FEDERAL COURT OF AUSTRALIA

Perera v Genworth Financial Mortgage Insurance Pty Limited, in the matter of Perera [2020] FCA 11

ORDERS

THE COURT ORDERS THAT:

1.    The application to set aside BN 242810 issued on 7 August 2019 is dismissed.

2.    The applicant pay the respondent’s costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FARRELL J:

Introduction

1    By an application filed on 27 August 2019, Madura Perera, seeks orders setting aside an amended bankruptcy notice BN 242810 which was issued at the request of the respondent, Genworth Financial Mortgage Insurance Pty Ltd. In terms, Mr Perera sought orders as follows:

1.    That bankruptcy notice number 242810 issued on 7 August 2019 (Bankruptcy Notice), which was served on applicant on 8 August 2019, be set aside pursuant to section 30(1) of the Bankruptcy Act 1966 (Cth) on the following grounds under section 41 (6A)(b) of the Bankruptcy Act.

  2.    The applicant has paid/set off the debt alleged in the Bankruptcy Notice.

  3.     The applicant does not owe the debt alleged in the Bankruptcy Notice.

  4.    …

  5.    …

6.    Order that the respondent to fully comply with the orders of the Supreme Court of NSW proceeding number 2008/00290472 subsequent to the Notice of Discontinuance filed on 4 April 2017 pursuant to section 30(1) of the Bankruptcy Act 1966 (Cth).

7.    Order that the time for compliance with Bankruptcy Notice Number 242810 issued on 7 August 2019 which was served on applicant on 8 August 2019 be extended up to and including 21 days after the respondent fully complied with the orders of the Supreme Court of NSW Proceeding number 2008/00290472 subsequent to the Notice of Discontinuance filed on 4 April 2017 pursuant to section 30(1) of the Bankruptcy Act 1966 (Cth).

8.    Order that the respondent to pay costs of this application pursuant to section 32 of the Bankruptcy Act 1966 (Cth)

9.    Any other order that the court pleases pursuant to section 30(1) of the Bankruptcy Act 1966 (Cth)

2    The bankruptcy notice claims payment of a debt of $47,375.45. That debt is founded on a lump sum costs order made by Garling J in the Supreme Court of New South Wales on 19 October 2018 (the Genworth costs order).

Background

3    The parties have a lengthy litigation history going back to at least 2008, when Genworth commenced proceedings in the Supreme Court (numbered 2008/290472) against Hodder Rook & Associates Pty Ltd (the HRA proceeding); Mr Perera referred to these proceedings in his submissions as the “foundation proceedings”. Mr Perera was the sole director of Hodder Rook. The HRA proceeding concerned valuations of land produced by Hodder Rook which were intended to be relied on by Genworth in connection with a mortgage. Genworth relied on those valuations and made a loss on transactions, leading it to allege that valuations had been prepared negligently by Hodder Rook.

4    Mr Perera and Genworth have filed with the Court an agreed chronology setting out the litigation history since the commencement of the HRA proceeding summarised generally as follows:

Mr Perera’s case

5    Mr Perera was not legally represented on his application to set aside the bankruptcy notice. In the course of this proceeding, Mr Perera appears to have put his case, or his case has been understood, in three ways.

6    Before explaining the ways Mr Perera’s case has been understood, it is useful to confirm the three “judgments” (to use Mr Perera’s term) on which he seeks to rely:

(1)    The notice of discontinuance filed by Genworth in the HRA proceedings on 4 April 2017. Mr Perera contended that by force of r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) there is a judgment debt in Hodder Rook’s favour for so much of the period of the HRA proceedings as precedes 12 August 2011 (the alleged costs entitlement). In this regard:

(a)    Rule 42.19 of the UCPR provides as follows:

42.19    Proceedings discontinued

(1)    This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.

(2)    Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant’s costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.

