Tzovaras v Jeandin
[2014] FCCA 2039
•4 September 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| TZOVARAS v JEANDIN | [2014] FCCA 2039 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – whether at the time the bankruptcy notice was issued the respondent was a “creditor” within the meaning of s.40(1)(g) of the Act – whether, by operation of the rule against double recovery, a judgment creditor is a “creditor” for the purposes of s.40(1)(g) of the Act if, by the time the bankruptcy notice is issued, the judgment creditor, in addition to recovering the judgment debt on which the bankruptcy notice is issued, had recovered judgment for the same loss against another person, and that person satisfied in full the judgment entered against that person – whether the respondent recovered a judgment from another person for the same loss for which the respondent obtained judgment against the applicant and on the basis of which the respondent issued the bankruptcy notice – whether by receiving the payment from the indemnity insurer the respondent fully recouped the loss for which the respondent recovered judgment against the applicant. EQUITY – Equitable assignments of legal choses in action – whether an assignor under an equitable assignment of a legal chose in action holds the legal title in the legal chose of action in trust for the assignee. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 40(1)(g), 40(3)(d), 41(1) Conveyancing Act 1919 (NSW), s.12 |
| Abigroup Limited v Abignano (1992) 39 FCR 74 APT Finance Pty Ltd v Bajada [2008] WASCA 73 Carob Industries Pty Ltd (In Liq) v Simto Pty Ltd [2000] WASCA 362 National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1 Re Pannowitz;Ex parte Wilson (1975) 38 FLR 184 Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 |
| Applicant: | GEORGE TZOVARAS |
| Respondent: | JEAN-PIERRE LOUIS PAUL JEANDIN |
| File Number: | SYG 2159 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 25 August 2014 |
| Delivered at: | Sydney |
| Delivered on: | 4 September 2014 |
REPRESENTATION
Applicant in person.
| Counsel for the Respondent: | Mr Johnson |
| Solicitors for the Respondent: | Sally Nash & Co |
ORDERS
To the extent the applicant has not complied with r.3.02 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), pursuant to r.1.06(1) of the Federal Circuit Court Rules 2001 (Cth) the Court dispenses with the requirement that on 1 August 2014 the applicant comply with that rule.
On condition that Bankruptcy Notice No. BN166369 issued on 18 October 2013 against the applicant was deemed served on the applicant on 18 July 2014, the time for compliance by the applicant with the requirements of Bankruptcy Notice No. BN166369 is extended up to and including 19 September 2014.
Subject to order 4, Bankruptcy Notice No. BN166369 shall be set aside at 4.00 pm on 19 September 2014 without any further order of the Court.
The respondent has liberty to apply by 10 September 2014 to have the matter relisted before the Court by 18 September 2014 if, contrary to the assumption on which order 3 is made, the respondent claims that LawCover Insurance Pty Limited did not pay the settlement sum as provided for in clause 4.2 of the Deed of Release and Assignment made between the respondent and LawCover Insurance Pty Limited effective on 22 December 2011.
The respondent pay the applicant such costs to which he may be entitled as an unrepresented party.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2159 of 2014
| GEORGE TZOVARAS |
Applicant
And
| JEAN-PIERRE LOUIS PAUL JEANDIN |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Mr George Tzovaras, applies to set aside a bankruptcy notice issued on 18 October 2013 that was deemed served on him on 18 July 2014.[1] The bankruptcy notice was issued on the application of LawCover Insurance Pty Limited (LawCover) in the name of the respondent, Mr Jeandin. LawCover applied for the issue of the bankruptcy notice in the name of Mr Jeandin under the terms of a deed of release and assignment (deed of assignment) it entered into with Mr Jeandin on or about 21 December 2011.
[1] The bankruptcy notice was served on Mr Tzovaras pursuant to an order for substituted service.
The bankruptcy notice demands payment of $2,242,746.87. That is the sum of two amounts. The first is $1,890,575.31, being the amount of a judgment Mr Jeandin recovered against Mr Tzovaras and his brother, Ted Tzovaras, on 4 November 2011 in proceedings Mr Jeandin commenced in the Supreme Court of New South Wales. The second amount is $352,171.56, being interest that accrued on the judgment debt up to 17 October 2013.
Mr Tzovaras claims the bankruptcy notice should be set aside because, at the time the bankruptcy notice was issued, Mr Jeandin was not a “creditor” within the meaning of s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (Act). Mr Tzovaras relies on three grounds for claiming Mr Jeandin was not a “creditor”. But before I set out those grounds, it will be necessary to say something about the proceedings in which the judgment was entered against Mr Tzovaras. I also need to identify the principal terms of the deed of assignment.
The Supreme Court proceedings
The proceedings in which the judgment against Mr Tzovaras was entered arose out of a loan of $1,500,000 Mr Jeandin made to a company called Country Landmark Pty Limited (CLP).
CLP was under the control of Mr Tzovaras and Ted Tzovaras. In around August 2006 CLP began to develop land at Bredbo with money it borrowed from Grenfell Securities Limited. By early 2008 CLP required further money to continue with the development at Bredbo. And, in around April 2008, Mr Jeandin lent CLP the $1,500,000 for that purpose.
Mr Jeandin lent CLP the $1,500,000 under a deed of loan. Mr Tzovaras and Ted Tzovaras guaranteed the loan. Ted Tzovaras, who is a solicitor, drafted the deed of loan and guarantee. Mr Jeandin had previously retained Ted Tzovaras in connection with the purchase of a property.
