Stockland Development Pty Ltd v Carriage - [2005] FMCA 8

FEDERAL MAGISTRATES COURT OF AUSTRALIA

STOCKLAND DEVELOPMENT PTY LTD v CARRIAGE

[2005] FMCA 8

BANKRUPTCY – Creditors Petition – application for a sequestration order – whether creditor’s petition should be set aside – where the judgment debts upon which the bankruptcy notice is based are based upon costs order in the Land and Environment Court proceedings and associated Supreme Court proceedings – where debtor has costs order in his favour in Land and Environment Court proceedings – where costs have yet to be taxed or agreed – whether this constitutes sufficient cause to set aside the creditors petition – whether the hearing of the creditor’s petition should be adjourned.

Bankruptcy Act 1966 (Cth), s.52(2)(b),

Ling v Enrobook Pty Ltd (1997)143 ALR 396
Ling v The Commonwealth (1996) 139 ALR 159
Re James & Anor; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 9) (1994) FCR 14
Gundry v Sainsbury (1910) 1 KB 645
In re a Debtor [1929] 2 Ch 146

Applicant:

STOCKLAND DEVELOPMENT PTY LIMITED (formerly known as Stockland (Constructors) Pty Ltd)
ACN 000 064 835

Respondent:

ALLAN RICHARD CARRIAGE

File No:

SYG 2758 of 2004

Delivered on:

17 January 2005

Delivered at:

Sydney

Hearing date:

21 December 2004

Judgment of:

Raphael FM

REPRESENTATION

Counsel for the Applicant:

Mr B Skinner

Solicitors for the Applicant:

Baker & McKenzie

Counsel for the Respondent:

Mr B Conomy

Solicitors for the Respondent:

Maurice Blackburn Cashman

ORDERS

Proceedings adjourned for further hearing on a date to be fixed following advice from either of the parties to my associate that the amount of costs in the Land and Environment Court of New South Wales Proceedings 40863 of 2002 awarded to the debtor by Pain J on 20 December 2004 have been taxed or agreed.
Costs reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2758 of 2004

STOCKLAND DEVELOPMENT PTY LIMITED (formerly known as Stockland (Constructors) Pty Ltd) ACN 000 064 835

