Biritz v National Australia Bank Limited

REASONS FOR JUDGMENT THE COURT: 1 The respondent Bank served a bankruptcy notice on the appellant debtor with which she has not complied. The bankruptcy notice was issued for the costs which the debtor had been ordered to pay in an action in the Supreme Court of Victoria. The costs had been taxed and allowed in the sum of $14,131.25. The debtor applied to have the bankruptcy notice set aside. That application was heard by a registrar and dismissed. The debtor then sought to review the registrar's decision on a rehearing under s 35A(5) and s 35A(6) of the Federal Court of Australia Act 1976 (Cth). That application was unsuccessful and we now have an appeal from the judge's decision. 2 In order to appreciate the points we have to decide it is necessary briefly to recite the facts. A company known as Axiom Pumps Pty Ltd, which was probably controlled by the debtor's husband, appeared to be the proprietor of a property in Cheltenham. The debtor's husband was, or perhaps the debtor and her husband were, the proprietors of a property in Keysborough. Each property was mortgaged to the Bank. Presumably following upon a default, the Bank brought proceedings in the Supreme Court to recover possession of the properties. In one action it obtained a default judgment for possession of the Cheltenham property. This was on 25 January 1991. In the other action it obtained judgment for possession of the Keysborough property after a contested trial. An appeal from that judgment was dismissed on 5 April 1995. The debtor was not a party to either proceeding, but on 30 November 2000 she filed an originating motion claiming that she "is entitled to reinstatement of [the two properties]". She also obtained the issue of a subpoena requiring the Bank to produce certain of its documents. By order made on 7 February 2001 the originating motion was dismissed with costs on an application for summary judgment. The master who made the order was persuaded that the originating motion "did not disclose a cause of action, was frivolous or vexatious, and was an abuse of the process of the court". On the same day the master ordered that the subpoena be set aside with costs, presumably because there was then no longer any proceeding in which documents could be produced. 3 The Bank taxed its costs of both the originating motion and the proceeding on the subpoena. The taxing master allowed costs in the sum we have previously mentioned and made an order to that effect. The order was in the following form: "GENERAL FORM OF ORDER MASTER: Master Cain DATE MADE: 26 June 2001 ORIGINATING PROCESS: Originating Motion HOW OBTAINED: Plaintiff's (sic) Summons for Taxation filed 25 May 2001. ATTENDANCE: Ms C. Dealehr, the Solicitor the Plaintiff (sic). No appearance on behalf of the Defendant (sic). OTHER MATTERS: Taxation pursuant to the order of Master Evans made 7 February 2001. THE COURT ORDERS THAT: 1. The costs of the Defendant are taxed and allowed as the sum of $14,131.25. DATE AUTHENTICATED: 2 JULY 2001." The bankruptcy notice was issued in respect of these costs. 4 In the court below a number of points were taken to show why the bankruptcy notice should be set aside. They are explained in detail in the reasons of the trial judge, Kenny J, and we can be content with a summary. 5 The trial judge correctly identified the principal point to be that the costs orders and the taxing master's order were "procured by fraud". On the hearing of a petition where the petitioning creditor is required to prove the existence of the debt upon which the petition is based (see s 52(1) of the Bankruptcy Act 1966 (Cth)) the court has jurisdiction to go behind a judgment to inquire whether it has been obtained by fraud, collusion or miscarriage of justice. If it has then there may be no real debt owed. The inquiry can also be undertaken after sequestration as when a judgment creditor comes in to prove a debt (Ex parte Revell. In re Tollemache (No.1) (1884) 13 QBD 720) or before the petition is issued on an application to set aside a bankruptcy notice (as in Ebert v Union Trustee Company of Australia Ltd (1960) 104 CLR 346). 6 Two steps may be involved when the court is asked to go behind a judgment. In the first place there must be a preliminary inquiry to see whether the court should go behind the judgment at all. The court must be satisfied that there is good reason to investigate the matter. If the preliminary investigation suggests that the matter should be reopened then the court will inquire into the case on the merits: see generally Corney v Brien (1951) 84 CLR 343. 7 Here the debtor foundered at the first stage. The judge said that the debtor "has done little more than propound an allegation of fraud, indicating generally how she would make it out. Having regard to the entirety of the matters before me, I am not satisfied that she has shown a prima facie case of fraud". On the material that was before the judge no other finding was possible. Some of the material related to an alleged fraud that lay behind the Bank's claim for possession of the two properties. That was irrelevant to the question whether the court should go behind the costs orders. As to those orders the judge summarised the debtor's claims to be as follows: (1) The master had no jurisdiction to hear and determine the application for summary judgment. (2) The affidavit in support of the application to set aside the subpoena contained a false statement. (3) The bill of costs contained items which related to other proceedings and further that the debtor "had not been served with the Certificate of Taxation". These allegations would not support an opening up of the orders. The first allegation is plainly wrong. The second and third are no more than assertions, unsupported by any probative material that would permit the court to open up an inquiry into the taxation. 8 The debtor also claimed that she had a counter-claim, set-off or cross demand against the Bank exceeding the quantum of the costs. The nature of the debtor's allegations are a little difficult to follow. Again it is convenient to refer to the judge's summary. Her Honour described the claims as falling into two categories: (1) Claims relating to the possession by the Bank of the Cheltenham and Keysborough properties, the sale of those properties by the Bank and the accounting for the sale proceeds; and (2) Claims that the costs orders and the taxation order were procured by fraud. As with the fraud allegation these claims were not supported by any probative facts. 