CLP defaulted under the loan, and Mr Jeandin demanded Mr Tzovaras and Ted Tzovaras honour the guarantees they had given by paying to Mr Jeandin the money CLP owed him. When no payment was made, Mr Jeandin commenced proceedings in the Supreme Court of New South Wales against Mr Tzovaras and Ted Tzovaras claiming from them the amounts CLP owed to Mr Jeandin under the deed of loan.
After he commenced the proceedings, Mr Jeandin joined two additional defendants. The first was Tzovaras Legal Pty Limited (Tzovaras Legal). That was the company through which Ted Tzovaras conducted his legal practice. Mr Jeandin alleged that Ted Tzovaras and Tzovaras Legal breached their duty of care and other duties in relation to Mr Jeandin’s making the loan of $1,500,000 and that, because of those breaches of duty, Mr Jeandin lost the $1,500,000 he lent to CLP.
The second additional defendant was LawCover. LawCover had issued a professional indemnity insurance policy to Ted Tzovaras and Tzovaras Legal. Mr Jeandin claimed a charge over that insurance policy under s.6(1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMP Act). Mr Jeandin also claimed an order under s.6(4) of the LRMP Act that LawCover pay the proceeds of the insurance policy direct to Mr Jeandin on account of any liability Tzovaras Legal might be held to have to Mr Jeandin.
Mr Jeandin’s claims were heard by McDougall J on 4 and 5 October 2011, and his Honour delivered reasons for judgment on 4 November 2011.[2] His Honour held that Mr Jeandin should have judgment against each of Mr Tzovaras and Ted Tzovaras pursuant to their guarantees in the sum of $1,500,000 together with interest calculated at the rate provided for under the deed of loan.[3] On 4 November 2011 judgment in the amount of $1,890,575.31 was entered against Mr Tzovaras and Ted Tzovaras (Tzovaras Judgment debt)
[2] Jeandin v Tzovaras [2011] NSWSC 1254
[3] Jeandin v Tzovaras [2011] NSWSC 1254, [124]-[127]
His Honour also held Ted Tzovaras and Tzovaras Legal breached their duties to Mr Jeandin, and that Tzovaras Legal was liable to pay damages to Mr Jeandin in an amount equal to the $1,500,000 Mr Jeandin lent to CPL, together with interest.[4] Finally, his Honour held that Mr Jeandin was entitled to a charge on the LawCover policy for the amount for which his Honour found Tzovaras Legal was liable to Mr Jeandin.[5]
[4] Jeandin v Tzovaras [2011] NSWSC 1254, [128]
[5] Jeandin v Tzovaras [2011] NSWSC 1254, [129]
On 1 December 2011 McDougall J published reasons for judgment on matters that had not been finalised in his Honour’s reasons for judgment of 4 November 2011.[6] That resulted in his Honour directing that judgment in the amount of $1,946,130.13 be entered against Tzovaras Legal, and judgment to that effect was entered on 7 December 2011 (Tzovaras Legal Judgment debt). His Honour also declared that Mr Jeandin was entitled to enforce a charge against LawCover pursuant to s.6 of the LRMP Act over all insurance moneys payable in respect of the liability Tzovaras Legal had to Mr Jeandin, the amount of such charge not to exceed $1,992,500, and further ordered that LawCover pay $1,946,130.13 to Mr Jeandin.
[6] Jeandin v Tzovaras [2011] NSWSC 1511
The Deed of Assignment
On or about 21 December 2011 Mr Jeandin and LawCover executed the deed of assignment. The deed of assignment deals with three things. The first is Mr Jeandin and LawCover each releasing the other from:
a)the decision of McDougall J of 4 November 2011;
b)the judgment and some of the orders made against LawCover on 1 December 2011 and entered on 7 December 2011; and
c)all “Claims” that Jeandin has or may have against LawCover and Tzovaras Legal Pty Limited “in respect of the facts, matters and circumstances giving rise to the proceedings against LawCover and Tzovaras Legal Pty Limited”.
Second, the deed records an agreement “to a full and final settlement” of the proceedings before McDougall J and the judgment and orders made in those proceedings against LawCover “on terms that Jeandin is to be paid $1,992,500 inclusive of the entitlement to his costs . . . by or on behalf of LawCover”. That sum was to be paid within fourteen days of 8 December 2011.
The third matter the deed deals with is the assignment by Mr Jeandin to LawCover of “all of his rights absolutely and interests at law, equity or by statute to enforce and recover from each of George Tzovaras and Ted Tzovaras the judgment sum of $1,890,575.31 including interest to 4 November 2011 entered against them on 4 November 2011”. The assignment is stated to take effect from 22 December 2011.
At the hearing of the application to set aside the bankruptcy notice, Mr Tzovaras called for the production by Mr Jeandin of documents recording payments made under the deed of assignment. Counsel for Mr Jeandin resisted producing such documents on the ground that whether or not any payments were made under the deed of assignment was not relevant to the application to set aside the bankruptcy notice. Because at that stage I did not fully understand the issues raised by Mr Tzovaras’s application to set aside the bankruptcy notice, I ruled that I would not deal with that call unless it appeared to me that whether or not payment was made under the deed of assignment was relevant. As I will discuss later, whether or not payment was made is relevant to the third ground on which Mr Tzovaras seeks to set aside the bankruptcy notice.
At any rate, for the purpose of these reasons for judgment, I will assume, as I think is in fact the case, that LawCover did pay Mr Jeandin the $1,992,500 it agreed to pay to him under the deed of assignment.
