Wainrit v Westpac Banking Corporation
[2004] FMCA 669
•6 October 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WAINRIT v WESTPAC BANKING CORPORATION | [2004] FMCA 669 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – whether confusing or misleading – two orders for costs in different Courts. |
Bankruptcy Act 1966, s.41(1)(b)
Kyriackou v Shield Mercantile Pty Ltd (2004) 207 ALR 393
Max Bernard Jules Brunninghausen v Michael Glavanics [1998] 230 FCA
(3 March 1998)
Andrew Cecil Thorpe v Bristile Pty Ltd [1997] 720 FCA (1 August 1997)
| Applicant: | ALLEN WAINRIT |
| Respondent: | WESTPAC BANKING CORPORATION |
| File No: | MLG 867 of 2004 |
| Delivered on: | 6 October 2004 |
| Delivered at: | Melbourne |
| Hearing Date: | 27 August 2004 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Applicant: | In person |
| Counsel for the Respondent: | Mr A. Broadfoot |
| Solicitors for the Respondent: | Minter Ellison |
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 867 of 2004
| ALLEN WAINRIT |
Applicant
and
| WESTPAC BANKING CORPORATION |
Respondent
REASONS FOR JUDGMENT
This is an application by Allen Wainrit (the applicant) seeking to set aside a bankruptcy notice VN384/04 (the bankruptcy notice) issued on 17 March 2004 wherein Westpac Banking Corporation (the creditor) claims that the debtor owes it the sum of $3849.20 as shown in the schedule.
The schedule annexed to it a general form of order of a Master of the Supreme Court of Victoria made on 16 February 2004. The order of the Master arose from an order made by Justice Byrne of the Supreme Court on 8 October 2003. In that order the court granted special leave to the applicant in these proceedings to bring an application before a judge and further ordered that a judgment entered in default of appearance on 8 May 2003 be set aside. It is noted the Applicant who was the defendant in that case appeared in person at the hearing and a further order was made in relation to a notice of appearance and defence. The significant order, however, made by Justice Byrne was that the Applicant in these proceedings pay the costs of the creditor of entering judgment and of the application to set aside the judgment. It was that order which then led to a taxation of costs by the Master of the Supreme Court and ultimately the order made was that the creditor's costs as taxed were allowed in the sum of $3349.20.
It will be evident that the amount of the order in the Supreme Court does not comprise the total amount of the debt owing as asserted in the bankruptcy notice and as shown in the schedule. An additional amount of $500 is referred to in the schedule set out below:
| Column 1 | Column 2 |
| 1. Amount of judgments or orders | $500 |
| plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1 below) | $3349.20 |
| plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below) | Nil |
| 4. Subtotal | $3849.20 |
| Less 5. Payments made and/or credits allowed since date of judgments or orders | Nil |
| 6. Total debt owing | $3849.20 |
(NB. Amounts, where applicable, are to be inserted in column 2)
Attached to the bankruptcy notice was a sealed copy of an amended order of a Registrar of the Federal Magistrates Court where orders were made as follows:
1.Leave is granted to withdraw the application.
2.The applicant pay the respondent's costs of today fixed at $500.
The leave granted to withdraw the application occurred in proceedings number MZ1051/2003 (the previous proceeding). In the previous proceeding the creditor was the respondent to an application by the Applicant to have a separate bankruptcy notice number VN966/03 set aside. That earlier bankruptcy notice was based upon the default judgment and was withdrawn by the creditor. The creditor was then awarded costs because it informed the debtor that the notice was withdrawn and the debtor still persisted with his application to set aside that bankruptcy notice. The amended order to which I have referred was required and made presumably pursuant to Rule 16.05(2)(e) of the Federal Magistrates Court Rules on the basis that the orders do not reflect the intention of the court as it incorrectly referred in the original order to costs in favour of the debtor rather than the creditor. Hence, the amended order reflected the true intent of the court and is relied upon by the creditor. It is noted that the request to amend the order was made pursuant to order 35.05 of the Federal Court Rules applied pursuant to rule 1.05 of the Federal Magistrates Court Rules, although that would appear to be an unnecessary means by which the order was amended. In any event, it was appropriately amended.
The creditor remains the plaintiff in the Supreme Court proceedings to which reference has been made and the proceedings have not concluded against the Applicant who is the Defendant as stated earlier in this judgment.
The Applicant’s case
In his application before this court the applicant seeks the following orders:
“1.That the Bankruptcy Notice VN384/04 issued 17 March 2004 relates to a Federal Court Order dated 7 October 2003 in the amount of $500 only and is contrary to the requirement of section 41(1)(b) of the Bankruptcy Act 1966.
