Williamson (Trustee) v Rumsley, in the matter of Clifford

Equitable set-off 14 First, the applicants submit that an equitable set-off arose as between Clifford and Vegas from 24 August 2010 when the Proceedings' costs were awarded and the two asserted unliquidated mutual debts came into existence. Accordingly, they submit that it is open to the Court to find that the cross-claim costs order was extinguished as a result of a set-off against the Proceedings' costs order, resulting in the Assignment being of no effect as there was nothing to assign to Rumsley. 15 I reject this submission. There is no equity of set-off that can attach to a costs order. Derham, in his text - Derham on the Law of Set-off (4th ed, Oxford University Press, 2010) - stated the position in this way at [2.103]-[2.104]: In the first place, equitable set-off is a defence to an action to enforce payment of a debt or other monetary obligation, the defence operating in equity as a complete or partial defeasance of the plaintiff's claim. A set-off of judgments and orders, on the other hand, is not a defence in that sense. … The true basis of the set-off is the court's inherent jurisdiction. Its purpose is to prevent absurdity or injustice, and to do that which is fair. (Footnotes omitted). 16 Further, White J in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2006) 230 ALR 184 stated at [68]: [S]et-off of judgments for costs in different actions and in different courts has long been allowed, as has the set-off of judgments for costs against judgments for debt or damages. Such set-offs do not depend upon the statutes of set-off, or the general equitable jurisdiction, but on the control a court exercises over its own proceedings.

Court's inherent jurisdiction to set-off 17 The applicants alternatively rely upon the Court's inherent jurisdiction to set-off the cross-claim costs order as against the Proceedings' costs and it is on this basis that they submit, it seems, that this Court ought set-off against Vegas' proof of debt the value of the cross-claim costs order. The applicants have no standing to seek such an order from the Court. 18 The benefit of the cross-claims costs order was assigned to Rumsley. The applicants have no interest - legal, equitable or otherwise - in the cross-claim costs order. 19 Clifford could have applied to the Court for an order for set-off prior to assigning the benefit of the cross-claim costs order but he did not do so. Accordingly, I reject the applicants' submissions.

Section 20 of the PLA 20 The applicants also rely upon s 20 of the PLA, which provides that an assignment is taken "subject to equities having priority over the right of the assignee". Accordingly, they submit that Rumsley, as assignee, took the Assignment, assuming it to be valid, subject to any equitable set-off arising in respect to the two costs orders. For reasons which I have explained no such equity arose. 21 The application for declaratory relief is, in my opinion, misconceived. Assuming, for present purposes, that the Assignment is valid and enforceable, the applicants have no further interest in the cross-claim costs order which is the subject matter of the Assignment. Those rights at law have been transferred to Rumsley under the statutory assignment effected by Clifford. 22 Any title which a trustee enjoys is only as good as that which the bankrupt would have enjoyed if their estate had not been sequestrated: Official Trustee in Bankruptcy v Turner (1999) 94 FCR 512 at [15]-[16]; Corke v Corke (1994) 48 FCR 359 at 365 citing Whyte v Williams (1903) 29 VR 69 at 81. 23 Although the applicants impugn the validity of the Assignment, for the present I must treat it as valid and enforceable. Any entitlement to seek an order to set-off the cross-claim costs order against the Proceedings' costs order lies not with the applicants but with Vegas. Indeed, Rumsley took steps to recover the cross-claim costs from Vegas in the course of which, in correspondence, Vegas asserted an entitlement to set-off of these costs against the Proceedings' costs order in its favour. This more correctly is an entitlement to apply to the Court for an order setting off those costs. No issue of equitable set-off arises or could arise as between Vegas and the applicants in respect to Vegas' proof of debt. At present it has sought to prove for the full amount of the Proceedings' costs in Clifford's bankruptcy. Nor could any set-off arise pursuant to s 86 of the Bankruptcy Act. 24 The applicants have no entitlement to set off against Vegas' proof of debt the amount of the cross-claim costs order on either basis. 25 The decision of Hall v Moloney (2013) 264 FLR 299 relied upon the by the applicants does not assist them. It concerned the equivalent New South Wales provision to s 20 of the PLA - the Conveyancing Act 1919 (NSW) s 12. As the headnote to that case explains: The applicants failed to pay the respondents a debt owed by the applicants, which had been assigned to the respondent by Mr and Mrs Coppola. The respondent issued and served a bankrupt notice on the three applicants. The assigned debt had arisen by a costs order against the applicants in favour of the Coppolas from legal proceedings in which those parties had been engaged. As a result of separate legal proceedings, the applicants had a judgment debt enforceable against Mrs Coppola (but not against Mr Coppola). The judgment debt against Mrs Coppola exceeded the amount owing to Mr and Mrs Coppola under the costs order. 26 The applicants there succeeded in setting aside the bankruptcy notice on the grounds that they were entitled to a set-off against the amount claimed by Moloney, as assignee, the amount owed to them by Mrs Coppola, one of the assignors of the judgment debt. The judgment does not determine the nature of the set-off although it refers to both equitable set-off and set-off as to costs in the course of the reasons. I would be inclined to doubt for reasons I have given that any set-off (as opposed to a right to seek orders setting off the two sets of costs orders) existed when the application was before his Honour. 27 These were however cross-demands in existence which would have led to the same outcome. 28 However that is not this case. Here, there is neither an existing order for set-off nor is there a basis for any set-off under the provisions of s 86 of the Bankruptcy Act. There are no 'mutual debts'. The cross-claim costs are not owed to the applicants as trustees of Clifford's bankrupt estate. They are owed to Rumsley. 29 Of course, if the applicants in this proceeding are successful in due course in obtaining a declaration of invalidity in respect of the Assignment under the provisions of s 120 of the Bankruptcy Act then the legal landscape would alter dramatically. In that event, the applicants would be entitled to set-off, at law, the taxed amount of the cross-claim costs as against Vegas' proof of debt presently submitted based, as it is, on the taxed amount of the Proceedings' costs order. 30 The claim for declaratory relief will be refused. I will hear the interested parties on the question of costs. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.