Grounds on which Mr Tzovaras claims Mr Jeandin is not a creditor
I will now state the three grounds on which Mr Tzovaras claims Mr Jeandin was not a creditor of Mr Tzovaras at the time the bankruptcy notice was issued. First, Mr Jeandin was required to obtain, but did not obtain the leave of the Supreme Court of New South Wales under r.39.1(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to issue execution on the Tzovaras Judgment debt. Second, the assignment divested Mr Jeandin of his title in the Tzovaras Judgment debt, which means that neither he nor any person could seek to enforce the Tzovaras Judgment debt in his name. And third, the loss for which Mr Jeandin recovered the Tzovaras Judgment is the same loss for which he obtained the Tzovaras Legal Judgment debt, and that LawCover’s payment to Mr Jeandin of $1,992,500 constituted full satisfaction of the amount of his claim for that loss.
Whether or not the grounds on which Mr Tzovaras relies are sound depends in the first instance on the meaning of “creditor” as that term is used in s.40(1)(g) of the Act.
Meaning of “creditor” in s.40(1)(g) of the Act
A bankruptcy notice is an essential element of the act of bankruptcy defined in s.40(1)(g) of the Act. Under s.40(1)(g), a “debtor commits an act of bankruptcy” if, among other things:
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 . . . a bankruptcy notice under this Act and the debtor does not:
(a)where the notice was served in Australia – within the time specified in the notice . . .
. . . .
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, 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, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.
The “bankruptcy notice under the Act” is a reference to s.41(1) of the Act which provides as follows:
An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a)a final judgment or final order that:
(i)is of the kind described in paragraph 40(1)(g); and
(ii)is for an amount of at least $5,000; or
(b)2 or more final judgments or final orders that:
(i)are of the kind described in paragraph 40(1)(g); and
(ii)taken together are for an amount of at least $5,000.
It is readily apparent that it is only a “creditor” who can set in motion the events that constitute the act of bankruptcy specified in s.40(1)(g) of the Act. Who, then, is a “creditor”?
The word “creditor” is not defined in the Act, other than to include as part of its meaning a liability under a maintenance order.[7] It is used, however, “in various senses throughout the Act”, and it “takes its colour from the particular context”.[8] At the very least, it includes a person who is owed a sum of money. But, as used in s.40(1)(g) of the Act, “creditor” has a more limited meaning. First, the amount that is owed to the “creditor” must be an amount that is owed under a judgment for a sum of money. That is, the debt owed to the creditor must be an obligation that is created by force of a judgment. It is an obligation into which there is merged the “pre-existing obligation” which “the judgment is intended to enforce”.[9]
[7] Section 5 of the Act.
[8] Pyramid Building Society (In Liq) v Terry (1997) 189 CLR 176 at page 192 (Gaudron and Gummow JJ)
[9] Corney v Brien (1951) 84 CLR 343 at page 353 (Fullagar J)
Second, all or part of the amount of the judgment must be owing to the creditor at the time the bankruptcy notice is issued. That is necessarily so because, although s.40(1)(g) and s.41(1) do not explicitly so state, the bankruptcy notices issued under s.41(1) of the Act are instruments by which judgment creditors demand judgment debtors pay judgment debts. Thus, a person cannot be a “creditor” if the judgment debt has been satisfied, or discharged in some other way; and, where there has been a partial satisfaction of the judgment debt, the judgment creditor will be a “creditor” only to the extent the judgment debt has not been satisfied.
Third, for the purposes of s.40(1)(g) of the Act, a person can be a “creditor” under a judgment debt even if the person is not the judgment creditor, provided the person is “entitled to enforce” the judgment. That follows from s.40(3)(d) of the Act. Thus, an assignee of the judgment debt would be a “creditor” for the purposes of s.40(1)(g). An example is provided by the facts in Francis v Eggleston Mitchell Lawyers Pty Limited,[10] a case on which Mr Jeandin relies.
[10] Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18
Fourth, to be a “creditor” for the purposes of s.40(1)(g) of the Act, the judgment creditor must be entitled to unconditionally execute the judgment debt. Thus, as s.40(1)(g) of the Act itself suggests, a judgment creditor will not be a “creditor” if there is in place a stay on the execution of the judgment. Additionally, however, a judgment creditor will not be a “creditor” if the judgment creditor requires, but has not obtained, the leave of the court in which judgment was entered before the judgment creditor can execute on the judgment. These principles were confirmed by the Full Federal Court in Abigroup Limited v Abignano.[11]
[11] Abigroup Limited v Abignano (1992) 39 FCR 74 (Lockhart, Morling and Gummow JJ)
In Abigroup, the Supreme Court of New South Wales ordered that judgment be entered for a lessor against the guarantor of a lessee. The guarantor had an indemnity from another company (indemnifier) for any liability the guarantor might have under the guarantee, as well as a right to be indemnified by the lessee. The Court, therefore, granted a declaration that the indemnifier and lessee were jointly and severally liable to indemnify the guarantor for any liability it may have to the lessor. The Court also ordered that the indemnifier and lessee pay the amount for which judgment was entered against the guarantor to the lessor. The guarantor then arranged to issue a bankruptcy notice to the indemnifier demanding that the indemnifier pay the judgment amount to the lessor. The indemnifier successfully applied to the Federal Court to have the bankruptcy notice set aside.
Before the Full Federal Court, the indemnifier submitted that for the guarantor in that case to have been entitled to the issue of the bankruptcy notice, it had to be a creditor who was entitled to execute the relevant final judgment or order and obtain the fruits of the judgment for itself. The guarantor, however, was not a creditor of the indemnifier in relation to the judgment that was entered against the guarantor. Under the orders of the Supreme Court, the sum for which judgment was entered against the guarantor, and which the indemnifier was required to pay, was owed by the indemnifier to the lessor, not to the guarantor. The Full Federal Court upheld that submission. In doing so, the Court considered the meaning of “creditor” as the word appears in s.40(1)(g) of the Act.
