FEDERAL COURT OF AUSTRALIA

Mercantile Mutual Custodians v O’Brien [2000] FCA 1627

BANKRUPTCY – creditor’s petition – where bankruptcy notice founded on two separate judgments – whether bankruptcy notice void

Bankruptcy Act 1966 (Cth)

Trade Practices Act 1974 (Cth) s 82

In Re Low; Ex parte Argentine Gold Fields [1891] 1 QB 147 - followed

Re Bond; Ex parte HongKongBank of Australia Limited (1991) 33 FCR 426 - cited

GPW Aussie Exports v Latin (1998) 85 FCR 324 - cited

Catalano v Commonwealth Bank of Australia (unreported, Federal Court, 3 July 1997) - distinguished

Re Wheeler [1982] 1 WLR 175 - distinguished

Cummings v Raeffaele FCA [2000] 675 - distinguished

MERCANTILE MUTUAL CUSTODIANS PTY LTD (ACN 008 508 496) v RYLE MATTHEW O’BRIEN

Q 7122 of 2000

SPENDER J

BRISBANE

8 NOVEMBER 2000

THE COURT ORDERS THAT:

1.                  The creditor’s petition be dismissed.

2.                  There be no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is a contested creditor's petition.  The notice of opposition by the judgment debtor, Ryle Matthew O'Brien (Mr O'Brien) is that he has a valid counterclaim which he “could not set up in the Judgment of 18 October 1999 because of a legal obstacle”.  It is unnecessary, in light of what has occurred, to deal with that ground of opposition.  It seems, however, to involve a misunderstanding on Mr O'Brien's part as to what constitutes an inability to set up a counterclaim. 

2                     The fact is that in the District Court action in which various orders and judgments were made against Mr O'Brien, there was pleaded on his behalf the counterclaim on which he now wishes to rely.  On 24 November 1999, Mr O'Brien (who then, as now, was acting on his own behalf) indicated to Noud DCJ that he did not then wish to proceed any further with his counterclaim, and his Honour then made orders including that the counterclaim be dismissed.  The reason that it is unnecessary to now deal with the stated ground of opposition arises from  a defect in the bankruptcy notice relied on to found the act of bankruptcy, which aspect of the notice was very properly brought to the Court's attention by counsel for the petitioning creditor. 

3                     Notwithstanding counsel’s submissions to the contrary, in my judgment the bankruptcy notice is a nullity, because it is founded on two separate judgments. 

4                     What happened was this:  Mr O'Brien leased a shop from Mercantile Mutual Custodians Pty Ltd.  On 17 November 1997 Mercantile Mutual Custodians issued a District Court plaint against Mr O'Brien claiming $78,330.02 for rental and outgoings payable by him to it, together with interest.  The plaint referred to rent owing for various periods during which it was unpaid, as well as unpaid amounts for fit-out of the premises.  In respect of that plaint, Mr O'Brien filed an entry of appearance and defence and counterclaim on 17 December 1997. 

5                     The defence and the counterclaim both set up that, in addition to the terms of the agreement, there was a further representation that all businesses in the premises in which Mr O'Brien's shop was located were to operate in compliance with core trading hours, and that contrary to that representation and to a clause in the agreement, the businesses did not operate during those core hours and as a result Mr O'Brien suffered damage, being loss of custom and loss of profits.  The counterclaim claimed $250,000 damages for breach of contract, and further and in the alternative $250,000 damages pursuant to s 82 of the Trade Practices Act 1976 (Cth).

6                     On 3 December 1998, Boulton DCJ ordered that:

“1.    the Plaintiff be given leave to sign Judgment against the Defendant in the sum of seventy-eight thousand three hundred and thirty dollars and two cents ($78,330.02) with interest of 9% per annum from 1 July 1997 to today's date.

2.             the Defendant have liberty to pursue his counter claim.

3.             the execution of the Plaintiff's Judgment to be stayed pending determination of the counter claim or earlier Order of the Court, conditional upon the Defendant pursuing this counter claim expeditiously.

