Lewis v Lamb

Supreme Court of NSW|2012-03-15|Before: Beech-Jones J

EX-TEMPORE Judgment 1Before me is a notice of motion filed on behalf of a judgment creditor, Peter Lawrence Lewis, seeking the entry of judgment against the garnishee, Lamru Pty Ltd, pursuant to s124 of the Civil Procedure Act 2005. 2Section 124 provides as follows: 124 Procedure where garnishee order not complied with (1) On the application of a judgment creditor who considers that a garnishee order has not been complied with, the court: (a) may hear and determine any question as to the liability of the garnishee to pay the debt, wage or salary sought to be attached by the garnishee order, and (b) if satisfied that the garnishee is so liable, may give judgment in favour of the judgment creditor against the garnishee: (i) for the amount of that debt, wage or salary, or (ii) for the unpaid amount of the judgment debt, whichever is the lesser. (2) The court may refuse to give such a judgment if it is of the opinion that such a judgment should not be given. (3) Without limiting subsection (2), the reasons that may lead the court to form such an opinion may include: (a) the smallness of the amount outstanding under the judgment, and (b) the smallness of the debt, wage or salary to be attached. (4) As between the garnishee and the judgment debtor, an amount paid to the judgment creditor by the garnishee under a judgment given under this section is taken to have been paid to the judgment debtor. 3This section needs to be read together with sections 117 and 123, which provide: 117 Operation of garnishee order in relation to debts (1) Subject to the uniform rules, a garnishee order operates to attach, to the extent of the amount outstanding under the judgment, all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of the order. (2) For the purposes of this Division, any amount standing to the credit of the judgment debtor in a financial institution is taken to be a debt owed to the judgment debtor by that institution. 123 Payments by garnishee (1) A payment under a garnishee order must be made in accordance with, and to the judgment creditor specified in, the order. (2) Out of each amount attached under the garnishee order, the garnishee: (a) subject to payment of the balance being made within the time required by section 118 or 120, as the case may be, may retain up to the amount prescribed by the uniform rules to cover the garnishee's expenses in complying with the garnishee order, and (b) must pay the balance to the judgment creditor. (3) A payment to the judgment creditor must be accompanied by a statement showing: (a) much of that amount has been paid to the judgment creditor. (4) As between the garnishee and the judgment debtor, the amount attached under the garnishee order is taken, subject to any order of the court, to have been paid by the garnishee to the judgment debtor. Note. Such an order may be made, for example, if the garnishee has failed to comply with the requirements of subsection (3). (5) As between the judgment creditor and the judgment debtor, the amount of the payment to the judgment creditor is taken to have been paid by the judgment debtor to the judgment creditor in satisfaction, to the extent of that amount, of the judgment. 4I make four points at the outset concerning these provisions. First, by the operation of s117 of the Civil Procedure Act 2005 garnishee orders operate to attach to all debts due and owing as at the date of service of the order, which in this case was 8 July 2011. Second, on an application under s124(1), as has been made here, the Court must be positively satisfied that the garnishee is liable to pay the debt that is sought to be attached. Third, the operation of s124 contemplates that the amount for which the judgment is to be entered is a known or fixed amount. The Court does not appear to me to have the power to enter judgment for an amount to be assessed. Fourth, s124 confers a discretion as to whether judgment should be entered and, that discretion is to be exercised having regard to a number of factors that include those specified in s124(3).