The Court considered the antecedents of s.40(1)(g) of the Act in English bankruptcy legislation. The Court referred to s.4 of the Bankruptcy Act 1883 (Eng), being the provision that first introduced into bankruptcy law the act of bankruptcy by non-compliance with a bankruptcy notice. Under that section, the only person who could issue a bankruptcy notice was the creditor who had obtained the judgment. The Court then referred to s.1 of the Bankruptcy Act 1890 (Eng) that altered the position by introducing a provision substantially similar to s.40(1)(g) of the Act. The Court noted,:[12]
The 1890 English enactment did not however affect the rule (established on the ground of necessary implication arising from the words “execution thereon not having been stayed”) that in order to issue a bankruptcy notice the judgment creditor must be in a position to issue execution. Thus, although the “person who is for the time being entitled to enforce a final judgment” was thereafter taken to include a person who had not himself obtained the judgment, nevertheless he had to be a person who had taken all steps which entitled him to reap the fruits of the judgment.
[12] Abigroup Limited v Abignano (1992) 39 FCR 74 at page 79
The Court concluded that the only person who can rely on the non-compliance with a bankruptcy notice as an act of bankruptcy is the person identified in the following passage from the judgment of Bowen LJ in Ex parte Blanchett; Re Keeling:[13]
[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.
[13] Ex parte Blanchett; Re Keeling (1886) 17 QBD 303 at page 307
Thus, Abigroup Limited v Abignano stands as authority for two principles. The first is that a “creditor” for the purposes of s.40(1)(g) of the Act must be a person who is a judgment creditor or some other creditor who is entitled to issue execution under the judgment; the judgment or other creditor must be “a person who had taken all steps which entitled him to reap the fruits of the judgment”.[14] It is only a creditor who is entitled to issue execution under the judgment who is also entitled to apply to have issued a bankruptcy notice under s.41(1) of the Act. The second principle is that a bankruptcy notice that has been issued on the application of a person who is not a “creditor” in this sense is liable to be set aside. That is what occurred in Abigroup Limited v Abignano. The Full Federal Court upheld the primary judge’s order to (in effect) set aside the bankruptcy notice issued by the guarantor to the indemnifier because the guarantor was not entitled to require the indemnifier to pay to it the amount of the judgment debt that was entered against the guarantor.
[14] Abigroup Limited v Abignano (1992) 39 FCR 74 at page 79
As noted by the Full Federal Court in the passage I set out above, the construing of “creditor” to mean, and only to mean a judgment creditor who is entitled to issue execution against the judgment debtor, is one that arose as a matter of necessary implication from the words “execution thereon not having been stayed” in s.4 of the Bankruptcy Act 1883 (Eng). These words are substantially the same as the words “the execution of which has not been stayed” that appear in s.40(1)(g) of the Act. It has been held, however, that a creditor’s inability to issue execution is not restricted to circumstances where there is in effect an order staying execution. The inability to issue execution may arise in other ways.
One example is provided by Ex parte Ide; In re Ide.[15] There, a receiving order based on the non-compliance with a bankruptcy notice addressed to a member of a firm against which a final judgment was recovered was set aside. It was set aside because execution against a member of a firm, as opposed to execution on the property of the firm, required the prior leave of the Court, and the creditor did not obtain the Court’s prior leave. A more recent example is the decision of Sackville J in Cawood v Cawood.[16] There his Honour set aside a bankruptcy notice demanding payment of an amount ordered to be paid by the Family Court because the creditor in that case was not in a position to issue execution because the creditor was first required to obtain, but did not obtain, an enforcement order under Family Law Rules, O 33 r.3(9).
[15] Ex parte Ide; In re Ide (1886) 17 QBD 755
[16] [2000] FCA 1786
There is one other matter I should mention, and that is the meaning of “execution”. That word, as used in s.40(1)(g) has been construed to mean enforcement of a judgment or an order “by a public officer under the writs of fieri facias”.[17] The UCPR does not provide for the issuing of writs that go by that name; but they do provide for the issuing of writs which in substance are the same as writs of fieri facias, and these are called writs of execution.
[17] Re Pannowitz;Ex parte Wilson (1975) 38 FLR 184 at page 194 where Riley J accepted the narrower definition of execution given by Halsbury set out at page 193.
I now turn to the grounds on which Mr Tzovaras claims Mr Jeandin was not a creditor at the time the bankruptcy notice was issued.
Did Mr Jeandin require leave under r.39.1(1) of the UCPR to issue execution?
The first ground on which Mr Tzovaras relies for claiming Mr Jeandin is not a creditor is that, because of the assignment effected under the deed of assignment, Mr Jeandin was required to obtain the leave of the Supreme Court of New South Wales under r.39.1(1)(a) of the UCPR. That paragraph provides:
A writ of execution may not be issued . . . except by leave of the court . . . if there has been any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise.
Mr Tzovaras submits the deed of assignment brought about a change in the person entitled to execution of the Tzovaras Judgment debt. That was brought about, Mr Tzovaras submits, by clause 5.1 which resulted in Mr Jeandin no longer having any interest in the Tzovaras Judgment debt. Mr Jeandin, on the other hand, submits that, although the Tzovaras Judgment debt was assigned to LawCover, the bankruptcy notice was issued in the name of Mr Jeandin, the judgment creditor and, to that extent, there has not been any change in the person entitled to enforce the judgment.