(b)    Mr Perera relies on invoices which appear in the Court Book (CB) at 18-40 and again at CB97-119 (Invoices). There is no evidence that either Hodder Rook’s liquidator or Mr Perera (before Hodder Rook was placed in liquidation) sought assessment of any entitlement Hodder Rook may have to a costs entitlement based on the Invoices;

(2)    Mr Perera’s costs order, being the judgment/order of the District Court made on 17 July 2017 against Hodder Rook in favour of Mr Perera for $651,303.26; and

(3)    Genworth’s costs order against Mr Perera on which the bankruptcy notice is founded.

First way Mr Perera appeared to be put his case

7    In the application filed on 27 August 2019, Mr Perera claimed that he had “paid/set off the debt alleged” and that he “does not owe the debt alleged in” the bankruptcy notice. Mr Perera’s supporting affidavit sworn on 26 August 2019 referred to the following in support of that contention:

(1)    The bankruptcy notice.

(2)    A creditor’s statutory demand dated 23 August 2019 which he served on Genworth.

(3)    The notice of discontinuance.

(4)    Mr Perera’s costs order; and

(5)    An email sent on 19 September 2017 from Mr Perera to “the respondent”. He says of the email that he advised the respondent that “the judgement debt of case number 2008/00290472 is being enforced”.

8    This was understood by Genworth to be based on a contention that the benefit of Hodder Rook’s costs entitlement arising out of the notice of discontinuance had been assigned to Mr Perera by Hodder Rook’s liquidator. In its ground of opposition dated 10 October 2019, Genworth denied that it owed any debt to Mr Perera either in his own right or as an assignee of any claim that Hodder Rook might have against Genworth arising out of the notice of discontinuance. Mr Perera confirmed that he does not pursue his application on the basis that he is an assignee of any claim that Hodder Rook had against Genworth.

Second way Mr Perera appeared to put his case

9    At the first court date for Mr Perera’s application before Registrar Burns on 10 September 2019, Mr Perera said that he claimed to be entitled to a set off by reason of money owed to him by Genworth “as a third party”. By an affidavit sworn on 16 September 2019, Mr Perera referred to the notice of discontinuance, Mr Perera’s costs order and the Invoices under the heading “Third Party Costs Judgement Debt” to say that he had “paid/set off” the debt alleged in the bankruptcy notice against the Invoices. At a case management hearing on 11 October 2019 before me, which was the day after Mr Perera was served with Genworth’s notice of opposition, Mr Perera clarified that his basis of challenging the bankruptcy notice is not that he claims the benefit of the assignment of any claim Hodder Rook might have against Genworth arising out of the notice of continuance. Rather, his claim is based on the proposition that, if Genworth paid Hodder Rook the costs entitlement arising out of the notice of discontinuance, and Hodder Rook then paid Mr Perera the costs it owes him under Mr Perera’s cost order, he could then fulfil the Genworth costs order.

10    In his written submissions filed on 15 November 2019 at [6], Mr Perera claimed that “all three judgements need to be considered and in fact Mr Perera paid/set off Genworth’s costs under the three way costs judgments that are on the table”. In this regard, Mr Perera sought to rely on “expert evidence” filed by Walter Guan on 10 November 2019 in a report headed “Third Party Judgement Debt Report” which purported to establish the “net position” between Genworth, Mr Perera and Hodder Rook as at 6 November 2019. Mr Guan’s affidavit and report were not admitted into evidence for reasons summarised by counsel for Genworth at T 27-28 of the proceedings on 11 December 2019.

11    The Court accepts Genworth’s written submissions at [18]-[24] as to the principles to be applied where a debtor claims to have an entitlement to set-off, counter-claim or cross demand equal to or exceeding a judgment for the purposes of s 40(1)(g) of the Bankruptcy Act 1966 (Cth), which appears to be the foundation of Mr Perera’s case put this way.