Applicant

And

ALLAN RICHARD CARRIAGE

Respondent

REASONS FOR JUDGMENT

In these proceedings the applicant seeks a sequestration order against the respondent debtor based upon his failure to comply with a bankruptcy notice which annexed a judgment for costs awarded to the applicant in certain Land and Environment Court proceedings in respect of which a determination of costs was issued on 4 September 2003 by J M Goodman. The cost assessor’s certificate was registered in the Local Court on 19 September 2003 and became a Judgment of the Local Court. On 18 March 2004 a Bankruptcy Notice numbered NN720 of 2004 was issued by the Official Receiver claiming a sum of $5,431.00 pursuant to this Local Court Judgment.
The Bankruptcy Notice was served on the applicant on 29 March 2004 and was not complied with. The debtor filed an application to set aside the bankruptcy notice on 16 April 2004 which was heard by Madgwick J on 29 June 2004 and dismissed. The creditor’s petition before me states that the debtor is indebted to the applicant in the sum of $5,431.00 and also in the sum of $55,588.82 being another order for costs in related proceedings in the Supreme Court of New South Wales pursuant to orders of Bergin J of 13 December 2002.
It is not disputed by the debtor that the two judgments are valid. His argument seeking that the creditor’s petition be set aside or alternatively be adjourned is based upon a claim (not disputed by the creditor) that on 20 December 2004 Justice Pain gave a judgment on costs in favour of the debtor and against the creditor in respect of the same proceedings in which the earlier costs order amounting to $5,431.00 was made against the debtor. There are in addition other Land and Environment Court proceedings between the parties which were originally decided in favour of the applicant and against the debtor but which were ordered to be re-opened by Cowdroy J on 26 November 2004.
It should be noted in relation to these Land & Environment Court proceedings that the debtor is bringing them as an aboriginal elder whose claimed interest is to preserve and protect part of a large area of land which is being redeveloped by the creditor. The debtor is now represented pro bono in those proceedings, although he was originally represented by an agent. The costs orders which were made against him were made against him whilst he was represented by the agent and since he has had the benefit of legal advice he appears to have been relatively successful in his claims. The debtor has asserted, and that assertion has not been challenged, that he is a pensioner who has no debts other than those which are the subject of the two costs orders which form the basis of the creditor’s petition.
The debtor argues that his judgment against the creditor for an as yet undetermined amount in respect of costs constitutes “other sufficient cause” under s.52(2)(b) of the Bankruptcy Act 1966 (Cth) per Ling v Enrobook Pty Ltd (1997) 143 ALR 396 where the Full Bench said at [401]:
“The public interest recognised by such authorities is that which, in broad terms, is reflected also in s.40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counter balanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor but against a third party.”
It seems to me beyond doubt that if the debtor had a judgment against the creditor in respect of a cause of action where the damages had not yet been assessed by a court but which, on the basis of evidence and this court’s own experience, appeared likely to equal or exceed the amount claimed by the creditor I should dismiss the petition; Ling v The Commonwealth (1996) 139 ALR 159; Re James & Anor; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 9) (1994) FCR 14 – in both of which cases there was only a claim and not a judgment. But in this case, whilst there is a judgment, the creditor argues that it is a judgment for costs that represents only an indemnity to the debtor in respect of further debts of his own. It is also argued that this indemnity is not provided where a party is not liable to his or her legal advisors for costs; Gundry v Sainsbury (1910) 1 KB 645 at 649, 651; Inre a Debtor [1929] 2 Ch 146 at 150.
The gravamen of the creditor’s argument is that even if the costs order in favour of the debtor was sufficient to set off entirely the creditor’s claim the debtor would still have obligations to pay his own lawyers and experts and that what would occur would be a mere transference of debt from one creditor to another so that the creditor would be no more solvent than he appeared to be at the present time. The inability of the debtor to establish solvency was the main reason for making the sequestration order in Re James (supra).
The arguments made above assume that when the costs order is translated into an order for a particular sum of money and becomes payable it will equal or exceed the amount of the creditor’s judgments. But that is not yet known. The evidence filed in these proceedings would tend to indicate that this will be the case but, as I explained to the parties at the hearing, I would be disinclined to make any order dismissing the petition until I could have more certainty. The difficulty that the debtor faces is that the proceedings between himself and the creditor are continuing and the costs orders will not be payable until after those proceedings have concluded. However, in response to a question from me there appeared to be some agreement that the matter would not be prolonged in the Land and Environment Court.
Whilst there is considerable force in the argument put by the creditor that the set off might do no more than transfer debt between parties and the debtor will remain insolvent I believe that this analysis may overlook some possibilities of arrangement between the debtor and his lawyers which would, without abandoning the concept of indemnity, allow him to set off his debt due to the creditor against the debt that the creditor has to him. If this could be achieved, and I believe it could, and the debtor could establish his solvency to the satisfaction to the court then it would be appropriate, once the quantum of the judgment is known, to dismiss the petition.
I would therefore propose to adjourn the hearing of the petition until such time as the costs awarded in favour of the debtor have been taxed or agreed and their quantum known. If that quantum is more than $2,000.00 less than the amount of the judgments upon which the petition is based then it would appear that the sequestration order will have to be made. But if the figure is less or exceeds the amount then I will hear the parties on why I should not adopt the course of action taken by Olney J in Re James i.e. dismiss subject to being satisfied as to solvency.
It is possible that this matter may not be heard before the expiry of the petition. If that appears likely I will consider favourably an application for extension pursuant to s.52(5) of the Bankruptcy Act.
I will reserve costs.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 17 January 2005