Mr Jeandin’s submission assumes there can be no “change in the persons entitled . . . to execution under” the relevant judgment if the person named as the judgment creditor remains entitled to execution under the judgment. That assumption is not correct. Paragraph 39.1(1)(a) of the UCPR simply refers to “a change in the persons entitled . . . to execution under the judgment”. That expression would include the addition of a person who would be entitled to execution under the judgment. That being so, the question is whether, because of the deed of assignment, LawCover became entitled to execution under the Tzovaras Judgment debt, either by itself or with Mr Jeandin.
In my opinion, LawCover did become entitled to execution under the Tzovaras Judgment debt. Mr Tzovaras had not been given notice of the assignment effected by the deed of assignment before the bankruptcy notice was issued. His evidence is that he first became aware of its existence on 12 August 2014 when counsel for Mr Jeandin handed to Mr Tzovaras a copy of the deed of assignment. At least before 12 August 2014, therefore, the assignment of the Tzovaras Judgment debt under the deed of assignment was not effective to assign the legal title in the debt under s.12 of the Conveyancing Act 1919 (NSW). It was effective, however, as an assignment in equity. And an equitable assignee of a legal chose in action, such as a judgment debt, is entitled to enforce it by action and execution.
The Full Federal Court so held in Francis v Eggleston Mitchell Lawyers Pty Ltd.[18] The Full Federal Court did not, however, refer to the procedural limitations to the right of an equitable assignee to enforce a legal chose in action. Those limitations were identified by Sir Frederick Jordan in his Chapters on Equity in New South Wales:[19]
The rights of the equitable assignee are as follows: (1) he may use the assignor’s name, to sue the person from whom the chose is recoverable, in an action at common law, subject to an obligation to indemnify the assignor against costs; (2) if the assignor refuses to allow his name to be used at common law, or if other special circumstances exist, the assignee may sue the debtor in equity, joining the assignor as a co-defendant; but the assignee is not justified in suing in equity unless for some special reason.
[18] Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18
[19] Quoted by Barrett J in Treadwell v Hickey [2009] NSWSC 1395 at [82]
The necessity of naming the assignor as the plaintiff when the equitable assignee seeks to recover by action the legal chose in action “is seen by equity as “so much a formality” that, if the assignor does not consent to be a co-plaintiff, he can be added as a defendant; and if the party sued does not take the technical point of want of party, the court can ignore it”.[20] And the New South Wales Court of Appeal has held that the requirement of joinder of the assignor is “a rule of procedure which may be dispensed with”.[21]
[20] Treadwell v Hickey [2009] NSWSC 1395 at [83] (Barrett J paraphrasing and quoting a passage from the judgment of Blackburn J in National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1
[21] Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512 at 12
In my opinion, therefore, the assignment of the Tzovaras Judgment debt under the deed of assignment effected “a change in the persons entitled . . . to execution under” that judgment debt within the meaning of r.39.1(1)(a) of the UCPR. The assignment entitled LawCover to enforce, as equitable assignee, the chose in action constituted by the Tzovaras Judgment debt. As neither Mr Jeandin nor LawCover obtained the leave of the Supreme Court to issue a writ of execution on the Tzovaras Judgment debt, neither Mr Jeandin nor LawCover was a “creditor” for the purposes of s.40(1)(g) at the time LawCover arranged for the issue or service of the bankruptcy notice. For that reason alone, the bankruptcy notice must be set aside.
Did the assignment result in Mr Jeandin losing his title to sue on the Tzovaras Judgment debt?
The second ground on which Mr Tzovaras claims Mr Jeandin is no longer a creditor of Mr Tzovaras is the contention that the assignment of the Tzovaras Judgment debt under the deed of assignment had the effect of divesting Mr Jeandin of all interest in that debt and hence of his title to enforce that debt. Mr Tzovaras relies on two decisions of the Supreme Court of Western Australia to support that contention.[22]
[22] Carob Industries Pty Ltd (In Liq) v Simto Pty Ltd [2000] WASCA 362 and APT Finance Pty Ltd v Bajada [2008] WASCA 73
The cases on which Mr Tzovaras relies, however, concerned the assignment of legal choses in action under the Western Australia equivalent of s.12 of the Conveyancing Act 1919 (NSW). The assignment of the Tzovaras Judgment debt under the deed of assignment, however, was only effective in equity, at least before 12 August 2014, because Mr Tzovaras had not been given notice of the assignment. The question that arises is whether Mr Jeandin, as assignor of the equitable assignment of a legal chose in action, retains a sufficient interest to enforce in his name the Tzovaras Judgment debt. That, in turn, requires a little analysis of the legal relations that arise on the equitable assignment of a legal chose in action.
Mr Marcus Smith QC and Mr Nico Leslie discuss this topic in their book The Law of Assignment.[23] The authors conclude that an equitable assignment of a legal chose in action causes the beneficial interest in the chose to pass from the assignor to the assignee, with the assignor retaining the bare legal title on trust.[24] The authors rely on two passages, one from Story’s Commentaries on Equity Jurisprudence,[25] and one from the judgment of Roskill LJ in Warner Bros Records Inc v Rollgreen Ltd.[26] The passage from Story includes the following:[27]
. . . courts of equity . . . give effect . . . to assignments of choses in action. Every such assignment is considered in equity, as in its nature amounting to a declaration of trust and to an agreement to permit the assignee to make use of the name of the assignor, in order to recover the debt, or to reduce the property into possession.
[23] M Smith QC & N Leslie, The Law of Assignment 2nd ed OUP 2013 at [11.09] – [11.18]
[24] M Smith QC & N Leslie, The Law of Assignment 2nd ed OUP 2013 at [11.14]
[25] J Story Commentaries on Equity Jurisprudence Stevens & Haynes, 1st English ed by WG Grisby, [1040]
[26] Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430
[27] M Smith QC & N Leslie, The Law of Assignment 2nd ed OUP 2013 at [11.12]
And the passage from the judgment of Roskill LJ in Warner Bros Records Inc v Rollgreen Ltd included the following:[28]
. . . the only rights that an equitable assignment can create in the equitable assignee are rights against his assignor who thenceforth becomes the trustee of the benefit of the option for the assignee, and the assignor could, of course, be compelled in equity to exercise those rights for the benefit of the assignee.
