Statue Pty Ltd v Hayson

Judgment 1These proceedings commenced by the filing of a statement of claim on 3 March 2014. The principal claim made against the First Defendant was a claim for debt in the sum of $920,000. In addition, interest was claimed. There were subsidiary claims against the First Defendant and the Second Defendant (which was a company controlled by the First Defendant) in respect of cheques given by those Defendants to the Plaintiff and not met on presentation. A defence was filed by the First Defendant on 9 April 2014. No defence was filed by the Second Defendant and default judgment was given against the Second Defendant on 9 April 2014. 2On 8 August 2014, the First Defendant entered into a Personal Insolvency Agreement pursuant to Pt 10 of the Bankruptcy Act 1966 (Cth) appointing Michael Gregory Jones as his trustee. The result of the entry into that Agreement was that the present proceedings were stayed pursuant to s 229 of the Bankruptcy Act. 3Section 229(2) relevantly provides: (2) If a personal insolvency agreement has become binding on the creditors of the debtor, it is not competent for a creditor, so long as the agreement remains valid: (a) to present a creditor's petition against the debtor, or to proceed with such a petition presented before the agreement became so binding, in respect of a provable debt; or (b) to enforce any remedy against the person or property of the debtor in respect of a provable debt; or (c) to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. 4The Plaintiff now seeks an order for costs of the proceedings. 5What effectively amounted to a preliminary point was argued arising out of the provisions of s 229. Section 229(2)(c) prevents a creditor from taking any fresh step in such a proceeding. The First Defendant argues that seeking an order for costs is taking a fresh step in those proceedings. 6In Foots v Southern Cross Mine Management Pty Limited [2007] HCA 56, (2007) 234 CLR 52, a similar consideration arose. In that case, a company sued its former Chief Executive. Judgment was given against the Defendant and he was ordered to pay damages. Shortly after the orders were made, the Defendant became bankrupt on his own petition. Subsequently, he was ordered to pay the costs of the proceedings. The issue that eventually made it to the High Court was whether the costs order was a debt provable in the bankruptcy. If it was, he was not entitled to that order because of the provisions of s 58(3)(b) of the Bankruptcy Act which contained an identical prohibition to that contained in s 229(2)(c). 7The joint judgment of Gleeson CJ and Gummow, Hayne and Crennan JJ said at [67]: Had the costs order made by Chesterman J on 3 February 2006 been made and taxed before the appellant's bankruptcy ensued, it would have been a provable debt. Even if the order had not been taxed before bankruptcy, it would nonetheless have been provable as a debt incurred "by reason of an obligation incurred before the date of the bankruptcy"; namely the antecedent making of the costs order. However, the order was made only after bankruptcy had already intervened, and the appellant's liability to meet that order did not arise from an obligation incurred before bankruptcy. Thus, it was not a provable debt, and the stay contained in s 58(3) of the Bankruptcy Act was not engaged. His Honour was therefore entitled to make the costs order against Mr Foots. 8Prima facie, the position ought to be the same in the present case. The Defendant argues, however, that the moratorium contained in clause 10 of the Personal Insolvency Agreement is wider than the prohibition contained in s 229(2)(c). Clause 10.1 relevantly provides: During the continuance of this Personal Insolvency Agreement no creditor will: ... 10.1.3. Take any further step whatsoever in any proceedings pending against or in relation to the debtor in respect of a debt. (emphasis added) 9The distinction that is made is that s 229(2(c) makes reference to a provable debt whereas Clause 10.1.3 makes reference to a debt. It does not seem to me that the distinction, if there is one, applies in the present case. 10At the present time there has been no order for costs. If an order for costs is made, whilst it will become a debt, it will not be a debt that is able to be proved in the arrangement that that is brought about by the Personal Insolvency Agreement. Under normal principles of bankruptcy, it would be a debt that would be provable against the debtor in any subsequent bankruptcy. I could not possibly construe that clause 10.1.3 to be taken as altering general principles of bankruptcy so that any debt incurred subsequent to the entry into the Personal Insolvency Agreement could be a debt that that agreement addresses in its moratorium provisions. 11It seems to me that what is said in Foots applies equally in the present case. The Plaintiff is not prevented by s 229(2)(c) or by Clause 10.1 of the Personal Insolvency Agreement from making and pursuing the application for costs. 12The Plaintiff says that it is entitled to costs because the stay effected by s 229(2)(c) is a permanent stay, that it has effectively brought the present proceedings to an end and because the evidence clearly demonstrates that the First Defendant has admitted either the debt claimed or some debt. 13Section 98(3) of the Civil Procedure Act 2005 (NSW) provides that an order as to costs may be made by the Court at any stage of the proceedings or after the conclusion of the proceedings. In circumstances where the entry into the Personal Insolvency Agreement has brought about a stay, which may well be a permanent stay on the proceedings, it is not an inappropriate time to determine costs now notwithstanding that the proceedings have not concluded. 