9 To succeed on this ground "the debtor must show that [she] has a prima facie case, even if then and there [she] does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in [her] counter-claim, set-off or cross demand": Ebert v Union Trustee Company at 350. The judge found that the debtor had not satisfied this standard. Having looked at the material we can only agree. 10 Now we come to a ground which has more substance. It is based upon the rule, for which there is much authority, that in order to comply with s 41, a bankruptcy notice cannot be based on two or more judgment debts: see eg In re Low; Ex parte Argentine Gold Fields Ltd [1891] 1 QB 147; Re A Bankruptcy Notice (1906) 96 LT 133. The debtor says that because this bankruptcy notice is based on two costs orders the rule is infringed and the notice is invalid. 11 There is authority to which the trial judge referred which is to the effect that in circumstances such as the present, where costs have been taxed, there is only one final order. The case is In re Wheeler (A Debtor) [1982] 1 WLR 175, a decision of the English Court of Appeal. The judgment creditors brought an action against the debtor seeking damages for misrepresentation. Judgment was given in their favour with costs to be taxed. When the judgment was pronounced the trial judge also disposed of three procedure summonses by ordering that costs of those summonses be taxed and paid to the judgment creditors. The judgment creditors then arranged for a composite bill of costs in respect of the four costs orders. The taxing master taxed parts of the bill and issued one interim certificate for the costs taxed. Those costs were not paid and a bankruptcy notice was issued. On the petition the debtor claimed that the bankruptcy notice was invalid. The Bankruptcy Court made a receiving order against which the debtor appealed. The Divisional Court allowed the appeal and from there the case went to the Court of Appeal. On the question whether the bankruptcy notice was defective Lawton LJ, with whom Brightman and Fox LJJ agreed, said (at 182): "Mr Primost [counsel for the petitioning creditors] submitted that what had happened in this case was that the four orders made by Foster J arising out of one action had been channelled into one order requiring the payment by the debtor and Mr Argent of the sum of Ł20,000; that, as a result of that channelling into the interim certificate, there was in the end only one final order, which was for the payment of the sum of Ł20,000; and that as the bankruptcy notice made it clear what was the origin of the debt upon which the bankruptcy notice was based, there was compliance with the provisions of both section 1(1)(g) and section 2. The debtor, on the other hand, submitted that, on the face of the bankruptcy notice, there were four orders and that it followed, having regard to the decision of this court in In re Low, Ex parte Argentine Gold Fields Ltd [1891] 1 QB 147, the bankruptcy notice was bad. For the reasons I have already stated, in my judgment, those four orders were channelled into the interim certificate so as to constitute one order." 12 There may be a question as to the correctness of this decision. There is no reported instance of the case being followed in England. It has been applied in Australia in Catalano v Commonwealth Bank of Australia (Sundberg J, 3 July 1997, unreported) and Cummings v Raeffaele (2000) 175 ALR 107, but was doubted in Commonwealth Bank v Horvath (Junior) (1999) 161 ALR 441. The case presents this difficulty. Speaking generally, in the absence of specific provision in legislation or rules, a certificate or allocatur by a taxing master is not a judgment or order for the payment of money: Re Crump; Ex parte Crump (1891) 64 LT 799. The obligation to pay costs is to be found in the judgment where the costs are ordered. So the certificate may not be "in the end only one final order". As it turns out, however, it is not necessary to come to any final view on this issue, for any difficulties that might exist in the general case do not arise in relation to costs orders made in the Supreme Court of Victoria. 13 In the Supreme Court a party may become liable to pay costs because an order for their payment is made or because the rules make provision to that effect. An example of a case where the rules provide for the payment of costs is on the acceptance of an offer of compromise. In such a case the costs may be taxed under O 63.10 and according to O 63.11(1) the amount can be recovered as if on a judgment. However, whenever costs are taxed the taxing master no longer issues a certificate as in the past. Now the result of the taxation must be stated in the form of an order (O 63.56(1)) which is to be authenticated and filed in the ordinary way (O 63.56(4)). Moreover, the Taxing Master may, after the conclusion of the taxation of any bill, make a final order with respect to the amount at which he or she allows the costs (O 63.56(2)). Accordingly, where there has been a taxation of a composite bill covering a number of costs orders that results in a single sum for costs which is recorded in an order, there is "in the end only one final order". So the notice is not invalid on this ground. 14 The debtor has raised other grounds of appeal although it is difficult to follow them. The Bank has, we think accurately, identified the grounds as being (1) That the trial judge did not have jurisdiction to review the registrar's decision; (2) That the trial judge was guilty of bias; and (3) That the Bank had not made a demand for the payment of the costs prior to the service of the bankruptcy notice. The first and second are without substance and must be rejected. The third complaint (that there was no prior demand for payment) may be accepted as true, but it has no legal consequence. There is no obligation on a creditor to demand payment of a judgment debt before the service of a bankruptcy notice. 15 We will dismiss the appeal with costs. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.