179 CLR 297
Mannigel v Hewlett Phelps [1991] NSWCA 186
Re Gillies
Ex parte Official Trustee in Bankruptcy v Gillies [1993] FCA 289
42 FCR 571
Re Sharpe
Ex parte Donnelly [1998] FCA 6
Source
Original judgment source is linked above.
Catchwords
179 CLR 297
Mannigel v Hewlett Phelps [1991] NSWCA 186
Re GilliesEx parte Official Trustee in Bankruptcy v Gillies [1993] FCA 28942 FCR 571
Re SharpeEx parte Donnelly [1998] FCA 6(1998) 80 FCR 536
Barwick v Goodridge [2011] NSWSC 1233
Geia v Palm Island Aboriginal Council [1999] QCA 389[2001] 1 Qd R 245
Re EvansEx parte Sweeney v Evans (1995) 61 FCR 556
Lockwood v Vince [2007] FCA 1946166 FCR 305
Anthanasopoulos v Moseley [2001] NSWCA 266
Judgment (1 paragraphs)
[1]
JUDGMENT
This is an application made on behalf of Zurich Australian Insurance Ltd ("Zurich") seeking to set aside a default judgment entered against it by the Registrar on 26 November 2012. The notice of motion relies on the power of the Court to set aside a default judgment or a judgment given in the absence of a party under r 36.16(2) of the Uniform Civil Procedure Rules 2005 (NSW) ("the Rules") or, alternatively, r 36.15 which permits a Court to set aside a judgment that is entered "...irregularly, illegally or against good faith".
Zurich Australian Insurance Ltd v Ross Goodridge [2014] NSWLC 20 | Case summary | Zoe
The factual background is largely uncontested. Mr Goodridge, a barrister, was involved in a motor vehicle collision in 2011. He was not at fault and entered into communications with Zurich, the insurer for the at-fault driver, to settle his claim.
On 28 July 2011 Mr Goodridge submitted to Zurich two tax invoices seeking reimbursement of costs in the sum of $984.97 incurred in hiring a replacement vehicle while his vehicle was being repaired. On 31 August 2011 Zurich drew a cheque in favour of Mr Goodridge for the sum of $984.97 and forwarded it to him.
On 29 July 2011 Mr Goodridge was declared bankrupt. Zurich was unaware of the bankruptcy until it received communication from Ms Hill of Willis Group. On 30 September 2011 Zurich received a request from Ms Hill of Willis Group requesting the cheque drawn in favour of Mr Goodridge be cancelled and redirected to Willis Group on behalf of the trustee in bankruptcy. Zurich complied with this request.
When Mr Goodridge subsequently presented the cheque to his financial institution the cheque was dishonoured.
Mr Goodridge commenced these proceedings against Zurich on 18 June 2012 relying on the provisions of the Cheques Act 1986 (Cth) as the basis of a cause of action.
The statement of claim was served by post directed to the Proper Officer of Zurich at 5 Blue Street, North Sydney, on 18 June 2012. No response was made by Zurich and Mr Goodridge obtained a default judgment on 26 November 2012.
On 30 July 2014 Mr Goodridge was discharged from bankruptcy. On 20 August 2014 he applied for a garnishee order against Zurich. Zurich became aware of the garnishee order and then filed the motion now before the Court.
Although the applicant relies on the power to set aside a judgment under both rr 36.15 and 36.16 of the Rules, the submissions before the Court largely focused on matters relevant to r 36.16. The essence of the applicant's claim for relief is that the statement of claim did not come to the attention of the appropriate officers within Zurich and that Zurich has a complete defence to the claim on the basis that Mr Goodridge does not have standing to bring this claim.
