Plaintiff/ Defendant by Counterclaim v Defendant/ Plaintiff by Counterclaim

For the Defendant in S CI 2017 02184 and the Plaintiffs in S CI 2017 03520

For the Plaintiff in S CI 2017 02184 and the Defendants in S CI 2017 03520

1 By notice of objection filed 25 October 2019 in each of proceeding S CI 2017 02184 ('the first proceeding') and S CI 2017 03520 ('the second proceeding'), Jennifer Barham-Floreani ('the applicant' and 'judgment debtor') objects to the refusal on 11 October 2019 of her application for an order for payment of judgment debts by instalments under s 6 of the Judgment Debt Recovery Act 1984 (Vic) ('the Act').

2 On 21 September 2018, Judicial Registrar Matthews ordered, in the first proceeding:

The defendant pay the plaintiff's costs thrown away by reason of the further amended defence and counterclaim, to be taxed forthwith in default of agreement and payable forthwith.

The plaintiff has leave to tax forthwith the costs orders in its favour dated 4 September 2017, 10 April 2018 and 18 May 2018, to be payable forthwith.

3 On 12 October 2018, Judicial Registrar Matthews made self-executing orders in the second proceeding that, in the event of non-compliance with specified orders, 'the proceeding be dismissed and the plaintiffs are to pay the defendants' costs of the proceeding on a standard basis'.

4 On 26 August 2019, the costs the subject of the order of 21 September 2018 in the first proceeding, were taxed and allowed in the sum of $14,045.

5 On 27 August 2019, the costs the subject of the order of 12 October 2018 in the second proceeding, were taxed and allowed in the sum of $43,960.

6 By an Application for Order for Payment of Judgment Debt by Instalments filed in each matter on 16 September 2019, the applicant applied pursuant to s 6 of the Act for instalment orders with respect to the outstanding costs orders as follows:

(a) The sum of $14,045 outstanding with respect to the first proceeding to be repaid by instalments of $600 per month for 24 months and interest paid with the final instalment.

(b) The sum of $43,960 outstanding with respect to the second proceeding to be repaid by instalments of $1,900 per month for 24 months and interest paid with the final instalment.

7 In purported compliance with r 61.02(3)(a)(i) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('the Rules'), the applicant filed in each matter a Judgment Debtor's Statement of Financial Situation.

8 The financial information with respect to the applicant's financial situation in each of the statements was identical and can be summarised as follows:

9 After being advised by the Court that r 61.02(3)(a)(i) required an affidavit of the judgment debtor's financial situation, on 3 October 2019, the applicant filed in each proceeding an affidavit exhibiting the Judgment Debtor's Statement of Financial Situation dated 12 September 2019.

10 On 11 October 2019, Judicial Registrar Matthews dismissed the applicant's application in each proceeding and gave the following reasons:

1. no explanation or calculation has been provided as to how the Judgment Debtor will be making payment of the accrued interest with the final payment, which is likely to be substantial. This is particularly so where the Form 72C suggests after her monthly expenses and the monthly instalments there would be $160 per month available to the Judgment Debtor;
2. a period of at least 2 years before the creditor receives full payment is too lengthy; and

1. no explanation has been given as to whether the Judgment Debtor has the capacity to borrow, either against the existing equity in the Mount Macedon property or otherwise, to pay the Judgment Creditor.

11 By Notices of Objection filed on 25 October 2019 in each proceeding, the applicant required the application to be heard by a court pursuant to s 6(5) of the Act.

12 Pursuant to s 6(6) of the Act, by notices authenticated on 15 November 2019, Judicial Registrar Matthews notified the applicant and the respondent ('judgment creditor') of the time and place of the hearing.

13 By affidavits sworn 25 October 2019, the solicitor for the applicant relevantly deposed as follows in each proceeding:

(a) At the completion of the 24 instalments as proposed, the accrued interest would likely be paid within a further 5 months.

(b) If the Court is not prepared to allow the time for payment to be extended by 5 months, the applicant's husband would undertake to pay the final payment at the time of the 24th payment.

(c) Most of the husband's disposable income is expended in legal costs in these proceedings, which it is anticipated will conclude within the next 2 years.

(d) The applicant does not have capacity to borrow an amount sufficient to satisfy the costs orders for the following reasons:

(i) Her only asset is the property which, although she values it in her financial statement at $2,000,000, the Bank of Queensland has valued it at $1,100,000.

(ii) The Bank of Queensland has a first registered mortgage security over the property with a current outstanding balance of $1,200,000.

(iii) The judgment creditor has lodged a caveat alleging a right to register a second mortgage securing the sum of approximately $2.5 million.

14 By affidavits sworn on 25 November 2019, Mr Steven Vouzas deposed on behalf of the judgment creditor as follows:

(a) On 23 April 2018, the judgment creditor obtained judgment against the applicant and her husband for a total amount of $54,872.40 which was ultimately repaid after the applicant's request for instalment orders was refused and her husband failed to comply with his instalment order.

