The Owners of Strata Plan Number 14368 v Dickson
[2008] FMCA 1555
•7 November 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| THE OWNERS OF STRATA PLAN NUMBER 14368 v DICKSON | [2008] FMCA 1555 |
| BANKRUPTCY – Creditor’s petition – stay on execution on judgment at date of issue of bankruptcy notice – automatic stay in Local Court of NSW after making of application for instalment order – instalment application was lost in Local Court Registry – not ‘determined’ at date of issue of bankruptcy notice – notice invalid – petition dismissed. BANKRUPTCY – Costs – unsuccessful creditor’s petition – whether costs should follow the event – right of indemnity of body corporate for its costs against successful debtor – liberty to apply for orders to preclude this. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(3)(b) Civil Procedure Act 2005 (NSW), ss.56(1), 56(2) Strata Schemes Management Act 1996 (NSW) Uniform Civil Procedure Rules 2005 (NSW), Pt.37, rr.37.2, 37.3, 37.3(1), 37.5, 37.5(1), 37.5(1)(a), 37.5(1)(b) |
| Re Johnson; Ex parte Johnson v Tonkin (1994) 53 FCR 70 |
| Applicant: | THE OWNERS OF STRATA PLAN NUMBER 14368 |
| Respondent: | SCOTT RICHARD DICKSON |
| File Number: | SYG 1749 of 2008 |
| Judgment of: | Smith FM |
| Hearing date: | 7 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 7 November 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr D Radman |
| Solicitors for the Applicant: | Grace Lawyers |
| Counsel for the Respondent: | Mr P Pollack |
| Solicitors for the Respondent: | Beazley Singleton |
ORDERS
The petition is dismissed.
The applicant must pay the costs of the respondent as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
Both parties have liberty to apply for further or varied orders in relation to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1749 of 2008
| THE OWNERS OF STRATA PLAN NUMBER 14368 |
Applicant
And
| SCOTT RICHARD DICKSON |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This is a petition filed on 8 July 2008. It relies upon Mr Dickson’s non‑compliance with a bankruptcy notice which was issued by the Official Receiver in Hobart on 28 April 2008, number 34/2008. The bankruptcy notice claimed that Mr Dickson owed to the owners of Strata Plan number 14368 (“the owners”) a debt of $10,503.83, as shown in the schedule, being the balance owing under a judgment or order, a copy of which was attached. The notice asserted: “at the time of applying for this Notice, execution of the judgments or orders had not been stayed”.
The attached judgment is a default judgment of the Local Court of New South Wales at the Downing Centre in Sydney in proceedings number 131769/07 brought by the owners against Mr Dickson. The certificate of judgment records that a default judgment in the amount of $12,003.83 was made and entered on 20 December 2007.
Mr Dickson’s notice of opposition to the petition puts in issue whether the bankruptcy notice was actually served on him. It also raises a number of other issues, including his ability to pay his debts owing to the owners, and whether unfinished litigation with the owners provides a reason for either dismissing the petition or adjourning it until it is resolved. However, I have not found it necessary to address any of these issues. Although all the parties’ relevant affidavit evidence was received, their oral evidence and oral submissions were confined to a preliminary issue which I isolated, and upon which I have now decided that the petition should be dismissed.
The issue concerns the requirement of s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) that a valid bankruptcy notice must rely upon a judgment “the execution of which has not been stayed”. It is well established that this requirement must be satisfied as at the date of issue of the notice, and the balance of authority also suggests that it must be satisfied at time of service (see Re Johnson; Ex parte Johnson v Tonkin (1994) 53 FCR 70 at 77, and other cases cited by Spender J). The requirement is also reflected in the direction in s.41(3)(b) that a notice “shall not be issued … if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed”.
In the present case, Mr Dickson contends that the judgment relied upon in the bankruptcy notice was stayed on 28 April 2008, not by effect of any Court order, but by effect of the Uniform Civil Procedure Rules 2005 (NSW) (“the Uniform Civil Procedure Rules”), which govern the enforcement of judgments of the Local Court of New South Wales. The authorities cited above establish that a relevant stay on execution for the purposes of s.40(1)(g) and s.41(3)(b) can arise by force of law, as well as by specific order in a proceeding.
The relevant provisions of the Uniform Civil Procedure Rules are found in Pt.37:
37.2Application for instalment order by judgment debtor
(cf DCR Part 31A, rule 2; LCR Part 27, rule 2)
(1)A judgment debtor may apply to the court for an instalment order with respect to the amount owing under the judgment debt.
(2)Such an application:
(a) may be made whether or not some other instalment order is in force in relation to the judgment debt, and
(b) must be supported by an affidavit as to the judgment debtor’s financial circumstances, and
(c) must be dealt with as soon as practicable after it is made.