In Dimitrovski v Australian Executor Trustees Ltd [2013] NSWSC 337 at [3], Pembroke J said:
"The language of r 36.15 [of the Rules] focuses on the steps pursuant to which the judgment or orders was 'given' or 'entered' or 'made'. It does not direct attention to the underlying merits of the position of the party against whom the decision was made. The rule is concerned with irregularity in the process by which the judgment was obtained, not with the correctness of the decision. It is certainly not concerned with whether there was an available defence that might have been relied upon at the time the judgment was given or the order was made. See Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) [2009] NSWCA 387 at [16]; Avery v Saree Holdings Ltd [2012] NSWSC 463 at [100] and [103]."
There being no irregularity or misconduct raised, the Court is satisfied that r 36.15 of the Rules has no operation in the present case.
Rule 36.16(2) of the Rules relevantly provides:
36.16 Further power to set aside or vary judgment or order
...
(2) The court may set aside or vary a judgment or order after it has been entered if:
(a) it is a default judgment (other than a default judgment given in open court), or
(b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order"
...
The decision to set aside a default judgment is dependent upon the Court being satisfied that it is in the interests of justice to do so: Adams v Kennick Trading (Intl) Ltd (1986) 4 NSWLR 503 (Hope JA) at 506 - 50.
It is also necessary for the Court to have regard to case management provisions contained in Pt 6 of the Civil Procedure Act 2005 (NSW) and, in particular, the objective of achieving the just, quick and cheap resolution of the issues in dispute and the dictates of justice under s 58.
In Dai v Zhu [2013] NSWCA 412, Sackville AJA observed at [89] that the authorities consistently have regard to the question whether there is a prima facie defence on the merits. This will often inform the Court on the first of two matters that the Court will consider: (a) whether any useful purpose would be served by setting aside the judgment, and (b) how it came about that the applicant found himself bound by a judgement regularly obtained.
In relation to the failure on the part of Zurich to respond to the original claim the Technical Motor Claims Manager has provided evidence that there is no record on file of the statement of claim being received by Zurich. Evidence is given that Zurich's motor vehicle department is located at 100 Pacific Highway, North Sydney, and that Zurich did not receive notice of the claim until a copy of the garnishee order was received by Zurich's finance team.
While I accept that the statement of claim was sent to Zurich by prepaid post as allowed by the Rules, it is also not difficult to conceive that, within a large corporation, documents may not end up in the hands of those with the authority and responsibility of responding. It is unlikely that a responsible person within Zurich elected to disregard a statement of claim. Rather it is likely that the failure to respond was due to miscommunication, misplacement or inadvertence. Zurich should not be penalised for its failure to respond, particularly in circumstances where the cause of that failure cannot be positively determined.
The second issue which the Court must consider is the question of an arguable defence. The fundamental issue is the question of whether Mr Goodridge has standing to bring these proceedings.
The arguments on standing were fully ventilated in the course of submissions on the motion. The submissions give the Court the opportunity to determine the issue conclusively. Given that the claim itself is only $984.97 it is consistent with the overriding objective of the Court that the issue be determined conclusively and to bring finality to the proceedings.
The question regarding Mr Goodridge's standing to bring these proceedings depends on whether the chose in action in these proceedings constitutes property that vests in the trustee in bankruptcy.
For the reasons that follow I am satisfied that the chose in action in these proceedings does vest in the trustee in bankruptcy and that Mr Goodridge does not have standing.
Section 58 of the Bankruptcy Act 1966 (Cth) relevantly provides:
"58 Vesting of property upon bankruptcy - general rule
(1) Subject to this Act, where a debtor becomes a bankrupt;
(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee of the estate of the bankrupt, in that registered trustee."
Section 5(1) of the Bankruptcy Act defines "the property of the bankrupt" to be "...the property" which is defined as including "...any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property."
The word "property" ordinarily includes a chose in action: Minister of State for the Army v Dalziel (1944) 68 CLR 261 at 290; Georgiadis v Australian & Overseas Telecommunications Corporation [1994] HCA 6; 179 CLR 297.