(b) The applicant failed to disclose the two further facilities in respect of which she is liable to the Bank of Queensland.

(c) Although the applicant's statement records a housing expense of $780 per week, the extent of arrears to the Bank of Queensland suggests these payments have not been paid for over two years.

15 In the affidavits sworn on 25 November 2019, Mr Vouzas also exhibited a letter dated 28 May 2019, in which Gadens, as solicitor for the Bank of Queensland, served the following three default notices under s 76 of the Transfer of Land Act 1958 (Vic):

(a) Notice of default and notice of demand dated 31 January 2019 to the applicant and her husband claiming $1,131,033.03 as at 25 January 2019 (including total arrears of $63,322.53) under the registered first mortgage over the property and the associated loan agreement.

(b) Notice of default and notice of demand dated 31 January 2019 to the applicant as guarantor claiming $184,727.38 pursuant to a guarantee of a Master Asset Finance agreement dated 12 March 2015 secured by the first mortgage over the property.

(c) Notice of default and notice of demand dated 31 January 2019 to the applicant as guarantor of an overdraft facility agreement dated 20 December 2007 secured by the first mortgage over the property for $81,865.10.

16 On behalf of the applicant it was submitted as follows:

1. The material filed by [the applicant] as to her financial situation and claims upon their income are extensive. This material makes it clear that a number of discretionary considerations referred to above fall within her favour. Having regard to the evidence and materials relied upon by [the applicant]:

(a) [The applicant] lacks financial capacity to pay the judgment debts immediately, but has a demonstrated capacity to pay both of the judgment debts and interest in full over the period of the proposed instalment orders.

(b) The instalment orders sought are not futile because [the applicant] has income streams over this period which can be used to meet her obligations under the instalment orders.

(c) If the instalment orders are made by the Court, the judgment debts would not remain outstanding for an unconscionable length of time. Taking into account interest which will accrue on the judgment debt upon the making of the instalment orders, the judgment debts (including interest) would be repaid within 2 and a half years. Having regard to the size of the judgment debts, the time period for the instalment orders is not excessive, and is reasonable in the circumstances. The monthly payments of the instalments make substantial reductions in the principal amount of the debt.

(d) If the orders are refused by the Court, as C Tina seeks, then the inevitable result is that the judgment debts owed to C Tina will be immediately due and payable, and will most likely result in her bankruptcy, and sequestration orders to be made. Bankruptcy notices issued by C Tina against [the applicant] on 20 September 2018 were recently set aside on [the applicant's] application.

(e) [The applicant] has no assets of substance from which she can pay the judgment debts, owing to C Tina's caveat over [the applicant's] property.

(f) Although it is desirable that the judgment debts could be paid more quickly, there is no basis on the evidence for thinking that this would be likely to happen if the orders sought are refused. On the contrary, if the instalment orders are refused, it is likely that the bulk of the judgment debts will not be paid at all.

(g) [The applicant's] husband, Simon Floreani, has offered to undertake to the Court to pay the final instalment of interest in the event that [the applicant] does not do so.

(h) The loss of income which may flow from the refusal of the instalment orders will lead to the inevitable result that [the applicant] may be unable to support her 4 children, and unable to make any significant contribution to the judgment debts. Furthermore, there is a significant public interest in the proper support of dependants by one who is a 'breadwinner'.

(i) The evidence of [the applicant] is that she has teenage aged children presently in school.

17 The review of the decision of the Judicial Registrar is conducted by way of a hearing de novo.[1]

18 Section 6(7) of the Act relevantly provides:

The court may -

(a) where the proper officer has refused to make an order under subsection (3) -

(i) order that the judgment debt or the balance of the judgment debt then owing to the judgment creditor be paid by the instalments and at the times specified in the order; or

(ii) refuse to make such an order; ...

19 The Act does not prescribe any relevant factors to be taken into account and provides 'little guidance ... as to the cases or circumstances in which Parliament considers that it is appropriate for an instalment order to be made'.[2]

20 The purpose of the Act was explained by the minister in the second reading speech of the Bill in 1984. After referring in detail to the unsatisfactory features of the then existing regime under the Imprisonment of Fraudulent Debtors Act 1958, he said:

All that needs to be done in Victoria is to put in place, as the present Bill seeks to, a simple procedure leading to the payment of judgment debts by instalments in appropriate cases. That procedure should be available to both creditor and debtor. It need not be supported by unwarranted inferences of fraud or dishonesty, nor by automatic and quite inappropriate criminal sanctions. The court's power to punish a person for contempt of court as set out in the Bill is an adequate safeguard against anyone who is tempted to disregard the court's order.[3]

21 Accordingly, on an application by a judgment debtor, the Court has a broad discretion to be exercised in determining whether it is an 'appropriate' case for an order; and to fairly balance:

(a) the rights of the creditor to the fruits of its judgment;[4] and

(b) the provision to the judgment debtor of an opportunity to repay the judgment debt on reasonable terms, being the policy underlying the Act.