12    Put this way, Mr Perera’s application must fail because, even assuming that Hodder Rook has an entitlement to costs arising out of the notice of discontinuance, the Invoices have not been assessed and any costs entitlement arising out of the notice of discontinuance have therefore not been established. Further, any costs entitlement Hodder Rook has against Glenworth, Mr Perera’s costs order and Genworth’s costs order lack the required mutuality to establish a counter-claim, cross-demand or set-off of the kind required under s 40(1)(g) of the Bankruptcy Act. The Court notes that at T 50:4-8 of the proceedings on 11 December 2019, Mr Perera agreed that if his case were based on s 40(1)(g) of the Bankruptcy Act, he would not be entitled to claim the required set-off because of the lack of mutuality.

Third way Mr Perera put his case

13    At the hearing on 11 December 2019, Mr Perera denied that he was relying on a claim to have a set-off, counter-claim or cross-demand.

14    In the course of the hearing, Mr Perera handed up proposed Additional Orders (as written):

1.    Applicant to pay $47,375.45 to the Litigants Fund of the Federal Court of Australia.

2.    Respondent to pay the costs of the proceeding in Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates Pty Limited (2008/00290472) to the trust account of Australian Securities and Investment Commission.

3.    Applicant to release the $47,375.45 in the Litigants Fund of the federal court of Australia, once the respondent pays Australian Securities and Investment Commission the costs of the proceedings in Genworth Financial Mortgage Insurance Pty Limited v Hodder Rook & Associates Pty Limited (2008/00290472).

4.    The bankruptcy notice number 242810 issued on 7 August 2019 be set aside.

15    Mr Perera said that he was relying on s 41(6) of the Bankruptcy Act. It is useful to set out ss 41(5) and (6) as follows:

(5)    A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.

(6)    Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with subsection (5), he or she shall be deemed to have complied with the notice if, within the time allowed for payment, he or she takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.

16    It was put to Mr Perera that it was not apparent that his application was based on s 41(6). His response was that he understood the difficulties with establishing mutuality and he therefore brought his case on the basis that the amount of Genworth’s costs order “in my submissions, it will be probably completely disappeared but if any form of adjustments then this should be a – the amount stated is not correct” and on the basis that the authorities in his list of authorities support that. Mr Perera relied on Somes v Duke Group Ltd [2000] FCA 248 at [26], Hamilton v Warne [1907] HCA 24; 4 CLR 1293; (said to be citing para 3 at lines 9-24, but this is not a comprehensible citation); and Burton v Belgravia Investments Pty Ltd [1999] FCA 1840 at [24].

17    Counsel for Genworth objected to Mr Perera raising this argument to set aside the bankruptcy notice at this time on the bases that:

(1)    While the authorities on which Mr Perera relies are uncontroversial in stating the principle that a bankruptcy notice which is overstated may be a nullity, those cases are premised on there being an overstatement. There is nothing in what Mr Perera said at any of the case management hearings or in his submissions which raises a “spectre of an argument” that there had been an overstatement, nor is there anything in his evidence that suggests that moneys have been paid to Genworth or that there is overstatement in the bankruptcy notice. Rather, Mr Perera has relied on what he terms a “third party judgement”.

(2)    On 15 October 2019 the solicitors for Genworth wrote to Mr Perera in the following terms:

We refer to the case management hearing before Farrell J on 11 October 2019.

We understand from your submissions at the case management hearing that:

1.    You no longer say that you have the benefit of any debt assigned to you;

2.    You say instead that the Bankruptcy Notice issued to you should be set aside as:

a)    You have a judgment against Hodder Rook & Associates Pty Ltd (HRA);

b)    HRA has an entitlement to costs against your client; and

c)    Once HRA obtains payment for that asserted entitlement to costs from our client, you will then pay the money you owe to our client.

Please provide your confirmation by reply email that the above accurately sets out the basis upon which you say that the Bankruptcy Notice should be set aside.

Genworth’s solicitors say that there was no reply to those this email.