14The stay that is effected by s 229(2)(c) prevents this Court giving any judgment for the debt. I do not consider, however, that it prevents this Court concluding on evidence appropriately tendered that the debt was, on the balance of probabilities owing to the Plaintiff. In that regard, the Plaintiff points to a number of matters which it says supports the strong inference that the debt was at all material times owing and that the First Defendant admits that the debt was owing. 15First, on 12 July 2012, at 4.19 pm, the Defendant forwarded an email to the director of the Plaintiff saying this: I will forward you a letter of offer later once i see the accountant tonight and this is just to verify that as of today 12th of july, that i owe you 600,000 and that is six hundred thousand dollars. I will get approx One million dollars sent on 19.07.2012 from Magic Millions to rectify this issue. (sic) 16Secondly, on 8 June 2014, the First Defendant sent an email to the director of the Plaintiff saying: Just for the record i am selling work within the next few weeks and you will be getting paid, and you just have to be patient, and i am not asking you to stop your legal action as i don't care about that, and i willing paying all my bills to everybody... (sic) 17Thirdly, the First Defendant completed his Statement of Affairs on 8 August 2014. Part D of that Statement is concerned with Liabilities, and it requires the debtor to identify all unsecured creditors and their debts. Schedule 1 to Part D sets out the creditors and the amounts of the debt identified by the debtor. One of those refers to the present Plaintiff as the creditor. The nature of the debt is said to be a loan. The year or years that the debt was incurred is said to be "13-14" and the amount of the debt is said to be $1 million. 18Fourthly, the Defence filed by the First Defendant on 9 April answers the first paragraph of the Statement of Claim, which asserts that the Plaintiff is a corporation duly entitled to sue, by saying that the First Defendant is unable to plead to the paragraph as he does not know the truth of the matter pleaded. In answer to the remainder of the paragraphs in the Statement of Claim the First Defendant does not admit the allegations in those paragraphs. Further, the First Defendant says that he does not admit that the Plaintiff is entitled to any relief claimed, or at all, and therefore denies that he is liable to the Plaintiff. The affidavit in the usual form was sworn by the First Defendant on 9 April. 19The defence is bad for contravening the prohibition in r 14.20 UCPR that the general issue should not be pleaded. However, the effect of the defence is not a denial of any debt owing to the Plaintiff but is simply to put the Plaintiff to proof of the debt. 20The matter came before the Registrar on 11 June 2014. On that day directions were made, not by the consent of the Plaintiff, in relation to the service by the parties of affidavits. The Plaintiff was directed to serve its affidavits by 18 June and the First Defendant, who was then the only remaining Defendant, was directed to serve his affidavits by 23 July 2014. I am informed from the bar table that the reason the directions were not agreed to was by reason of the form of the defence, that is, that the First Defendant was not denying the debt, but simply putting the Plaintiff to proof. In these circumstances, it was said that there was no evidence for the First Defendant to file. 21The First Defendant did not file evidence as directed by the Court, and the matter came again before the Registrar on 25 July. An extension of time was given to the First Defendant by consent because, I was informed from the bar table and without contradiction, that the solicitor for the Defendant had been ill and it had not been possible for the evidence to be filed. The direction was that the First Defendant was to serve affidavits by 8 August 2014. That did not happen and, as I have said, on 8 August the Personal Insolvency Agreement was executed. 22The Plaintiff relies on the form of Defence and the failure on the First Defendant's part to serve any evidence as support for the inference that the debt was owed. 23The First Defendant submits that the context of the execution of the Statement of Affairs needs to be understood before any inference is available to be drawn concerning admissions of the debt. The First Defendant points to Part A of the Statement of Affairs, which asks in section 7: "Are you involved in any legal processes or disputes?" The First Defendant indicated that he was and he listed the present proceedings in the schedule that is provided. The First Defendant says that the inclusion of the debt of $1 million in part D of the Statement needs to be seen in that context, and it should not be taken that the First Defendant was thereby admitting that the debt was owing at that time. 24In relation to the emails, the First Defendant argues that they ought to be seen as attempts at settlement of the matter and in that sense they ought to be privileged and not taken into account for the drawing of inferences. I note that objection was not taken to these emails when the affidavits annexing them were read. 25It does not seems to me that the provision of the information about the legal proceedings in the Statement of Affairs throws any light on what is contained in Part D of that document. The debt to the Plaintiff is listed with no qualification. I note that some other debts are followed by an asterisk with an explanation below. That explanation in those instances concerns whether or not interest is included in the debt. However, no similar qualification is made to the inclusion of the debt to the Plaintiff, whether by way of assertion that it is only a contingent debt (a matter stressed by the solicitor for the First Defendant in section 40 of Part D), nor a qualification by reason of the fact that it was included only because it was the subject matter of legal proceedings earlier identified. 