2.Costs included in Bankruptcy Notice VN384/04 do not relate to the Federal Magistrates Court order of 7 October 2003 per Registrar.
3.That the bankruptcy notice VN384/04 issued 17 March 2004 be dismissed.
4.The respondent pay the applicant's costs of the proceeding.”
In support of his application the Applicant relies upon two affidavits. The first sworn by him on 1 July 2004 and a second affidavit sworn by him on 25 August 2004. In his first affidavit the Applicant, who is an accountant, disputed the validity of the bankruptcy notice and challenged the amended order which was attached to the bankruptcy notice on the basis that it was not brought to his attention until he was served with the bankruptcy notice. He claimed the "process is confusing and ought not be allowed to form the basis of a bankruptcy notice".
In relation to the legal costs of $3349.20 included in column 2 in the schedule in the bankruptcy notice, he claims they have no bearing and/or are not related to the order made in the Federal Magistrates Court, but rather relate to the Supreme Court proceedings referred to earlier in this judgment. Those proceedings, he claims, are still current and are up to what he described as the "discovery stage". He then claims therefore that the costs awarded in the Supreme Court proceedings have been included in the bankruptcy notice "and are confusing". He asserts, as I interpolate from his affidavit, that there are different matters and court jurisdictions and they are irrelevant to the foundation of the bankruptcy notice. He claims that the bankruptcy notice is based upon the $500 costs order of the Federal Magistrates Court made on 7 October 2003 and that that is less than the statutory required amount of $2000 under s.41(1)(b) of the Bankruptcy Act 1966 (the Act).
In his second affidavit the Applicant claims to have believed that the creditor owed him $500 as he succeeded in having the previous bankruptcy notice withdrawn. He refers to an intention to be legally represented in the proceedings before the Supreme Court where a costs order was made against him. After withdrawal of the first bankruptcy notice he claimed to be surprised that some eight months after the October 2003 events that he was served with another bankruptcy notice. He repeats that he was not made aware of the apparent error in the order of the Federal Magistrates Court until it was attached to the bankruptcy notice which is the subject of this application. He claims, further, not to have seen the general form of order of the Master and was not aware of that order until it was attached to the earlier bankruptcy notice. He referred to the wording of item 2 of column 2 in the schedule of the bankruptcy notice, that is:
“Legal costs, if ordered to be paid and a specified amount was not included in the judgment or orders (see Note 1, below)”
He claims those words provide a basis upon which the amount of $3349.20 "must relate to the $500 taxed costs order". He claims it is clear from the wording that "plus legal costs … $3409.20" referred to item 2 of column 2 of the schedule must relate to "amount of judgments or orders $500" and do not do so in this case as evidenced by the orders attached to the bankruptcy notice.
The Applicant otherwise disputes service of the affidavit evidence of the creditors, to which reference will be made presently. He claims he did not receive affidavit evidence of the creditor until the morning of 23 August 2004. He claims it was not brought to his office during his leave of absence. He further asserts that the creditor's affidavit is confusing as it has three different documents marked "exhibit" where he is shown as the respondent, whereas he is the applicant. He challenged one of the exhibits to the creditor's affidavit to which I shall refer, namely, exhibit 3, and claims that the file note requires further explanation.
He further claimed before the court and in his affidavit that the creditor is using the bankruptcy law for "improper purpose" as it is focused on "attempting to bankrupt me rather than deal with the substantive matter in the Supreme Court of Victoria where the claim against me is for more than 100 times the amount now sought in the current bankruptcy proceeding". He asserts that the creditor wanted to deny him natural justice of defending and proving that the amount that they say is payable under a guarantee for the sum of nearly $400,000 and would rather issue bankruptcy proceedings. He claims that if the creditor succeeds in the bankruptcy proceedings, then the substantive matter regarding almost $400,000 in claims would be discontinued and "all the bank would be able to prove from my estate would be the amount of $3849.20 as shown in the schedule attached to current bankruptcy notice". He therefore argues that "accordingly, there appears to be no proper purpose in the current bankruptcy proceedings other than for an improper purpose and that is an abuse of legal process in bankruptcy proceedings".