22 In my opinion, an application by a judgment debtor to pay by instalments will usually be granted unless:

(a) the judgment debtor has the means to pay the debt immediately or in a significantly shorter time than proposed;

(b) it is unlikely that the judgment debtor will be able to comply with the instalment order; or

(c) the proposed instalment plan will not result in the repayment of the debt and interest in a reasonable period of time.[5]

23 In my opinion, if the instalment orders were made, it is quite improbable that the judgment debt would be repaid over the two years (or even the two and a half year period proposed) or at all - for the following reasons:

(a) On the basis of the applicant's financial statement, she would have only approximately $40 per week available for unexpected expenses, after payment of the specified expenses together with the proposed instalments.

(b) No allowance has been made for the costs incurred in continuing litigation of the first proceeding to trial. Assuming for present purposes that 'most of [the husband's] disposable income is expended in legal costs' referable to the first proceeding, there is no evidence that he is committed or capable of funding the continuing litigation.

(c) The applicant concedes a debt of $1.45 million to the Bank of Queensland secured by a first mortgage over the property. The first of these facilities is in arrears in a sum exceeding $90,000, which has increased by $26,993.33 between 25 January 2019 and 17 September 2019. The applicant offered no explanation as to how she would be able to afford additional payments, being instalments of $2,500 per month, in circumstances where she has been substantially in default of her obligations to the Bank of Queensland, while she has been making no such instalments.

(d) The applicant did not disclose that the Bank of Queensland had commenced enforcement proceedings against her under the mortgage and did not explain how she could finance the apparent shortfall between the amount of $1.45 million currently owed to the Bank and the current valuation of the property of $1.1 million.

24 In these circumstances, I propose to dismiss the applicant's application.

25 With respect to the evidence to be considered on the review, r 84.10 of the Rules provides:

On the appeal, each party may, subject to any proper objections to admissibility-

(a) rely upon any affidavit used before the judicial registrar and upon any evidence given orally before the judicial registrar;

(b) by leave of the Court, rely upon an affidavit or oral evidence not used or given before the judicial registrar.

26 On behalf of the applicant, leave was sought to rely upon the affidavit sworn by her solicitor on 25 October 2019.

27 The purpose of r 84.10 is to discourage the practice of not putting forward one's best case on the first application to the proper officer under s 6(1) of the Act; and then seeking to augment it on the review. A similar policy underlay the former r 77.06(7) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic), which provided that an appeal from an Associate Judge to a Judge was a re-hearing de novo subject to the qualification that, except by special leave of the Judge, a party could not rely upon an affidavit or oral evidence not used or given before the Associate Judge.

28 I do not consider that the requirements for leave should be as stringent under r 84.10 as under the former r 77.06(7) - for the following reasons:

(a) Under r 84.10 only leave, not special leave, is required.[6]

(b) The order of the proper officer may be made without notice to the other side.[7] The procedure before the proper officer is consistent with a policy of minimising the costs incurred on the initial uncontested application. In many circumstances, the limited material filed on the initial application will not be adequate for the proper conduct of the review.

(c) The respondent to the application would usually be entitled to file material, which it may not have had the opportunity to do on the initial application, until given notice of the review.

(d) Rule 61.02(3)(a)(i) of the Rules provides that the judgment debtor is to file a statement of financial situation which includes the information required by Form 72C. Except for paragraph 6, which allows provision for particulars for any other circumstances, the form allows for an explanation of only straightforward financial circumstances.

29 Accordingly, in the absence of any contention of prejudice by either party, I considered it in the interests of justice to permit the parties to rely on their affidavits respectively and gave leave to rely upon the affidavits filed by each party.

[1] Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 84.05(4).

[2] Cahill v Howe [1986] VicRp 62; [1986] VR 630, 632 (Young CJ).

[3] Victoria, Parliamentary Debates, Legislative Assembly, 1 May 1984, 4164-6 (Mr Fordham, Minister of Education).

[4] Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1054, [15](iii) (Einstein J).

[5] Hellier Capital Pty Ltd v Albarran [2009] NSWSC 403, [8]-[11] (McDougall J); IceTVPty Ltd v Ross [2011] NSWSC 1211, [7]-[8] (Brereton J).

[6] For a discussion about the distinction between 'leave' and 'special leave' in the context of appeals see Morris v The Queen [1987] HCA 50; (1987) 163 CLR 454, 475 (Dawson J).

[7] Judgment Debt Recovery Act 1984 (Vic) s 6(3).