Watts v Rodgers

[2005] NSWSC 100

CITATION:	Watts v Rodgers [2005] NSWSC 100
HEARING DATE(S):	9 November 2004
JUDGMENT DATE :	24 February 2005
JURISDICTION:	Common Law Division
JUDGMENT OF:	Master Harrison
DECISION:	(1) The appeal is dismissed; (2) The judgment and orders of Magistrate L Haskett dated 29 April 2004 are affirmed; (3) The amended summons filed 2 July 2004 is dismissed; (4) The plaintiff is to pay the defendant's costs as agreed or assessed.

CATCHWORDS:

Appeal decision of Local Court Magistrate - assignment of debt - set off

LEGISLATION CITED:

Conveyancing Act 1919 (NSW) - s 12
Law Reform (Law and Equity) Act 1972 (NSW) - s 6
Local Courts (Civil Calims) Act 1970 (NSW) - ss 64, 69(2)

CASES CITED:

Allen v Kerr & Anor (1995) Aust Torts Reports 81-354
Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139
Blakey v Latham (1889) 41 ChD 518
Carr v Neill [1999] NSWSC 1264
Cupper, Watkins Ltd v Calcalia Pty Ltd (1983) 78 FLR 417
Devries v Australian National Railways Commission (1993) 177 CLR 472
Kostka v Addison [1986] QdR 416
Miller v Director of Public Prosecutions (No 2) [2004] NSWCA 249
Mitchell v Purnell Motors Pty Ltd [1961] NSWR 165
Provident Finance Corp Pty Ltd v HGammond [1978] VR 312
Re a Debtor [1951] Ch 612
Re Harry Simpson & Co Pty Ltd [1964-5] NSWR 603
Reid v Cupper [1915] 2 KB 147
R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082
Roxburge v Cox (1881) 17 ChD 520
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588
Wentworth v Wentworth (12 December 1994, unreported, Young J)

PARTIES:

Martin Watts
(Plaintiff)

Peter David Rodgers
(Defendant)

FILE NUMBER(S):

SC 11841/2004

COUNSEL:

Mr M Watts
(Plaintiff)

Ms K Rees
(Defendant)

SOLICITORS:

Mr N Kabilafkas
Mallesons
(Defendant)

LOWER COURT JURISDICTION:	Local Court
LOWER COURT FILE NUMBER(S):	10342/2001
LOWER COURT JUDICIAL OFFICER :	Magistrate L Haskett

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

THURSDAY, 24 FEBRUARY 2005

11841/2004 - MARTIN WATTS v PETER DAVID
RODGERS
JUDGMENT (Appeal decision of Local Court Magistrate;
assignment of debt; set off)

1 MASTER: By amended summons filed 2 July 2004, the plaintiff, pursuant to s 69 of the Local Courts (Civil Claims) Act 1970 (NSW) seeks: firstly, an order that the final judgment of Magistrate L Haskett in respect of Local Court proceedings No. 10342 of 2001 made 19 April 2004, be set aside and in substitute thereof that there be judgment entered for the plaintiff on the terms sought in the statement of liquidated claim filed in the lower proceedings; secondly, a declaration that the Magistrate’s judgment of 19 April 2004 was erroneous in point of law. The plaintiff relied on his affidavit sworn 12 May 2004.

2 The defendant contends that the Magistrate’s decision should be affirmed on the grounds that the Local Court had jurisdiction under s 6 of the Law Reform (Law and Equity) Act 1972 (NSW) and her Honour should have found (if, as the plaintiff contends, her Honour did not so find) that an “equity” within the meaning of s 12 of the Conveyancing Act 1919 (NSW) existed in favour of the defendant. The plaintiff is Mr Martin Watts. The defendant is Mr Peter David Rodgers, the former liquidator of Design Interiors Pty Ltd (Desaro). For convenience I shall refer to the parties by name.

3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 and two more recent cases, namely Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082. It cannot be said that the Tribunal member acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court’s directions or (d) by dismissing the appeal.

Grounds of appeal

4 The plaintiff seeks to appeal from the decision of Haskett LCM delivered in the Local Court at the Downing Centre in Sydney on 19 April 2004 on the basis that the judgment was erroneous in point of law because, contrary to the conclusions of the LCM: firstly, the local court was not possessed with a power “to prevent absurdity”, which was in addition to the powers conferred on it by statute, which permitted the set-off of a debt owed to the defendant by a third person not a party in the proceedings, against the plaintiff’s debt (T10:25-30); secondly, the defendant could not have set-off his debt against Mr Zakrzewski, either at law or equity (T10:37-40); and thirdly, to the extent the learned Magistrate can be understood to have found, s 64 of the Local Courts (Civil Claims) Act, did not operate to permit any set-off, as between the plaintiff and the defendant, given the uncontradicted evidence before the Court (T10:25-30); and fourthly, the defendant failed to show, having regard to the uncontradicted evidence before the Court, that he possessed any “equities”, of the type referred to in s 12 of the Conveyancing Act which could be asserted against the plaintiff’s title (T10:42-45).