(3)An application under this rule:
(a) except as provided by paragraph (b), is to be dealt with by the registrar under rule 37.3, or
(b) if it is made during a hearing before the court, is to be dealt with by the court under rule 37.4.
(4)Notice of motion of an application under this rule does not have to be filed or served if the application is made during the hearing at which the judgment debtor is being examined pursuant to an order for examination.
(5)An application under this rule may be made not only to the court in which judgment was entered but also, in the case of a judgment entered in a Local Court, to any other Local Court by which an examination is being conducted as referred to in rule 38.5 (2).
37.3Instalment order made by registrar
(1)The registrar may deal with an application for an instalment order:
(a) by making an instalment order in relation to the amount owing under the judgment debt, or
(b) by making an order refusing the application.
(2)As soon as practicable after making an instalment order under this rule, the registrar:
(a) must give notice of the order to the judgment creditor and the judgment debtor, and
(b) must also give to the judgment creditor a copy of the affidavit referred to in rule 37.2 (2) (b).
(3)Either party may file an objection to an order made under subrule (1) (a) or (b) at any time within 14 days after the order is made.
…
37.5Stay of execution pending determination of application for instalment order
(1)Execution of the judgment to which an application for an instalment order relates is stayed:
(a) from the time the application is made until the time the application is determined, and
(b) if the application is refused by an order under rule 37.3 (1) (b) and an objection against the order is filed under rule 37.3 (3), from the time the objection is filed until the time the objection is determined.
(2)Subrule (1) does not apply if the applicant has previously made an application under this rule with respect to the same judgment debt.
Note. See also section 107 (2) of the Civil Procedure Act 2005 which provides for stay of execution of the judgment while an instalment order is in force.
Mr Dickson contends that he made an application to pay the present judgment debt by instalments in accordance with r.37.2, by lodging a relevant notice of motion with the Registry of the Local Court on 28 March 2008. He claims that it was not determined by 28 April 2008, but had been lost by the Registry, and he was required to resubmit his application before it could be determined.
His evidence concerning these events is found in his affidavit sworn on 21 October 2008:
9.A Default Judgement was entered against me in Downing Centre Local Court on 12th December 2007 in the 131769/2007 proceedings in the amount of $12,003.83. On 28th March 2008, I filed in Downing Centre Local Court, a Notice of Motion seeking an Order for payment by instalments of the judgement in those proceedings (“Instalment Application”). I did not retain a copy of that Instalment Application. Annexed hereto marked with the letter “D” is a copy of a communication from Downing Centre Local Court to myself, care of my solicitors, confirming the filing of the said Notice of Motion on 28th March 2008. I had not previously filed an Instalment Application in the 131769/2007 proceedings.
10.During the weeks following the filing of the Instalment Application, I communicated with the Registry at Downing Centre Local Court seeking to ascertain the progress of the same. As a result of those communications I became aware the Instalment Application had been misplaced by the Court’s Registry and I was requested by the Registry to re‑file the Application. On 13 May 2008, I re‑filed the Application, copy of which is annexed hereto marked with the letter “E”. On the same date the Application was refused by Downing Centre Local Court the reason for the court’s decision being “Greater capacity to pay”. Annexed hereto marked “F” is a copy of the Order made by Downing Centre Local Court.
Mr Dickson gave a similar version of events in an affidavit filed in another matter, to which I was referred to by the owners: [see p.106 of the affidavit of Mr Brell sworn 3 November 2008]
25.Not having heard as to the outcome regarding the 131769/07 Instalment Order I contacted the Registry a number of times but was advised the application could not be located. On 23 April 2008 I was advised by the Registry to assume that the application had gone missing in the files and to resend a copy of the Instalment Order which I did, however, I was then advised that it had to be re‑sworn which I subsequently did.
26.On 13 May 2008 the Registrar refused the Instalment Order application in respect of 131769/07 as the supporting financial statement showed greater capacity to pay. I note that the financial statement did not specifically incorporate costs for ongoing strata levies or the payments in respect of 8648/05. The application was subsequently re‑filed as amended to reflect these payments, current financial circumstances and a payment capacity of $400 a month in respect of matter 131769/07.
The communication from Downing Centre Local Court to Mr Dickson’s solicitor has the signature of the Registrar and the stamp of the Court, and appears on its face to be an official communication of facts concerning the state of that Court’s file in No.131769/07. I accept that it is an official certification that:
On the 28 March 2008 a Notice of Motion Pay by Instalments was filed with Downing Centre Local Court.
Confirmation of Mr Dickson’s evidence is also given by a copy of an instalment application which is stamped as being lodged by Mr Dickson on 13 May 2008. This carries an annotation by him: “note this is resubmitted as original could not be located by Registry”.