26As far as the emails are concerned, there is nothing to indicate that they formed part of any settlement arrangements. The email of 12 July 2012 was sent at a time long before the proceedings had commenced and simply informs the Plaintiff that money is about to be forthcoming to pay the debt, the amount of which is acknowledged in the email. The email of 8 June, certainly sent during the pendency of the proceedings, contains no indication on its face that suggests that it is part of an attempt to negotiate a settlement of the dispute as referred to in s 131 of the Evidence Act 1995 (NSW). The email simply acknowledges a debt in the legal action that has been brought by the Plaintiff and a debt that the First Defendant intends to pay. 27In any event, s 131(1) does not apply to a communication or document relevant to determining liability for costs: s 131(2)(h). The email is clearly relevant to such a determination which is what is here being undertaken. 28I note further that a similar Schedule to that which is contained in the Statement of Affairs is annexed to the Personal Insolvency Agreement. That Schedule also includes the debt of 1 million dollars owing to the Plaintiff in the matter. Its inclusion here is a strong indication that in the Statement of Affairs it is not to be read in the context of the legal proceedings identified in Part A of the Statement. This Schedule in the Personal Insolvency Agreement is also available for the drawing of inferences about whether or not the debt is admitted by the First Defendant. 29It is not necessary for the purposes of the present costs application for me to find that any specific amount of a debt is owing. It is enough to find that the Plaintiff is likely on the balance of probabilities to have succeeded in the proceedings. The overwhelming inference that I draw from the Statement of Affairs, the Personal Insolvency Agreement and the emails before me leads me to the view that the Plaintiff would on the balance of probabilities have succeeded in showing there was a debt. The form of the Defence and the failure on the First Defendant's part to explain why no evidence was filed disputing the debt strengthens me in that conclusion. 30The First Defendant draws attention to r 42.34 UCPR which provides for a prima facie position that costs will not be ordered in proceedings in this Court where the judgment obtained is less than $500,000. I am entirely satisfied that the debt which has been acknowledged by the First Defendant is in excess of $500,000. 31The First Defendant asserts that the Plaintiff voted in favour of the Personal Insolvency Agreement and suggests that this amounts to some form of election or estoppel which prevented the Plaintiff from now seeking costs in these proceedings. There is no direct evidence to support that assertion. However, the First Defendant points to a comparison of Schedules 1 and 2 in the Personal Insolvency Agreement to suggest that Schedule 1 equates with the creditors that voted in favour of the Personal Insolvency Agreement. I do not think that that inference should be drawn. Schedule 2 simply lists creditors who are said to be related to the debtor and who do not intend, under clause 7.1, to participate in the distribution to be made from any realisation fund. 32However, assuming against the Plaintiff that it voted in favour of the Personal Insolvency Agreement, it does not seem to me that that amounts to any form of election or estoppel that prevents it now seeking the costs of proceedings which had already been commenced and which were continuing at the time that the First Defendant, without any warning, entered into the Personal Insolvency Agreement. There may have been sound commercial reasons for the Plaintiff to have voted in favour of that Agreement, but, looking at the creditors listed in Schedule 1 and their debts, it seems to me that the Plaintiff would still have been bound by the ultimate result. It does not provide any basis for the Plaintiff seeking its costs in the proceedings. 33The Plaintiff asks for costs on an indemnity basis. It points to the way the proceedings were conducted in light of the admissions made. It is true that the Defendant did not provide a substantive defence to the proceedings and simply put the Plaintiff to proof. Given that no application was made to strike out the Defence, that Defence entitled the First Defendant to put the Plaintiff to proof in that way. This does not seem to me to be an exceptional enough case to justify an order for costs on an indemnity basis. 34The order that I make is that the First Defendant is to pay the Plaintiff's costs of the proceedings to date on the ordinary basis..