It should be noted that when this matter was referred by a Registrar to this court on 23 August 2004 it was adjourned for a period of four days with an order made that the Applicant should file and serve any further affidavits to be relied upon by 4 pm on Thursday, 26 August 2004. The Applicant claimed that he would endeavour to seek legal advice, although when the matter proceeded on 27 August 2004 he was still unrepresented. I make due allowance for that fact, although note that the Applicant is an accountant and appears to have raised a number of issues without any difficulty and managed to make submissions referring to various authorities claimed to be relevant to this application.
The court was referred to the Federal Court decision in Kyriackou v Shield Mercantile Pty Ltd (2004) 207 ALR 393 in support of the argument that the schedule was incorrect as the amount claimed of $3349.20 should have been set out in item 1 in the schedule.
The court was further referred to a decision of Max Bernard Jules Brunninghausen v Michael Glavanics [1998] 230 FCA (3 March 1998) in support of the submission that the issuing of the bankruptcy notice was an abuse of process. In that case there was an appeal pending in the Court of Appeal which was argued and considered to be neither frivolous or vexatious. Further, it was noted by the court that it was accepted the appeal in that case was brought and prosecuted in good faith. In that case there was a concern about dissipation of assets of the debtor pending the appeal, despite the creditor believing he had a prima facie entitlement to the fruits of the judgment in his favour. There were conversations relating to security for the judgment debt pending the appeal outcome which ultimately led to the court concluding the following:
“In the light of the communications to which I have referred, there does not appear to be any explanation as to why the creditor considered it appropriate to proceed by way of bankruptcy notice, other than the possibility of putting pressure on the debtor.”
In the same case the court referred to the issue of there being no application for a stay in common with the current application and states the following:
“That leads to the third matter raised by the creditor in relation to the question of exercise of discretion, namely that there has been no application for a stay. That is a somewhat hollow submission in the light of the communications to which I have referred. It was first proposed by the solicitor for the creditor that some security be proffered in response to an indication by the solicitor for the debtor that an application for a stay would otherwise be made. In any event having regard to what was said by Sweeney J in Lipov v Alexander Fraser and Son Ltd, (1978) 36 FLR 126 at 130, I do not consider it material that no application for a stay has been made.
It is for the Supreme Court to decide whether it would make such an order. It is for this court to say whether the time for compliance with a bankruptcy notice will be extended or in my view whether the bankruptcy notice should be set aside. Sweeney J observed that the institution of an appeal which appears to be bona fide is a good reason for adjourning a hearing of a bankruptcy petition based on the judgment subject to the appeal.”
Ultimately, the court in the Brunninghausen case stated the following:
“Having regard to the communications and the apparent failure to respond in any way to the proposal which was being put, in circumstances where the discussions arose from an indication that a stay would be sought unless some arrangements could be made, I conclude that the reason for the issue of the bankruptcy notice was to endeavour to put pressure of Mr Brunninghausen to make some payment. It follows that I should set the bankruptcy notice aside.”
The creditor relied upon an affidavit of Emma Louise Murphy sworn 17 August 2004. The affidavit refers to the chronology of events recited earlier in this judgment. It otherwise refers to service of the second costs order and the sealed orders made by Justice Byrne in the Supreme Court and the bill of costs, together with other correspondence requesting payment. The summons for taxation was served and the taxation occurred before the Master, as stated earlier in this decision. To the extent that I am required to make a finding in relation to service, I am satisfied and accept the evidence of the respondent and on balance I am prepared to find that the documents were served appropriately. Any suggestion by the Applicant that he had not received any or any adequate notice of relevant documents, including the orders, amended orders or the orders leading to the taxation, should be rejected.
It seems clear to me that even in relation to the affidavit material before this court the Applicant did not have in place any or any appropriate system whereby his office would bring to his attention documents which were clearly of relevance and importance and otherwise was unable to corroborate the allegations that he had not received documents. I prefer the affidavit evidence of Ms Murphy in that regard. In her affidavit Ms Murphy also explains the error of the costs order in the Federal Magistrates Court. In the circumstances, it is hard to understand how the Applicant could have been confused by that order or the need for it to be corrected. I am satisfied and find that in the circumstances he has simply been content to allow the mistake to exist without correction as it suited his purposes to do so. In any event, even if I am wrong in that conclusion, the amended order set out the correct situation and I am satisfied he received adequate notice of that both prior to and after it had been attached to the bankruptcy notice which is the subject of these proceedings.