[28] Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 at pages 443-440
In my opinion, an equitable assignment of a legal chose in action creates a trust in which the legal title to the chose remains in the assignor, and the beneficial interest in the chose vests in the assignee. And that is what occurred when the deed of assignment between LawCover and Mr Jeandin became effective. Mr Jeandin retained the legal title in the Tzovaras Judgment debt; and the beneficial interest in that debt vested in LawCover. The consequence is that Mr Jeandin, as the holder of the legal title in the Tzovaras Judgment debt, remained the judgment creditor of the Tzovaras Judgment debt at least until 12 August 2014. Although he himself may not have had any right under the deed of assignment to enforce the debt, LawCover did and, for the reasons I discuss above, LawCover, at least before 12 August 2014, if it were to execute the judgment, would have been required to do so in the name of Mr Jeandin unless the Supreme Court of New South Wales was minded to dispense with that requirement.
The second ground on which Mr Tzovaras claims Mr Jeandin is not a creditor of Mr Tzovaras, therefore, fails.
Was Mr Jeandin paid for his loss?
The third ground on which Mr Tzovaras claims Mr Jeandin is not a creditor relies on the payment LawCover made to Mr Jeandin under the deed of assignment. Mr Tzovaras claims that this constituted payment of Mr Jeandin’s loss. Mr Jeandin’s answer to this claim is that the payment LawCover made did not relate to the Tzovaras Judgment debt; it related to the obligation it had to pay Mr Jeandin under the orders made by the Supreme Court of New South Wales on 7 December 2011. The payment to Mr Jeandin discharged the obligation LawCover owed him; but it did not discharge the obligation Mr Tzovaras has to Mr Jeandin under the Tzovaras Judgment debt.
As a general rule, a stranger to a debt may satisfy the debt by payment if the creditor accepts the payment as a discharge of the debt, and the stranger made the payment as agent for and on behalf of the debtor, and with the prior authority of or subsequent ratification by the debtor.[29] The payment by LawCover to Mr Jeandin does not fall within this rule. The payment LawCover made under the deed of assignment is described to be a payment in full and final settlement of the “judgment against LawCover”. The payment does not purport to be made on account of the Tzovaras Judgment debt. The payment cannot constitute payment of the Tzovaras Judgment debt
[29] Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at page 430 where the plurality describe this as the “general rule” that is to be derived from the “established pattern of English authority”. See also J Beatson and P Birks “Unrequested Payment of Another’s Debt” (1976) 92 LQR 188
That does not mean, however, that the payment LawCover made to Mr Jeandin has no relevance to whether Mr Jeandin was a “creditor” of Mr Tzovaras for the purposes of s.40(1)(g) of the Act at the time the bankruptcy notice was issued. Whether or not it has relevance depends on the application of what is sometimes referred to as the “rule against double recovery”.
The “rule against double recovery” is one of a number of rules that give effect to a deeply entrenched policy of the law that a person who suffers an injury because of a wrong committed by another is entitled to a remedy that achieves no more than is necessary to compensate the person for the injury. That policy is given effect by rules that must be applied when assessing the damages or compensation or other amount that should be paid by a wrongdoer.
But additional rules are required. These are required because there are circumstances in which the law makes available to persons who have suffered an injury more than one cause of action against the person who has caused the injury. The potential for overcompensation in these circumstances arises where the causes of action a person has for one injury express inconsistent rights or give rise to inconsistent remedies. And the law prevents overcompensation in these circumstances by requiring the injured person to elect between the inconsistent rights or remedies.[30]
[30] Here, as Jordan CJ observed in O’Connor v SP Bray Ltd (1936) 36 SR (NSW) 248 (at page 257), the law proceeds on the basis of the principle, recognised since the days of the Year Books, “that you cannot have the egg and the halfpenny too”.
Additional rules are required for a different set of circumstances; and that is where an injured person has a cause of action against two or more persons for the same injury. Here, the potential for overcompensation is even more obvious; and the law prevents overcompensation by applying the rule against double recovery. One statement of the rule is that given by Oliver LJ in Townsend v Stone Toms & Partners:[31]
The starting point, and one on which there is a good deal of clear authority, is that where a plaintiff with concurrent claims against two persons has actually recovered all or part of his loss from another, that recovery goes in diminution of the damages which will be awarded against the defendant. A plaintiff can never, as I understand the law, merely because his claim may lie against more than one person, recover more than the total sum due.
[31] Townsend v Stone Toms & Partners (1984) 27 BLR 26 at page 38, quoted by Winneke P in Boncristiano v Lohmann (1998) 4 VR 82 at page 89
Another statement of the rule is that of Winneke P in Boncristiano v Lohmann:[32]
The law, which now embraces equity, will not permit a plaintiff, whatever procedural device is used, to recover more than the damages which have been suffered, no matter what the cause of action upon which he proceeds against the various defendants . . . It is not to the point to argue . . . that the claims made against the various defendants proceed from different causes of action. The fundamental question is whether the claims against the various defendants are “concurrent” in the sense that the relief sought is the same. Nor is it to the point that the damages received from one defendant have been received pursuant to a compromise of the claim against that defendant, by way of acceptance of moneys in court or otherwise . . . .