BACKGROUND 5In view of the limited issues raised by the motion it is only necessary for me to set out part of what is a long and convoluted history of disputation between the parties. 6Since 1996 the judgment creditor, Mr Lewis and his interests, which include a company Kation Pty Ltd, have been involved in proceedings against the judgment debtor, Mr Lamb and his interests, which include the garnishee Lamru Pty Ltd ("Lamru"). The proceedings have been conducted in New South Wales and New Zealand. At all relevant times Mr Lamb has been the sole director and shareholder of Lamru. 7On 18 August 2003 the High Court of New Zealand awarded Mr Lewis judgment against Mr Lamb in the sum of NZ$400,000.00 plus interest ("the New Zealand judgment debt"). On 1 April 2004 that judgment was registered in this Court pursuant to Part 2 of the Foreign Judgments Act 1991 (Cth). The enforcement of the judgment was stayed by orders made by Hamilton J in separate proceedings in this Court between Messr Lewis and Lamb and their respective interests. I understand this stay was lifted on 9 September 2010. 8Whilst the steps were being taken to obtain the New Zealand judgment and have it registered in this Court, the parties were maintaining their dispute in New South Wales. They appear to have culminated at first instance on 23 May 2006 when Hamilton J made a series of orders which, as between the Lewis and Lamb's interests, appear to have represented significant success for Mr Lamb: Lewis v Nortex Pty Ltd (in liquidation); Lamru Pty Ltd v Kation Pty Ltd [2006] NSWSC 480. 9Order 11 as made by Hamilton J on 23 May 2006 ordered Kation and Mr Lewis to pay 70 per cent of Lamru's costs of the two proceedings numbers in this Court to that time. At [1] his Honour recorded the proceedings were long running and that the full length of the trial had to that time reached 103 days. 10There was an appeal from Hamilton J's decision. The Court of Appeal published a number of judgments but, as I understand it, the two judgments of particular significance to these proceedings were published on 12 June 2009 (reported as Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336), and on 21 December 2009, ( Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (in liquidation) (No 2) [2009] NSWCA 428). It is only necessary to note two matters about the outcome of the appeal. 11First, order 11 of Hamilton J of 23 May 2006 was unaffected. Second, a cross-appeal of Lamru was allowed in part. This partial success on the cross-appeal led to orders being entered requiring payments by Mr Lewis and Kation direct to Lamru. 12In October 2010 Lamru issued a bankruptcy notice to Mr Lewis. The amounts claimed represented the amounts owing under the orders made by the Court of Appeal when in part allowing Lamru's costs appeal. Lamru has not sought to issue a bankruptcy notice to enforce the various costs orders that had been made in his favour, including order 11 made by Hamilton J on 23 May 2006. In fact, as I understand, it has not taken steps to have any of those orders assessed. 13Mr Lewis applied to set aside the bankruptcy notice issued by Lamru. His application was dismissed by Foster J on 6 July 2011: Lewis v Lamru Pty Ltd; the matter of Lewis (No 3) [2011] FCA 1177. There were further skirmishes in the Federal Court and it seems that appeals are pending. It is unnecessary for me to describe that in any further detail other than to note that in October 2011 a substantial amount was paid out to Lamru and then on-paid to a company associated with Mr Lamb. Mr Lewis asserts that the act of Lamru in paying those moneys to that company and not to him was a breach of the garnishee order. It seems to me that, assuming there was a debt owing from Lamru to Mr Lamb at that time, this failure to pay would be a very powerful reason to make an order under section 124 if the preconditions for making such an order were otherwise satisfied. 14It seems that Mr Lewis and his legal advisers were aware of a likelihood that Mr Lamb was owed money by Lamru on account of Mr Lamb having advanced Lamru funds to pursue the litigation. On 7 July 2011 an application was made for a garnishee order directed to Lamru, for debts that it was believed it may owe to Mr Lamb, pursuant to s117 of the Civil Procedure Act and Part 39 Division 4 of the Uniform Civil Procedure Rules 2005 ("the garnishee order"). Simpson J granted that application. The terms of the garnishee order were as follows:

It is ordered that all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of this order are attached the extent of $NZ637,311.41 to answer a judgment in these proceedings.
You are ordered to pay any amount so attached to the judgment creditor within 14 days after the date on which the order is served on the garnishee or, if the debt attached is a debt which falls due after that date, within 14 days after the date on which the debt becomes due.' 15The garnishee order was served on Lamru on 8 July 2011. No amount was paid in response to the garnishee order by the time stated in the order or at any subsequent time. As a result Mr Lewis has filed this motion seeking the entry of judgment against Lamru.