18    Mr Perera argued that saying that the debt had been paid by tripartite set-off is, in effect, saying that the bankruptcy notice is overstated. He confirmed that he was relying on a tripartite set-off, but said that he was not relying on mutuality to do so. On that basis he proposed the Additional Orders; if he pays money to the Litigants’ Fund, Genworth is assured that it will receive the moneys once they have paid the amount of costs payable referable to the notice of discontinuance to ASIC in relation to Hodder Rook, which is deregistered. It will not matter if Hodder Rook has other creditors. Mr Perera made submissions relating to the impact of Hodder Rook being de-registered having regard to ss 601AA – 601AE of the Corporations Act, and in particular s 601AE, to the effect that ASIC must behave like Hodder Rook itself when it receives money. After the money is paid to ASIC in accordance with the second Additional Order, he will put his claim under Mr Perera’s costs order to ASIC and if he gets something from the moneys paid to ASIC, that will be that. While there may not be evidence before the Court as to Hodder Rook’s liabilities, if he gets something from ASIC, then the bankruptcy notice must have been overstated within the meaning of s 41(6) of the Bankruptcy Act.

19    Counsel for Genworth relied on written submissions. Counsel submitted that, while the Court may have power to make the first Additional Order, it would not properly make the second order on the basis that it affects ASIC’s rights and ASIC is not a party. In any event, the amount (if any) that should be paid under the second Additional Order is unknown as any entitlement Hodder Rook may have to costs as a result of the notice of discontinuance have not been assessed. The third Additional Order would obviate the purpose of the Litigant’s Fund, if the person paying money into it controlled the disposition of those funds. Further, Hodder Rook has ceased to exist and there is no evidence of Hodder Rook’s financial position (importantly, its creditors). There is therefore no evidence before the Court that could, on a rational basis, establish that the amount claimed in the bankruptcy notice would be reduced at all.

20    The Court finds that, while Mr Perera’s argument is creative, it cannot be accepted.

21    First, Mr Perera made no express reference to ss 41(5) or 41(6) in any of his evidence or submissions prior to it being raised orally at the hearing on 11 December 2019. It appears to be designed to side-step the requirement for mutuality, but it does not do so successfully. The Court rejects the proposition that any amount which Mr Perera might receive from Hodder Rook at some time in the future results in an overstatement of his debt to Genworth under Genworth’s costs order.

22    Second, in any event, as submitted by counsel for Genworth, Mr Perera did not give notice that he claimed that the bankruptcy notice was overstated as required by s 41(5) of the Bankruptcy Act and Mr Perera has not tendered any amount which (on his argument) might have been correctly stated in the bankruptcy notice. It would have been impossible for him to do so as any costs payable to Hodder Rook by Genworth as a result of the notice of discontinuance have not been assessed and there is no evidence of Hodder Rook’s liabilities to creditors other than Mr Perera, so that, even if Mr Perera were otherwise correct in his arguments (which the Court does not accept), he has not established the amount by which the bankruptcy notice is overstated or that it is overstated at all. The authorities on which Mr Perera relied are predicated on there being an overstatement.

23    Third, these proceedings are not the appropriate venue in which to make the Additional Orders which are, in effect, orders for the enforcement of Hodder Rook’s costs entitlement (if any) under the notice of discontinuance. It would not be appropriate to grant Mr Perera effective control of the release of moneys paid to the Litigants’ Fund. As ASIC has not been given an opportunity to make submissions as to the effect of ss 601AA-601AE. In light of the foregoing it is both unnecessary and inappropriate to analyse Mr Perera’s arguments concerning the proper interpretation of those sections.

Conclusion

24    The application is dismissed with costs.

25    The Court notes that, on 11 December 2019, it made orders under s 41(6A) extending the time for compliance with the bankruptcy notice until 4.30 pm seven days after judgment is delivered.

Associate:

Dated:    10 January 2020