4.             liberty to be granted to both parties to apply within two (2) days in writing to each other.

5.             the Defendant pay the Plaintiff's costs of and incidental to this application and costs of and incidental of the principal action, excluding the counterclaim, to be taxed.”

7                     On 9 February 1999 there was an amended entry of appearance and defence and counterclaim, filed on Mr O'Brien's behalf by a firm of solicitors.  That counterclaim was in substance the same as the earlier one, based on representations concerning adherence to core hours by businesses in the complex in which Mr O'Brien's shop was located.  The only significant difference in the amended counterclaim was the addition of a claim under s 87 of the Trade Practices Act seeking an order “varying the contract or agreement in such manner as and from such date as this Honourable Court deems fit.”

8                     On 20 October 1999 the plaintiffs made an amended claim, seeking a total of $221,347.53 as monies due for rental and outgoings by Mr O'Brien to Mercantile Mutual Custodians.  That sum of $221,347.53 included a claim for rental of $146,854.43.  While it is not transparently clear from the document, the amended claim is directed at unpaid rental for periods other than those in respect of which Boulton DCJ gave judgment on 3 December 1998, and the total amount claimed comprehends the sum of $78,330.02 in respect of which Boulton DCJ gave judgment on 3 December 1998 and a further sum of $146,854.43.

9                     On 18 October 1999, Noud DCJ gave judgment.  It is the terms of that judgment which are central to the difficulty that attaches to the petition.  It was in these terms:

“THE JUDGMENT OF THE COURT IS THAT the Defendant pay to the Plaintiff the amount of $143,017.51. 

THE COURT ALSO ORDERS THAT:

1.             The Judgment is in addition to the judgment pronounced by His Honour Judge Boulton at an earlier stage namely on 3 December, 1998.  These 2 judgments total $221,347.53.

2.             There will be a stay of execution in respect of those 2 amounts which is mentioned.  There is a stay because the stay that His Honour ordered applies until the counterclaim is disposed of. 

3.             In relation to the judgment, a similar stay apply.

4.             The case be adjourned to a date to be fixed.

5.             The costs thrown away as a result of the adjournment be paid by the Defendant to the Plaintiff.

6.             The costs thrown away as a result of further pleading be paid by the Defendant to the Plaintiff.

7.             These orders in relation to costs be stayed pending the completion of the litigation or earlier order.

8.             The Defendant deliver an amended counterclaim to the Plaintiff by 3 November 1999, that delivery, however, can be effected by the amended pleading being sent by facsimile.

…”

10                  There were other orders made, and the matter was stood over for further directions on 9 November 1999.  On 24 November 1999, Noud DCJ made orders that:

“1.       The Defendant's counter-claim be dismissed.

2.         The Defendant pay the Plaintiff's costs of and incidental to the counter- claim, including reserved costs if any, to be assessed.

3.         Stay of execution of orders per Boulton DCJ, of 3 December, 1998 and Noud DCJ, 18 October, 1999 lifted and Plaintiff be at liberty to enforce these orders.”

11                  It is against the history of the making of those orders that a bankruptcy notice issued against Mr O'Brien.  The bankruptcy notice called on him to pay within 21 days of service the amount claimed to be owing, $243,382.59, as shown in the schedule.  The schedule is as follows:

12                  A further schedule, in respect of interest, is in the following form:

INTEREST CALCULATION FOR ITEM 3 OF THE SCHEDULE

BANKRUPTCY NOTICE

Interest is calculated pursuant to the Supreme Court Act 1995 at

9% x $78,330.02/365 days x (1 October 1997 – 3 December 1998) x 429 days =           $ 8,285.81

10% x $78,330.02/365 days x (4 December 1998 – 11 February 2000) x 434 days =      $9,313.76

9% x $143,017.51/365 days x (18 October 1999 – 24 November 1999) x 38 days =        $1,340.05

10% x $143,017.51/365 days x (25 November 1999 – 11 February 2000) x 79 days =    $3,095.44

                                                                                TOTAL INTEREST =                        $22,035.06

Attached to the bankruptcy notice are sealed copies of the order of Boulton DCJ of 3 December 1998, the order of Noud DCJ of 24 November 1999, and the order of Noud DCJ of 18 October 1999.