ACCOUNTS AND ASSIGNMENT 16Mr Lewis caused the issue of a subpoena to Lamru for, amongst other things, its financial accounts. Tendered before me were its accounts for the years ending 30 June 2009, 30 June 2010 and 30 June 2011. The accounts for the years ending 30 June 2009 and 30 June 2010 showed an indebtedness of Lamru in favour of Mr Lamb in the amount of $613,023.00. 17In his affidavit Mr Lamb explained that this reflected amounts that he had advanced to Lamru in respect of the litigation. He said that there was never any formal agreement between himself and Lamru in relation to the repayment and nor, I infer, in relation to the accruing of interest. 18The accounts for the year ended 30 June 2011 showed a credit entry in favour of Lamru for $46,527.00. Note 8 to the accounts stated as follows. Litigation funding assignment The sole director and shareholder, Mr Russell Lamb, has provided funding for Lamru to pursue its' rights in lengthy and expensive litigation against Mr Peter Lewis and associated entities. Lamru would not have had the means to win the various awards without the funding provided by Mr Lamb. By agreement dated 31 August 2010 Lamru agreed to assign its rights in certain costs awards against Peter Lewis to Mr Lamb. The director's valuation of that assignment is $659,550.00. 19Having regard to the cross-examination I heard this morning I am satisfied that these entries were prepared some time after the garnishee notice was served on 8 July 2011. I think, as Mr Lamb freely admitted, it was inherently unlikely that in the seven days between the end of the financial year 2011 and the date of the service of the garnishee notice that he would have prepared those accounts, and it seems to me far more likely they were prepared at some time afterwards. Of course, that in and of itself does not mean that those entries are unreliable. 20The agreement dated 31 August 2010 was also tendered before me ("the Agreement"). It is entitled "Assignment and Declaration of Trust between Lamru Pty Ltd ("the assignor") and Russell William Lamb ("the assignee/trustee")". Its recitals record the background to the dispute between the Lewis interests and the Lamb interests, including the New Zealand judgment debt to which I have referred. It also refers to the making of various costs orders in favour of Lamru against Mr Lewis which were subsisting as at July 2006, which included, but were not limited to, order 11 made by Hamilton J on 23 May 2006 that I have referred to above. These are described as the "July 2006 costs liabilities of the beneficiary [Lewis]". 21Recitals K to M confirm that the purpose of the agreement was to "create mutuality between the NZ judgment debt and the 2006 costs liabilities of the beneficiary"; that is, to enable Mr Lamb to be able to meet any attempts to enforce the New Zealand judgment debt by setting off the liabilities of Mr Lewis under those costs orders. It is not necessary for me to decide whether that objective was achieved, although the recital of it is important in understanding the commercial context and effect of the transaction. 22The operative terms of the Agreement provide:

The assignor hereby transfers conveys and assigns all its rights title and interest in the 2006 costs liabilities of the beneficiary to the assignee/trustee
The assignee/trustee hereby acknowledges and declares that he holds the 2006 costs liabilities of the beneficiary UPON TRUST, a. to pay and apply the proceeds thereof in discharge of the NZ judgment debt immediately upon receipt of the, or any part of the, said proceeds b. not to deal with any of the proceeds of the 2006 costs liabilities of the beneficiary otherwise than to pay them to the beneficiary in discharge of the NZ judgment debt, until such time as the NZ judgment debt is paid in full
The parties hereto intend to serve notice of this instrument upon the beneficiary. 23Notice of the assignment, I assume in accordance with s 12 the Conveyancing Act 1919, was given to the solicitors for Mr Lewis and Kation sometime shortly after the deed was entered into.

SUBMISSIONS OF THE PARTIES 24Counsel for Mr Lewis contends that the accounts for the years ended 30 June 2009 and 30 June 2010 establish that there was an indebtedness of Lamru as garnishee in favour of the judgment debtor, Mr Lamb, to which the garnishee notice attaches, and that the amount of the indebtedness is $613,023.00. There is no evidence of any payment being made to discharge that debt. In relation to the Assignment, he disputes that its effect was to transfer the benefit of the costs orders, however his primary submission was that, even if the Agreement had that effect, it did not operate to discharge or even reduce Lamru's indebtedness to Mr Lamb. 25Mr Young of Senior Counsel for Lamru and Mr Lamb (with whom Mr Tam of counsel appears), submit in summary that: (1) There is no reason to dispute the validity of the assignment sought to be created by the Agreement; (2) That the transfer of what is a valuable asset to Mr Lamb operated to discharge Lamru's debt; (3) That the director's, that is Mr Lamb's, assessment of the value of the asset so transferred, which exceeds the amount of the previous indebtedness debt was not seriously challenged; (4) That even if the Court was not satisfied that there was a complete discharge of the debt then it could not conclude or determine any specific amount that was owing and thus could not fix an amount for a judgment debt to be entered; and (5) Otherwise submits that as a matter of discretion, because of the likely small amount of the true debt owing by reason of the assignment, that the Court should not enter judgment. 26I will refer to this further below but I should note that all of Mr Young's submissions operated upon the premise that the Agreement operated to effect an assignment and one way or another discharged or reduced the debt that was owing by Lamru to Mr Lamb. He does not raise any other discretionary matter as a basis for declining to enter judgment in Mr Lewis' favour.