[32] Boncristiano v Lohmann (1998) 4 VR 82 at page 89
And I should also set out the statement of the principle given by Lord Nicholls in Tang Man Sit v Capacious Investments Ltd:[33]
[A] plaintiff cannot recover in the aggregate from one or more defendants an amount in excess of his loss. Part satisfaction of a judgment against one person does not operate as a bar to the plaintiff thereafter bringing an action against another who is also liable, but it does operate to reduce the amount recoverable in the second action. However, once a plaintiff has fully recouped his loss, of necessity he cannot thereafter pursue any other remedy he might have and which he might have pursued earlier. Having recouped the whole of his loss, any further proceedings would lack a subject matter. This principle of full satisfaction prevents double recovery.
[33] Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514 at page 522. In Baxter v Obaleco Pty Ltd (2001) 205 CLR 635 at page 654 Gleeson CJ and Callinan J observed that, subject to a number of qualifications, this passage was in point. The qualifications are that the passage contemplates judgment being entered by a court following a judicial assessment of damages, or judgment may be entered by consent by way of compromise and the recoupment of the whole of the plaintiff’s loss may not be the only circumstances in which it might be unconscientious to pursue a claim against another
In Baxter v Obacelo Pty Ltd,[34] four of the five justices referred to the principle against double recovery. The two joint reasons for judgment referred to the judgments of Walsh JA and Asprey JA in Castellan v Electric Power Transmission Pty Ltd who identified an equitable basis for the principle against double recovery.[35] Gummow and Hayne JJ noted that Asprey JA “spoke in terms suggesting an incorporation of equitable principles into the common law itself”.[36] Their Honours then noted that Walsh JA was more cautious, and set out the following passage from his Honour’s judgment:[37]
I am prepared to assume that it was a rule of the common law that, if an injured person obtained judgment and also satisfaction against one tortfeasor, the liability of another concurrent tortfeasor was thereby discharged, although there is some ground for thinking that the source of the inability to maintain a further action in such a case was an equitable principle which would preclude the plaintiff from obtaining double satisfaction. But at all events his further action could be defeated, and for present purposes it may not matter whether this would be done by a plea at common law of the former judgment and satisfaction or by a perpetual stay of the action or by an injunction.
[34] Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 at pages 654 and 660-661
[35] (1967) 69 SR (NSW) 159 at 176, per Walsh JA; at 180-181, per Asprey JA
[36] Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 at page 660
[37] (1967) 69 SR (NSW) 159 at page 176
Does the principle against double recovery, as stated in these authorities, prevent Mr Jeandin from being in a position to issue execution under the Tzovaras Judgment debt because of the payment it received from LawCover? That depends on whether the loss for which Mr Jeandin recovered the Tzovaras Judgment debt is the same as, or at least overlaps with, the loss for which Mr Jeandin obtained the Tzovaras Legal Judgment debt. That is so because $1,946,130.13 of the $1,992,500 the Court ordered LawCover to pay to Mr Jeandin was the amount of the Tzovaras Legal judgment. That is the amount LawCover was required to pay to Tzovaras Legal under the policy of insurance it had issued to Tzovaras Legal, but which McDougall J ordered LawCover to pay to Mr Jeandin pursuant to s.6(4) of the LRMP Act.
The loss Mr Jeandin claimed on his cause of action against Mr Tzovaras and Ted Tzovaras was the money Mr Jeandin would have received had Mr Tzovaras and Ted Tzovaras performed the guarantees they had given to Mr Jeandin. What Mr Jeandin would have received had they performed those obligations would have been the repayment of the $1,500,000 Mr Jeandin lent to CPL and the interest that CPL was obliged to pay Mr Jeandin under the deed of loan. The judgment that was entered against Mr Tzovaras and Ted Tzovaras, therefore, requires Mr Tzovaras and Ted Tzovaras to make good Mr Jeandin’s loss. The amount of the Tzovaras Judgment debt was the sum of $1,500,000 plus interest of $375,287.66 up to 4 October 2011 (which continued to accrue at a rate of $493.15 per day) calculated as required by clause 4.3 of the deed of loan.[38]
[38] Jeandin v Tzovaras [2011] NSWSC 1254 at [126]
The loss Mr Jeandin claimed on his cause of action against Tzovaras Legal was the loss of his investment; and the Court found Mr Jeandin “has . . . lost the full value of investment: $1,500,000”.[39] The amount of the judgment that was entered against Tzovaras Legal was $1,946,130.13. This is greater than the judgment of $1,890,575.31 that was entered against Mr Tzovaras and Ted Tzovaras. Even if continuing accrued interest is taken into account, it is not apparent on the evidence what accounts for the difference between the amount of the Tzovaras Judgment debt and the amount of the Tzovaras Legal Judgment debt. There is nothing to suggest, however, that the amount of the Tzovaras Legal Judgment relates to anything other than the loss of Mr Jeandin’s investment, and interest. In those circumstances, I infer that the loss for which the judgment for $1,946,130.13 was entered against Tzovaras Legal includes all of the loss for which the judgment of $1,890,575.31 was entered against Mr Tzovaras and Ted Tzovaras.
[39] Jeandin v Tzovaras [2011] NSWSC 1254 at [119]
No judgment was entered against LawCover. Instead, the Court ordered that LawCover pay to Mr Jeandin $1,992,500. This represents the amount of the Tzovaras Legal Judgment debt ($1,946,130.13) together with what I infer to be costs LawCover itself was ordered to pay up to the limit of the policy of insurance, which was $1,992,500. The making of the order against LawCover does not reflect any pre-existing obligation that LawCover owed Mr Jeandin. It reflects a pre-exiting obligation LawCover owed to Tzovaras Legal under the policy of insurance it had with Tzovaras Legal to indemnify it up to the value of the policy.