Background

5 There have been a number of court proceedings involving Mr Zakrzewski, a director of Network Painting and Decorating Pty Limited (Network) and Rodgers the liquidator of Network. In this judgment it is only necessary to refer to two proceedings litigated in the Federal Court and to the subsequent assignment of a debt.

The first proceedings

6 In 1997, Network commenced proceedings in the Federal Court of Australia No.G 3231 of 1997 (the first Federal Court proceedings) seeking a review of Rodgers’ activities as a liquidator of Desaro. Mr Zakrzewski was later substituted as the applicant in the proceedings. In April 1998, Beaumont J dismissed the proceedings and ordered that Zakrzewski pay Rodgers’ costs which were later assessed at $17,292.44. On 11 March 1999 in Federal Court proceedings, Zakrzewski was ordered to pay assessed costs of $17,292.44 to Rodgers. Rodgers became the judgment creditor of Zakrzewski in the amount of $17,292.44 (the first judgment debt).

The second proceedings

7 On 14 April 1999, Rodgers served a bankruptcy notice on Zakrzewski in respect of the first judgment debt. On 30 April 1999, Zakrzewski filed an application to set aside the bankruptcy notice in Federal Court proceedings N7456 of 1999 (the second Federal Court proceedings). On 23 August 2000, Madgwick J set aside the bankruptcy notice. Rodgers was ordered to pay Zakrzewski’s costs of the proceedings. Watts, a barrister and the plaintiff in these proceedings, represented Zakrzewski at this hearing. On 18 December 2000, a certificate of taxation was issued by the Federal Court in the amount of $22,100.00.

The assignment

8 On 9 February 2001, Zakrzewski assigned his rights in respect of the certificate of taxation in the second Federal Court proceedings to Watts.

9 On 1 March 2001, Watts notified Rodgers’ solicitors of the assignment and demanded payment of the certificate of taxation in the second Federal Court proceedings. On 12 April 2001, the certificate of taxation in respect of the second Federal Court proceedings was registered in the Local Court of New South Wales, and Zakrzewski thereby became the judgment creditor of Rodgers in the amount of $22,156.00 (the second judgment debt).

10 On 4 June 2001, Rodgers’ solicitors responded to Watts’ demand reminding him of the first judgment debt and offering to pay the difference between the two. Watts rejected this offer. On 3 July 2001, Rodgers paid Watts $4,807.56 being the difference between the first and second judgment debts.

The Local Court proceedings

11 On 7 August 2001, Watts commenced proceedings, as an assignee under s 12 of the Conveyancing Act 1919 (NSW) against Rodgers in the Local Court for the balance of the second judgment debt. By his defence, Rodgers claimed that by reason of the payment of $4,807.56, any claim against him had been satisfied in full; and Watts’ took the assignment of Zakrzewski’s rights against Rodgers subject to Rodgers’ rights against Zakrzewski, and Rodgers was entitled to set-off the first judgment debt against the second judgment debt. Magistrate Haskett found that the defence was made out and dismissed Watts statement of claim.

12 On 29 April 2004 the Magistrate delivered reasons for judgment. The Magistrate’s critical reasoning is contained at T 10.30-47. It reads:

“In looking at the submissions made by both the plaintiff and the defendant I was more persuaded by the legal arguments of the defendant and I find accordingly that there is provision as has been noted in s 64 of the Local Court Civil Claims Act that there is power to set off judgments one against the other and accordingly if Mr Zakrzewski had sought to enforce his judgment debt against Mr Rodgers then Mr Rodgers would have been able to claim a set-off for the judgment in his favour.
I find that Mr Watts is in the same position because of s 12 of the Conveyancing Act 1919 New South Wales. Accordingly Mr Watts’ claim must fail because any other act would place Mr Watts in a better position than the assignor which is contrary to the principles as discussed. So Mr Watts’ claim is dismissed.”

13 Turning now to the main issue raised in the appeal which is whether Rodgers had “equities” as referred to in s 12 of the Conveyancing Act. Watts submitted that Rodgers did not and the Magistrate erred in finding he did. What are “equities” as referred to in s 12 of the Conveyancing Act?

14 The relevant portion of s 12 of the Conveyancing Act provides that:

“Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor.”

15 In general terms s 12 means that if a contractual right is assigned, and the assignor, in taking proceedings to enforce that right, would have been subject to a set-off, defence or counter claim, then the assignee, in enforcing the right, will equally be subject to it.

16 In Provident Finance Corp Pty Ltd v Hammond [1978] VR 312 Lush J considered Victorian legislation identical to s 12. At 319 his Honour stated:

“The essential concept of an equity in this context is that it is a transaction or event or circumstance which entitles the debtor to say that it is unjust that the debt should be enforced against him without bringing into account his cross-claim arising from the same transaction, event or circumstance.”