EXISTENCE OF A DEBT 27The power conferred by 124(1)(b) can only be invoked if I am satisfied that the garnishee is "so liable", being a liability to pay a debt sought to be attached by the garnishee order. If I am not satisfied of that, the power in s124(1) simply does not arise. It is not in dispute that such a debt existed as at 30 June 2010, as is reflected in the accounts. The only matter that throws doubt upon the existence of the debt as at 8 July 2011 is the effect of the Agreement. 28In submissions Counsel for Mr Lewis disputed that the effect of the Agreement was to truly assign the benefits of the costs orders that I have referred to. He contended, firstly, that it was merely an assignment of the benefits of a cause of action. Mr Young SC countered that, even if that is so, it causes no difficulty provided that the assignee, in this case Mr Lamb, had a genuine commercial interest in that assignment. He submitted there could be no suggestion of any maintenance or champerty. 29I think Mr Young SC is clearly correct on this point. Whatever be the position there is simply no doubt that Mr Lamb, as the director of Lamru, had what could only be described as a genuine commercial interest in the subject matter of the assignment. 30It was also contended by counsel for Mr Lewis that the assignment of the benefit of the costs orders was in substance an assignment of future property, which could only be supported by consideration or contained within a deed. The Agreement is clearly not a deed. Mr Young SC countered by firstly contending that the assignment of the benefit of an existing costs order is not an assignment of future property but an assignment of an existing and valuable commercial right. I agree. At least from the time of the making of a costs order there is a valuable, subsisting right in a litigant which is capable of assignment. 31It may be that the quantification and enforcement mechanism of a costs order must await various future contingencies, notably, the assessment procedure now provided for in the Legal Profession Act 2004. However simply because the statutory mechanism for the enforcement and quantification of the right has not been invoked does not mean that it is future property. It may be that if events transpire and Mr Lamb seeks to enforce the benefit of these costs orders he may have to enlist the aid of Lamru to do so by, for example, requiring it to file the application for an assessment. However, none of this means that it is not existing property. 32Mr Young SC also submitted that even if the benefit of the costs orders constituted future property the assignment could be supported as an assignment in equity. Such an assignment would require valuable consideration. 33The question of whether there was valuable consideration is the next point to which I will come to, namely, whether the effect of the assignment operated to discharge or reduce the debt. Suffice at this point to conclude that I do not see any basis to doubt the effect of the assignment created by the Agreement. 34The Agreement does not expressly provide for a discharge of the indebtedness of Lamru to Mr Lamb in exchange for the benefit of the 2006 costs orders. The vesting that is effected by Clause 1 is subject to the terms of the trust created by paragraph 2, which appears to be some form of Quistclose trust : Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; [1968] 3 All ER 651. However as I read the Agreement the vesting can only be seen as being undertaken completely for the benefit of Mr Lamb. He is required to, firstly, use the proceeds of the costs orders to discharge his indebtedness under the New Zealand judgment debt. Further, it seems to me, that if there was any surplus after the satisfaction of the New Zealand judgment debt then the operation of Clause 1 is such that he would receive the benefit of the residual. 35In those circumstances what benefit in a commercial sense was there to Lamru in entering into this agreement? It has given up valuable commercial rights. It is true that the primary purpose is stated as being to create mutuality, however this mutuality could not exist unless Lamru had passed over its entitlement to the benefit of the costs orders to Mr Lamb. It is also true it gave up its benefits with the apparent consent of its directors and share holders and, apparently, some of its creditors. However, it is not, in my view, to be lightly inferred that Lamru engaged in an act of charity in favour of Mr Lamb by giving up valuable commercial rights for nothing. If, at some stage in the future, an external controller was to be appointed to Lamru then I would expect that they would take the view that Lamru did not pass over a gift to Mr Lamb, but, instead, it got something in return. That is certainly my view. I consider that it was and is entitled to have its indebtedness to Mr Lamb credited by the value of the rights it gave up. 36In ML Ubase Holdings Co Ltd v Trigem Computer In c [2007] NSWSC 859; (2007) 69 NSWLR 577 , Brereton J had to consider, amongst other matters, whether there was an indebtedness between two related companies, Trigem Australia and Trigem Incorporated, in the context of considering an application by a third party to garnishee a debt said to be owed from the former to the latter. 37The group accounts indicated a substantial net indebtedness owing from Trigem Australia to Trigem Incorporated (at [10]) however both companies were parties to a forbearance agreement with Hewlard Packard, which settled disputes between the Trigem group and Hewlard Packard over the state of the group's indebtedness to Hewlard Packard. Trigem had previously distributed Hewlard Packard's products. 