be against the judgment creditor in the same capacity. For example, it would not be enough if the judgement debtor had a claim agalnst the judgment creditor as a joint debtor (Re Brown (1923) 40 WN

(NSW) 73) or as a partner (Re Wedd; e x p a r t e Parker [l9621 WAR

42) and see generally James v Abrahams (1981) 34 ALR 657 at
666.

But more fundamentally in the present case, Mr Spry's counter- claim, set-off or cross demand is not against the judgment creditors at all. At best, Mr Spry might have a claim against the continuing trustee, Mr Kendall Francis, but he is not a

judgment creditor.

Further, the application must also fail because it has not been shown that the counter-claim, set-off or cross demand could not have been set up in the action or proceeding when the judgment or order was obtained.

The proceedings in question are the two applications which

were made to Beach J and which resulted in the orders of 7

December 1993 and 10 March 1994. In both cases M r Spry was being sued as a trustee. When the questlon of costs arose it would have been open for him to seek the order that is commonly made when trustees are defendants, that is, that the trustee's costs be paid out of the estate. It is perhaps understandable that no such application was made, but that only strengthens the conclusion that the requirements of s.40(l)(g) are not satisfied.

The application will be dismissed. I will order that the judgment debtor pay the judgment creditors' costs to be taxed, including reserved costs.

I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment of his Honour Mr Justice Heerey.

Counsel for the judgment
debtor:	J D Wilson
Solicitor for the judgment
debtor :	Cornwall Stodart
Counsel for the judgment	G H Garde QC with P D
creditor:	Burchardt
Solicitor for the judgment
creditor:	Klonis, Kirby & CO
Date of hearing:	19 October 1994

JUDGES' CHAMBERS

FEDERAL COURT OF AUSRALIA
450 LIlTLE BOURKE STREET

MELBOURNE. 3000

11 November 1994

Sonia Cornale
Federal Court of Australia

Principal Registry

Law Courts Building
Queens Square

SYDNEY NSW 2000

Dear Sonia,

Re:FAV S ~ r v ex Darte: S M Francis h Anor

No.VN 1632 and 1616 of 1994

I enclose a copy of the judgment delivered by his Honour M r
Justice Heerey in the above matter on 19 October 1994.
A diskette record of the judgment is also enclosed.
This judgment is not for general distribution.

Regards,

vid Brennan

Associate to Heerey J