17 The authors of Meagher, Gummow & Lehane, Equity Doctrines & Remedies, 4th ed (2000) at [6-500] stated:

“… ‘equity’ means in this context a defence, set-off or counter-claim which the person subject to the obligation is entitled to oppose to the claim of the person entitled to the benefit. The effect of the rule is that the defence, set-off or counter-claim is equally available against the assignee.”

18 The defendant submitted that “equities” as used in s 12 has a broad meaning, and is not construed by reference to the traditional categories of equitable and common law claims or defences. As a result, common law defences or counter-claims such as claims for damages for breach of contract have been treated as an “equity”. The defendant referred to Roxburghe v Cox (1881) 17 Ch D 520 where the “equity” was a common law money count and Mitchell v Purnell Motors Pty Ltd [1961] NSWR 165 where the “equity” was a cross claim for damages for breach of contract.

19 The defendant further submitted that in this case the “equity” asserted by Rodgers was the first judgment debt and that if Zakrzewski sued Rodgers on the second judgment debt, Rodgers was entitled to have the first judgment debt set-off against the second judgment debt. The province of this principle is found in Derham in The Law of Set-off 3rd ed at 45.

20 In Re Harry Simpson & Co Pty Ltd [1964-5] NSWR 603, Jacobs J stated at 605:

“In the context of s 12 I think that the word ‘equities’ has to be given a wide meaning and it has been said that the assignee can be in no better position than the assignor was, prior to the assignment. I think that this broad principle is applicable…”

21 In Wentworth v Wentworth (12 December 1994, unreported), Young J (as he then was) traced the history of “set-off”. His Honour’s dissertation commences by saying that there is little doubt that the Court has a discretion to allow a set-off of costs order made in one set of proceedings. It is also clear that from Reid v Cupper [1915] 2 KB 147 that the judge has an inherent power to direct set-off vested in the judge because of the judge’s power over the suitors in the court. The existence of such power may, in an appropriate case, lead to a stay of execution being order, Re a Debtor [1951] Ch 612, 618. The inherent power is additional to the power of the taxing officer to order set-off under the relevant rules of court (Cupper, Watkins Ltd v Calcalia Pty Ltd (1983) 78 FLR 417, 429 and Kostka v Addison [1986] QdR 416 at 420).

22 But this appeal involves two costs orders in different proceedings obtained in a different jurisdiction where one costs order only is registered as a judgment in the Local Court. According to Young CJ in Eq the whole tone of authorities on set-off costs is that, ordinarily, it is appropriate in the one piece of litigation where each party has been in receipt of a favourable order for costs and each party has been ordered to pay some costs, that there should be a set-off and that only the ultimate balance should be paid one way or the other. A fortiori is this the case where, as here, the evidence shows that one party, is in such financial straits as it may be difficult to balance out the orders after all the taxations are completed if she is permitted to execute on orders in her favour in the meantime - see Blakey v Latham (1889) 41 Ch D 518, 521-2 and Re a Debtor [1951] Ch 612, 620.

23 In Miller v Director of Public Prosecutions (No 2) [2004] NSWCA 249 Young CJ in Eq referred to there being an inherent discretionary power in the court to order set-off of costs when it is equitable to do so, even when orders are made in different proceedings and the scope of the set-off power extends where there have been two separate proceedings based on the same factual matrix. A common reason for making an order for set-off is because of insolvency, an unfair result will be reached unless an order for set-off is made [paras 23-24].

24 In Miller Beazley JA referred to the discretion to order a set-off of costs as a broad one. The court is entitled to have a regard to a variety of factors including the public interest, the efficient administration of justice, and the conduct of the parties. [para 13]

25 The Local Court is a court exercising statutory power and does not possess inherent power. However, s 6 of the Law Reform (Law and Equity) Act 1972 NSW reads:

“6 Defence in inferior court

Every inferior court shall in every proceeding before it give such and the like effect to every ground of defence, equitable or legal, in as full and ample a manner as might and ought to be done in the like case by the Supreme Court under the Supreme Court Act 1970.”

26 It is common ground that s 64 of the Local Court Act does not apply.

27 Prior to the assignment from Zakrzewski to Watts there were two costs orders, one in favour of Rodgers the other in favour of Zakrzewski. The costs orders arose out of the same subject matter. The judgment in Rodgers’ favour is an equity pursuant s 12 of the Conveyancing Act. This right to set off is a broad one. It was equitable for the court to order a set off. This set off is equally available against an assignee. It is my view that due to s 6 of the Law Reform (Law and Equity) Act and the cases referred to above, the Magistrate was correct in her reasoning in deciding that Mr Watts’ claim must fail because any other act would place Mr Watts in a better position than the assignor.

28 The appeal is dismissed. The judgment and orders of Magistrate L Haskett dated 29 April 2004 are affirmed. The amended summons filed 2 July 2004 is dismissed.

29 Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the defendant’s costs as agreed or assessed.

Orders

(1) The appeal is dismissed.

(2) The judgment and orders of Magistrate L Haskett dated 29 April 2004 are affirmed.

(3) The amended summons filed 2 July 2004 is dismissed.

(4) The plaintiff is to pay the defendant’s costs as agreed or assessed.
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