38Neither the forbearance agreement nor, apparently, any other agreement expressly considered the effect of the rearrangements of rights under the forbearance agreement on the debt position as between Trigem Australia and Trigem Incorporated. Brereton J characterised the effect of the forbearance agreement on the position as between Trigem Australia and Trigem Incorporated as follows at [17]: In effect, Trigem Australia had authorised and directed Hewlett-Packard to pay to Trigem Inc the debt owed to Trigem Australia by Hewlett-Packard. Thus, an asset of Trigem Australia was transferred to Trigem Inc. Prior to that transfer, Trigem Australia was indebted to Trigem Inc for at least $4,892,883; perhaps as much as $8,652,205. However, the asset transferred was in the order of US$14 million, substantially exceeding the pre-existing debt. The result was that, on 15 March 2005 when the forbearance agreement was executed and the payments pursuant to it made, from being a net debtor to Trigem Inc, Trigem Australia became a net creditor of Trigem Inc. The position is no different from that which would have pertained had Hewlett-Packard paid Trigem Australia the HP Australia payable of US$14 million, and Trigem Australia then paid what it received from Hewlett-Packard to Trigem Inc in reduction of its indebtedness. 39Then at [18] his Honour analysed the position as follows: Unless Trigem Australia intended to make a gift to Trigem Inc (which is not lightly to be inferred in circumstances where loan accounts were maintained between the companies), Trigem Australia was entitled to be credited with the amount of the debt that had formerly been payable to it but which, in effect, it directed be paid to Trigem Inc. That entitlement did not require any subsequent determination by the Trigem group. 40I see the position here as analogous to that as analysed by Brereton J in ML Ubase . Unless the assignment could be seen as an act of charitable gift by Lamru in favour of Mr Lamb, something I would not infer, then it seems to me that Lamru was entitled to be credited with the amount of the rights it has foregone in reduction of the debts owing to Mr Lamb. 41In ML Ubase the value of the asset given up was readily quantifiable, namely, the amount owing in the loan accounts which recorded what was owing to Trigem Australia from Hewlard Packard. 42This matter is not as easy as it concerns amounts owing under costs orders that have not been assessed and are not even the subject of any application for assessment. As I have noted, Mr Lamb sought to quantify the value of those rights in his accounts in the amount of $659,550. 43Mr Young SC submits that there is no reason to doubt the genuineness of that assessment and points to the fact that no attempt was made by Lewis to produce a different quantification. Mr Ilkovski for Mr Lewis points to the time at which they were prepared and submits that they were prepared after the service of the garnishee order. He contended that this is reason to doubt the amount placed on assessment. 44I have referred earlier to Order 11 made by Hamilton J on 23 May 2006 and the length of the trial as recorded by his Honour. The 2006 costs liabilities as referred to in the Agreement invoke both that order as well as a number of other costs orders made in other proceedings in favour of Lamru against Mr Lewis. However, just dealing with Order 11 made by Hamilton J, to my mind it confirms, at the very least, the strong likelihood that the amount of costs that would be assessed would be very significant indeed. I do not profess to have any particular expertise in quantification but I think I can safely say that 70 per cent of the costs of a trial occupying in excess of 100 days must be a very large amount. The only doubt one might have about that conclusion is if there were some reason to believe the lawyers acted on a pro bono or some form of speculative basis, but nothing to that effect has been suggested. 45While I am not prepared to put a specific figure on the value of rights transferred I do accept that they are either very close to the amount of Lamru's former indebtedness ($613,023.00) or potentially exceed it. I am satisfied that there is a strong likelihood that the value of the rights that were transferred by Lamru to Mr Lamb were at least that amount. 46It follows from this finding that I am not satisfied that Mr Lewis has demonstrated the existence of a debt owing from Lamru to Mr Lamb as at the date of service of the garnishee notice. Ultimately Mr Lewis bore the onus of proof on that issue and I consider that he has failed to discharge it. This is fatal to the motion.

OTHER MATTERS 47For the sake of completeness I should note that if I had not concluded that the Agreement operated to discharge or, perhaps more accurately, reduce the indebtedness of Lamru to Mr Lamb then it seems to me that Mr Lewis would have been successful on the motion. There was no suggestion that any other transaction effected a repayment, and all of Mr Young SC's arguments seem to me to rest upon a premise that the effect of the Agreement was as I have accepted it to be.

Orders 48The orders of the Court are as follows: (1)Notice of Motion filed 17 August 2011 is dismissed. (2)The judgment debtor Peter Lawrence Lewis pay the costs of the garnishee, Lamru Pty Ltd, and the judgment debtor, Russell William Lamb, of the motion filed 17 August 2011.

Amendments 02 April 2012 - Parties for the solicitors incorrectly described Amended paragraphs: Coversheet, Representation 02 April 2012 - Name of Act incorrectly described. "Civil Liability Act 2002" amended to read as "Civil Procedure Act 2005" Amended paragraphs: 4 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 June 2012

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