It was submitted on behalf of the respondent that in the present case the schedule is correct and that in the circumstances where there is an order for costs made for $500 in the Federal Magistrates Court it is appropriate that that amount be listed next to the amount of judgment or orders. It is further submitted that the amount of $3349.20 was indeed legal costs and was the subject of an order for legal costs in separate proceedings. The legal costs, it was submitted, do not have to be related to the other judgment and that it is permissible in a schedule attached to a bankruptcy notice to refer to two orders, albeit that one is an order for costs in this court and another a costs order to be paid in other proceedings in the Supreme Court. It was submitted the amounts add up to the total amount of debt claimed in the bankruptcy notice, namely $3849.20, and that there is no confusion of a kind which would encourage the court to set aside the bankruptcy notice even applying the principles set out in the Kyriackou decision, and nor is there any abuse of process of a kind which was found to exist in the case of Brunninghausen. It was specifically submitted that this case is distinguishable from the Brunninghausen case and there has been no attempt to offer security or communications and negotiations in circumstances similar to that set out in the Brunninghausen case.
Reasoning
In my view, the insertion of the amount of $500 being costs awarded in this court in accordance with the amended order could not lead to any confusion in the mind of the Applicant and has been appropriately set out in the schedule. Whilst it may be argued that to then insert the further amount of $3349.20, being the costs as taxed by the Master in the Supreme Court following the order of a Justice of that court, could have been set out together with the amount of $500 in column 2 of the schedule, I can see no basis upon which the amount set out as it has been underneath the $500 and next to item 2 being "legal costs if ordered to be paid at a specific amount was not included in the judgment or orders (see Note 1 below)" has to be included in column 2 next to item 1. The attached orders make clear the basis upon which each order has been made and I am satisfied that orders of this kind are orders which can be regarded as two or more final judgments or final orders for the purposes of s.41(1)(b) of the Act. Taken together, they are for an amount of at least $2000 and thereby comply with that provision.
In my view, there is no critical defect in the bankruptcy notice in the present case as the relevant and accurate details are set out in the schedule consistent with the annexed orders.
No application for a stay of the costs order in the Supreme Court has been made by the Applicant and in the circumstances there is little evidence before this court to satisfy the court that the defence of the Applicant has a reasonable prospect of success or otherwise. I am prepared to accept that the matter is proceeding as a bona fide defence and make that finding if for no other reason upon the basis that the default judgment originally entered by the creditor against the debtor in the Supreme Court was set aside, although I note that setting aside that default judgment, not surprisingly, the Applicant had to pay the creditor's costs of the application to set aside and of entering the default judgment.
Otherwise, I can see no reason why the creditor should not pursue the Applicant for the costs order in the Supreme Court, together with the costs order in this court, and to exercise all rights available to it, including the issuing of a bankruptcy notice. Of course other issues may arise if and when a creditor's petition is filed for and on behalf of the creditor and further affidavit material may be provided which in turn may be relevant to the court in bankruptcy when considering any petition.
On the material before me, however, I am satisfied that there is no proper basis upon which this court should set aside the bankruptcy notice. I am otherwise satisfied that the mere issuing of a Bankruptcy Notice for costs in a pending Supreme Court proceeding does not of itself constitute an abuse of process in the context of this Application.
The separate issue as to whether or not costs orders can constitute a final order was the subject of a decision of the Federal Court in Andrew Cecil Thorpe v Bristile Pty Ltd [1997] 720 FCA (1 August 1997) referred to by the respondent. In that case the court held that a costs order awarded pursuant to the rules of the Supreme Court in Western Australia is an order that is enforceable as a judgment in an action and the order is deemed to be a final judgment obtained in the action. The court recited the relevant rules of the Supreme Court in Western Australia, and likewise in the present case counsel for the respondent referred this court to the rules of the Supreme Court, in particular rule 63.03(2) which provides:
“Costs which a party is required to pay under any of these Rules or an order of the court shall, unless the Court otherwise orders, be paid forthwith.”
I am satisfied that an order of the kind made in the Supreme Court is indeed an order of a kind which could properly be described as a final order. I am likewise satisfied that similarly the order made in the Federal Magistrates Court by the registrar could properly be characterised as a final order as those costs were payable by the debtor to the creditor pursuant to the rules of this court.
I reject the submission of the Applicant that the in the circumstances given his active involvement and intimate knowledge of proceedings both in the Supreme Court and this Court that he is genuinely confused or misled by the schedule and attachment to the Bankruptcy Notice. This is not a case where the Applicant has to put two and two together to avoid confusion. The principles in Kyriackou would not apply in my view to the circumstances of this case and require the Court to set aside the Bankruptcy Notice.
It follows, therefore, that the application filed on 1 July 2004 should be dismissed with costs.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 6 October 2004
3
1
0