Other confirmation that an instalment application was made on 28 March 2008 and was undecided before 28 April 2008 is given in the evidence of the owners’ solicitor, Ms Alexis Lombe, as to a recent telephone conversation she had with an unidentified person in the Local Court Registry:
She said: Civil Claims.
I said: An application to pay by instalments was filed by the defendant in proceedings No 131769 of 2007 on 28 March 2008, can you tell me if this was granted or refused?
She said: The application to pay by instalments filed by the defendant on 28 March 2008 was lost by the Registry, and the defendant re‑filed the same application to pay by instalments on 13 May 2008. The application to pay by instalments filed by the defendant on 13 May 2008 was refused by the Registry on the basis that the defendant had a greater capacity to pay. The defendant filed a further application to pay by instalments in July 2008, this application was granted by the Court on 1 July 2008. The plaintiff objected to the instalment order and the matter was listed before the Court, there is no instalment order currently on foot.
I said: So there was no instalment order granted by the Court until 2 July 2008?
She said: Yes, the instalment order granted on 2 July 2008 was the first instalment order granted by the Court.
Further confirmation was given by Mr Dickson in cross‑examination, and I accept his evidence. He recounted that he had not retained a copy of this application, which he had lodged at the same time as an instalment application relating to another judgment. He said that after he received a favourable determination in the other matter, he made inquiries on several occasions at the Registry as to the progress of the application in this matter, and that, ultimately, he was told that it could not be found after searches in the Registry office, the file and the computer. He did not dispute that he was told this on 23 April 2008. He said that in one of his inquiries, which I understood to have occurred while the present proceedings were on foot, he had actually seen the screen of the computer at the Local Court which recorded the filing of the application.
On all the above evidence, I am affirmatively satisfied that Mr Dickson probably did file a document, being a notice of motion in the prescribed form, seeking an instalment order in respect of the judgment debt arising in the relevant proceeding. There is in evidence a number of other such applications made by Mr Dickson, including the “resubmitted” application. They show that the prescribed form contains provision for an affidavit of assets and liabilities, and I am prepared to infer that it is more probable than not that such an affidavit also accompanied the application lodged by Mr Dickson on 28 March 2008. He therefore did all that was required under the Rules for the making of an application to pay by instalments.
I raised with the representative of the owners whether there was an onus of proof on the creditor or the debtor in relation to the existence of a stay under r.37.5 of the Uniform Civil Procedure Rules. Prima facie, I am inclined to think that all elements of a valid bankruptcy notice must be positively established by the creditor, including the absence of a stay, if this is put in issue by a debtor. However, I was not referred to any authorities on this point, and it is unnecessary for me to base my present judgment upon an onus of proof. I am ready to infer that an application complying with r.37.2 was filed with the Local Court, and was accepted by it as such an application on 28 March 2008.
It is then necessary to consider how r.37.5(1) is to be applied, in circumstances where no determination was made by a Registrar under r.37.3, either making the instalment order or refusing it, and where the Registry communicated to a debtor that he should assume that the application has been lost and should be “resubmitted”.
The representative of the owners submitted that in such a situation the communication of the Registry to the debtor of this fact amounts to a “determination” of the application, so that the time of such a communication is “the time the application is determined” for the purposes of r.37.5(1)(a). He submitted that in the present case, I should find that this communication occurred on or before 23 April 2008, so that the automatic stay under the Rules, in fact, was not in existence when the bankruptcy notice was issued on 28 April 2008.
He submitted that such a construction of the reference to “the time the application is determined” would be consistent with the provisions of s.56(1) and (2) of the Civil Procedure Act 2005 (NSW):
56Overriding purpose
(cf SCR Part 1, rule 3)
(1)The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
(2)The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.
I do not gain assistance from s.56(1) and (2) in the context of the present issue, since I do not think that the statutory “overriding purpose” solves the issue. Considering the construction of r.37.5 by reference to its specific purpose, it is intended to confer a benefit on a debtor facing execution of the judgment, rather than to confine such a benefit. Its purpose would appear to be supported by recognising the existence and continuance of a stay, once the debtor has done all required of him to obtain a determination by the Registrar of his instalment application, even if the Registrar fails to deal with it as promptly as the Rules seem to expect.
However, in my opinion the construction of r.37.5 is better determined by reference to the context of the rule, being the preceding rules in relation to the making and determination of applications for instalment orders. As I have extracted above, r.37.3(1) makes express provision for a Registrar to “deal with” an application for an instalment order in two ways, both of which require a positive decision to be made by a Registrar. The Rules make no provision for the contingency that the Registry might lose an application for an instalment order before a decision is made by a Registrar. In the absence of such provision, and in the presence of r.37.3, in my opinion r.37.5(1)(a) must be read as intending that “the time the application is determined” can occur no earlier than the time when a Registrar makes one or other of the decisions indicated in r.37.3, even if the Registry has lost the application and a Registry clerk communicates that fact to the applicant. This is confirmed by the further precision of r.37.5(1)(b), which addresses the continuance of a stay where further proceedings occur after the initial determination of the ex parte application.