13                  Mr Hack, counsel for the petitioning creditor, referred me to the bankruptcy notice and to the matters I have more expressly just set out, and submitted that notwithstanding the expressly singular references to “a judgment or order” in the relevant provisions of the Bankruptcy Act 1966 (Cth), and  a line of authority which says that a bankruptcy notice which relies on more than one final judgement or order is a nullity and void, the present case was not caught by that difficulty.

14                  In In Re Low; Ex parte Argentine Gold Fields [1891] 1 QB 147, the Court of Appeal held that two or more judgment debts cannot be included in the same bankruptcy notice.  In that case the petitioning creditor had recovered judgments in two separate actions and they sought a bankruptcy notice, including in it both of those judgments.  Lord Escher, M.R., in whose judgment Lopes and Kay LJJ concurred, said:

“In the section itself one debt only is spoken of, and the rule and the form of  notice carry out the same idea.  That this was intentional appears from a comparison with s 6, subs 1(a), where in a case where or two creditors may joint in an act this is expressed in terms.  The power to join two or more judgment debts in one notice could equally have been expressed, and, as it has not, I think it must have been meant that only one judgment debt should be the subject of each bankruptcy notice.  Another reason for coming to the same conclusion is that otherwise there would be taken away from the debtor a right that he undoubtedly has to satisfy one of the notices, or to raise a counter-claim, set-off, or cost demand to it, and so prevent its being used for the presentation of a bankruptcy petition.”

15                  The broad proposition for which In Re Low is authority has been followed in Australia, in Re Bond; Ex parte HongKongBank of Australia Limited (1991) 33 FCR 426.  There, Foster J granted the debtor’s application to set aside a bankruptcy notice, holding that  the notice was invalid because it was issued and served in respect of more than one judgement debt, even though the notice did not seek to aggregate separate amounts arising from separate actions.  His Honour further concluded that the fact that the debt itself was truly due and owing was not sufficient to cure the defect in the notice.

16                  In GPW Aussie Exports v Latin (1998) 85 FCR 324, Goldberg J also held that a bankruptcy notice which relies on more than one final judgment or order is a nullity and void, and not simply voidable, and dismissed the application for a second sequestration order.  The bankruptcy notice in that case claimed $149,034.75 due in respect of three judgments obtained against the debtors, together with interest of $54,386.85 which had accrued on the judgment debts.  Goldberg J referred to one case where a Judge of the Federal Court had upheld the validity of a bankruptcy notice notwithstanding that it was founded on two costs orders in one action: Catalano v Commonwealth Bank of Australia (unreported, Sundberg J, 3 July 1997). 

17                  Catalano was a case where two costs orders in one action had been “channelled” into one order by a certificate of taxation, and Sundberg J held that in that circumstance there was not a bankruptcy notice founded on two judgments.  His Honour adopted and followed the approach which had been taken in Re Wheeler [1982] 1 WLR 175. 

18                  In Re Wheeler the bankruptcy notice sought the debtor to pay the amount of costs “ordered to be paid on four final orders.”  An interim certificate for costs had been issued for £20,000, aggregating the costs in respect of each of the four orders.  The Court of Appeal held: that once the interim certificate for costs had been issued, the debtor and another became liable to pay the sum of £20,000; that it was a final order relating to one debt arising out of the judgment in the action and the orders on the procedure summonses in the same action; and that, accordingly, the bankruptcy notice complied with the requirements of the Bankruptcy Act 1914 in referring to the final order and to the four orders made by the Judge as the origin of the debt on which the bankruptcy notice was based.

19                  Lawton LJ said at 179:

“That interim certificate having been issued, the debtor and Mr Argent then became liable to pay the sum of £20,000.  It was one sum relating to one debt arising out of the judgment in the action and the orders on the procedure summonses.”

Later, at 182, he said, having referred to In Re Low:

“For the reasons that I have already stated, in my judgment those four orders were channelled into the interim certificate so as to constitute one order.”