Given that the payment LawCover made to Mr Jeandin included the $1,946,130.16 judgment Mr Jeandin obtained against Tzovaras Legal; and given I have found that the judgment for $1,946,130.13 against Tzovaras Legal related to the same loss that Mr Jeandin suffered as a result of the failure by Mr Tzovaras and Ted Tzovaras to perform their guarantees, Mr Jeandin has recouped the whole of his loss. The consequence of this can be stated in a number of ways. It can be said that LawCover’s payment to Mr Jeandin under the deed of assignment discharged the Tzovaras Judgment debt; or it can be said that Mr Jeandin is liable to be restrained by a court of equity from enforcing the Tzovaras Judgment debt; or it can be said that Mr Jeandin can take no further proceedings to enforce the Tzovaras Judgment debt because that debt “would lack a subject matter”. Whichever way it is stated, as a result of the payment LawCover made to him under the deed of assignment, Mr Jeandin was not in a position to issue execution under the Tzovaras Judgment debt at the time the bankruptcy notice was issued and, therefore, he was not a “creditor” for the purposes of s.40(1)(g) of the Act. He was not, therefore, entitled to have issued the bankruptcy notice against Mr Tzovaras.
Non-compliance with r.3.02 of the Bankruptcy Rules
In his Notice Stating Grounds of Opposition, Mr Jeandin states that Mr Tzovaras did not attach to the application he filed with this Court a copy of the bankruptcy notice which he seeks to set aside.
There is no requirement under the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (Bankruptcy Rules) that in an application to set aside a bankruptcy notice the bankruptcy notice must be attached to the application. Rule 3.02 only requires that the application “be accompanied by” the bankruptcy notice. From the Court file, it appears that the application Mr Tzovaras filed was accompanied by an affidavit sworn on 30 July 2014 which annexed a copy of the bankruptcy notice Mr Tzovaras seeks to set aside. In my opinion, therefore, the application to set aside the bankruptcy notice in this case was accompanied by a copy of the bankruptcy notice.
In any event, in Burrell v Reavill Farm Pty Ltd & Ors,[40] I decided that the Court had power under r.1.06 of the Federal Circuit Court Rules 2001 (Cth) to dispense with the requirements of r.3.02 of the Bankruptcy Rules if it is in the interests of justice to do so. In my opinion, if Mr Tzovaras did not comply with r.3.02, it is in the interests of justice that I dispense with the requirements that Mr Tzovaras comply with that rule. Mr Jeandin does not claim he suffered any prejudice; the application clearly identifies the bankruptcy notice Mr Tzovaras seeks to set aside; and, in any event, a copy of the bankruptcy notice was annexed to the affidavit which accompanied the application.
[40] Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449
Conclusions and disposition
I have concluded that, because of the assignment of the Tzovaras Judgment debt made under the deed of assignment, by the time the bankruptcy notice was issued against Mr Tzovaras, there had come about a change in the persons entitled to execution of that judgment debt within the meaning of r.39.1(1)(a) of the UCPR. That change was the addition of LawCover. LawCover became entitled because, as a result of the deed of assignment, LawCover was an equitable assignee of the Tzovaras Judgment debt and, as equitable assignee, LawCover became entitled to enforce that debt either in the name of Mr Jeandin or in its own name, if the Supreme Court of New South Wales were minded to dispense with the requirement that LawCover enforce the execution of the debt under the name of Mr Jeandin. Because there was a change in the persons entitled to execution of the Tzovaras Judgment debt, the leave of the Supreme Court was required under r.39.1(1)(a) of the UCPR before that judgment could be executed. And because no such leave was obtained, Mr Jeandin was not entitled to issue the bankruptcy notice against Mr Tzovaras. For that reason, the bankruptcy notice issued against Mr Tzovaras must be set aside.
I have also concluded that all judgments and orders that were made in favour of Mr Jeandin in the Supreme Court proceedings were judgments and orders to remedy the one loss Mr Jeandin suffered; and that loss was the failure by CPL to repay to Mr Jeandin the $1,500,000 he lent CPL and the loss of interest on that amount. The payment I have assumed for the purposes of these reasons LawCover made constituted satisfaction of the loss the Supreme Court, by the judgments it gave, assessed Mr Jeandin suffered. Accordingly, when the payment was made, the principle against double recovery applied to discharge the Tzovaras Judgment debt or, at least, to render Mr Jeandin liable to be restrained, either by a stay or injunction, from attempting to enforce the Tzovaras Judgment debt. For that reason, at the time the bankruptcy notice was issued to Mr Tzovaras, Mr Jeandin was not a “creditor” for the purposes of s.40(1)(g), and was not, therefore, entitled to issue the bankruptcy notice against Mr Tzovaras. For these reasons, too, the bankruptcy notice must be set aside.
Although it is likely that LawCover did make the payment it undertook to make under the deed of assignment, I indicated to the parties that I would assume the payment was made, but that, if I were to form the view the payment was relevant, I would permit Mr Tzovaras to call on the notice to produce for documents evidencing the payment, and to permit the parties to make submissions about whether LawCover made the payment. I have found LawCover’s payment to Mr Jeandin to be relevant to the application by Mr Tzovaras to set aside the bankruptcy notice.
Accordingly, I propose to order that the bankruptcy notice be set aside, but that such order not have effect until 4.00 pm on 19 September 2014, and grant Mr Jeandin liberty to apply to relist the matter before that time for the purpose of making submissions about whether LawCover made the payment. In the meantime, I will extend the time for complying with the bankruptcy notice up to and including 19 September 2014.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 4 September 2014
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