In my opinion, Mr Dickson’s application for an instalment order made on 28 March 2008 had not been “determined” within the meaning of r.37.5 before the date of the issue of the bankruptcy notice on 28 April 2008, and a stay arising under r.37.5 was in force at the times that it was applied for and issued. The bankruptcy notice was therefore invalidly issued.
The further events in relation to the instalment application, being the lodgement by Mr Dickson of his “resubmitted” instalment application on 13 May 2008, its initial granting and then setting aside on objection, and a further instalment application being unsuccessfully made by Mr Dickson, have no bearing on the validity of the bankruptcy notice.
For the above reasons, I accept the submissions of Mr Dickson that the bankruptcy notice relied upon in this petition was invalid at the time of issuing and, therefore, could not give rise to the act of bankruptcy which is relied upon in the present petition. No other act of bankruptcy is identified in the evidence, and it is accepted by the owners that the petition should be dismissed if this notice was invalidly issued.
In relation to costs, Mr Dickson applied for his costs on an indemnity basis against the owners, on the ground that he has succeeded on a point which was clearly presented to them at the commencement of the proceeding.
He also raised a concern that the owners might attempt to attach him with all or part of their own costs pursuant to a right of indemnification under the Strata Schemes Management Act 1996 (NSW), even if costs were awarded against them. I was not taken to the relevant statutory provisions and authorities relating to this concern. I was informed that the legislation may receive some clarification from the Court of Appeal soon.
Even if a right of indemnification of the owners’ costs in unsuccessful litigation with a unit holder arises under the State legislation, there may be further issues whether it can be invoked inconsistently with a costs order of a federal court, particularly if the federal court expressly or implicitly intends that its order should preclude such recovery. There may then be issues as to how an order evincing this intention should be framed.
For their part, the owners opposed a costs order being made against them in relation to Mr Dickson’s costs, and submitted that they should receive all or some of their costs, or that both parties should carry their own costs. They submitted that the ground upon which I have dismissed the petition relied upon failures within the Registry of the Local Court for which the owners were not responsible nor, it was submitted, aware until the issue was raised by Mr Dickson.
Mr Dickson’s solicitor pointed out that it would have been open to the owners, and prudent for them, to have checked with the Local Court Registry to see whether there was a stay on execution of the judgment at the time when they applied for the issue of the bankruptcy notice. If this had been done, the Local Court’s computer would have told them that there was an outstanding application for an instalment order which had been lost and was being resubmitted.
Mr Dickson’s solicitor also pointed out that Mr Dickson adverted to the lost instalment order in the course of other litigation with the owners, before the petition was brought. Moreover, on 2 October 2008 his solicitor gave notice of grounds of opposition which contained the point which I have upheld. Although the notice of opposition was in very general terms as to the grounds, the letter itself said:
You will notice that the enclosed Affidavit annexes confirmation from Downing Centre Local Court that on 28th March 2008 a Notice of Motion to Pay by Instalments was filed in proceedings 131769 of 2007.
The purported Bankruptcy Notice is based on the judgment in proceedings 131769 of 2007. At the time the Bankruptcy Notice was applied for, a stay of execution was in place by reason of the filing of the above Notice of Motion and the operation of Uniform Civil Procedure Rule 37.5. We suggest therefore that the Bankruptcy Notice is fatally flawed and it follows that the Petition must be dismissed.
These communications provide the grounds upon which Mr Dickson sought indemnity costs. However, no warning that indemnity costs would be sought was ever given, and in my opinion the arguments presented by the owners were not so obviously untenable as to justify the making of indemnity orders.
I am, however, in all the circumstances persuaded that the usual order should be made in relation to unsuccessful litigation, and that both parties’ costs should follow the outcome of the petition. In arriving at that conclusion, it is my firm opinion that Mr Dickson should have his own costs recoverable from the owners corporation on a party‑party basis, and that the owners should carry their own costs and not be able to recover them in whole or in part from Mr Dickson by any means.
As I have indicated above, there may be some doubt whether the owners may claim a statutory right of indemnification notwithstanding what I have said. If they make this claim, it may be necessary for me to hear further submissions as to the existence of their right of indemnification in relation to costs in an unsuccessful bankruptcy proceeding, and the powers of the Court by injunction or otherwise to prevent such recovery. I shall therefore give both the parties liberty to apply for further or varied orders in relation to costs, so that these matters could be fully addressed.
I certify that the preceding thirty‑two (32) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 20 November 2008
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