20                  In Cummings v Raeffaele [2000] FCA 675, an unreported judgment of Moore J of 30 June 2000, the bankruptcy notice set out in its schedule that the amount of the judgment or order was $2,333 and interest of $596.67, making a total debt owing of $2,929.67.  There had been an order dismissing the information and charge which Mr Raeffaele had brought, and an order that he pay the costs of Mr Cummings, in a sum of $1,070, within two months.  An appeal to the District Court was dismissed, and the District Court ordered that the decision of the Magistrate with regard to costs be confirmed, that two months be allowed to pay those costs, and that Mr Raeffaele pay Mr Cummings’ costs of the appeal to the District Court.

21                  Moore J said in respect of the certificate that:

“It can be seen from the certificate that there are three relevant orders:

(i)           the costs order of Magistrate Norton of 30 September 1996 in respect of the costs of the trial in the amount of $1070.00;

(ii)         the order of Judge Wall of 11 June 1997 confirming the costs order of Magistrate Norton, though varying the time in which the costs were to be paid, namely to be paid within two months of 11 June 1997; and

(iii)       the costs order of Judge Wall of 11 June 1997 in respect of the costs of the appeal (assessed by his Honour on 6 July 1998 in the amount of $1263.00).”

His Honour concluded that:

“… orders (ii) and (iii) are the orders which create the debt claimed by the judgment creditor and constitute a judgment for the purposes of s 40(1)(g) of the Bankruptcy Act.”

22                  Having regard to the (now repealed) section 125(1) of the Justices Act 1902 (NSW), which conferred the powers of the District Court on appeal, including “…by its order to confirm, quash, set aside, vary, increase, or reduce, the …, order, …appealed against, …”, his Honour concluded:

“In the present case, orders (ii) and (iii) were made, at the same time, by the District Court when determining the sole issue on appeal.  However, order (ii), while in form a costs order, was the order dealing with the subject matter of the appeal.  That is, it dealt with whether the informant, the judgment debtor, should have been ordered to pay the costs of the proceedings below.  Order (iii) was an order of the type regularly made in proceedings as an order ancillary to the principal substantive relief granted in the proceedings.  Thus order (ii) disposed of the appeal and order (iii) was the ancillary costs order.  Together they constituted the orders disposing of the appeal, and together they constituted, in my opinion, the final judgment in the appeal.  They constituted a final judgment for the purposes of section 40(1)(g) of the Bankruptcy Act.”

23                  It was submitted by Mr Hack for the creditor, that paragraph 1 of the order of Noud DCJ of the 18 October 1999 had the effect of “channelling” the money judgment of Boulton DCJ for $78,330.02 made on 3 December 1998, and the judgment pronounced by Noud DCJ on 18 October 1999 for $143,017.51, into a single final judgment.  However, and unfortunately in my view, it is not possible to see the orders made by Noud DCJ as melding or channelling the various judgments into a single judgment.  In fact, in terms Noud DCJ recognises that there are two judgments which in fact total $221,347.53.

24                  I find it impossible to distinguish In Re Low, although I recognise that the judgments in this case are judgments made in the same proceeding and in respect of different periods during which rent was payable.  The bankruptcy notice suffers in my view from the fatal flaw that it is based on two judgments:  one by Boulton DCJ on 3 December 1998 for $78,330.02, and the other by Noud DCJ on 18 October 1999 for $143,017.51.  It is a matter of regret that I conclude that the bankruptcy notice is void and is incapable of supporting a valid creditor's petition.  This simply means that the procedure will have to be done again,  despite the fact that there has in my view been absolutely no prejudice caused to Mr O'Brien by the inclusion of two judgments in the bankruptcy notice.  In fact, this point, as I indicated at the outset, is  one that was raised by counsel appearing for the creditor on the hearing of the petition. 

25                  For the above reasons, I must dismiss the petition of Mercantile Mutual Custodians Pty Ltd.  Having regard to the history of the matter, I make no order as to costs.

Associate:

Dated:              17 November 2000