An exception exists in s 60(4)(a) of the Bankruptcy Act which provides that a bankrupt may commence and maintain choses in action involving "any personal injury or wrong". In Mannigel v Hewlett Phelps and Ors [1991] NSWCA 186, Handley JA cited with approval at the test formulated by Dixon J in Cox v Journeaux and Ors (No 2) (1935) 52 CLR 713 that, to fall within the ambit of s 60(4)(a), "[t]he test appears to be whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind body or character and without reference to his rights of property." This exception is not relevant to the present claim under the Cheques Act.
Division 4B of Pt VI of the Bankruptcy Act commences with s 139J which provides:
"139J Objects of Division:
(a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and
(b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate."
Section 139L of the Bankruptcy Act provides that "income" has its ordinary meaning subject to certain express inclusions and exclusions. Section 139M(3) provides:
"A reference in this Division to income derived by a bankrupt during a contribution assessment period includes a reference to income so derived in respect of work done or services performed by the bankrupt before that period or work to be done or services to be performed by the bankrupt after that period."
The Bankruptcy Act establishes a distinction between property and after acquired income. Division 4B of Part VI allows a bankrupt to retain after acquired income although the trustee may seek a contribution of a proportion of that income to be distributed to creditors.
Mr Goodridge asserts that the statement of claim is to recover after acquired income in the course of his business as a barrister. He submits that motor vehicle was registered for business purposes and that the cheque was payable in respect of his assessable income. He relies on authorities that establish that after acquired income, and proceeding to recover after acquired income do not vest in the trustee in bankruptcy.
That line of authority commences with the decision in Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies [1993] FCA 289; 42 FCR 571 ("Gillies") where a professional diver sought to make a payment to creditors which he had saved from income received since his bankruptcy. French J concluded that such after acquired income did not vest in the trustee in bankruptcy and was therefore available to be offered as a settlement payment to creditors.
In Re Sharpe; Ex parte Donnelly [1998] FCA 6; (1998) 80 FCR 536, Lockhart J said at 540:
"In my opinion the scheme of Div 4B of the Bankruptcy Act proceeds on the assumption that after acquired income of a bankrupt does not vest in the trustee of the bankrupt's estate. Although the after acquired property to which ss 58 and 116 of the Bankruptcy Act apply are sufficiently widely defined to include income of the bankrupt, Div 4B establishes a comprehensive scheme of dealing with after acquired income of the bankrupt. Where it is inconsistent with sections such as ss 58 and 116, provisions of the division must be taken to apply: see Re Gillies; Ex parte Official Trustee in Bankruptcy v Gillies [1993] FCA 289; (1993) 42 FCR 571 at 577; Re Hawkins; Ex parte Worrell (1996) 71 FCR 371."
Mr Goodridge also relies on an earlier decision in which he was a party. In Barwick v Goodridge [2011] NSWSC 1233, Mr Goodridge sought to recover a judgment arising from costs certificates awarded in costs assessments. Mr Barwick sought to avoid payment on the basis that the right of recovery had vested in the trustee in bankruptcy. Black J referred to the principle in Gillies and held that as the claim was in respect to recovering income the claim remained with Mr Goodridge and the nature of the claim did not change upon entry of judgment.
The right of a bankrupt to recover "income" does not, however, extends to a right to recover all debts.
In Geia v Palm Island Aboriginal Council [1999] QCA 389; [2001] 1 Qd R 245 ("Geia") the Queensland Court of Appeal held that the right of a bankrupt to sue for monies due under a contract of employment, or for breach of that contract, was a chose in action that vested in the trustee in bankruptcy on the basis that the liability was a debt rather than referable to recovery of remuneration for services.
In Re Evans; Ex parte Sweeney v Evans (1995) 61 FCR 556, Spender J held that a right to a refund of income tax had transferred to the trustee in bankruptcy.
It is necessary to consider whether the amount of $984.97 claimed in these proceedings can be characterised as "income" within the meaning of s 139L of the Bankruptcy Act. For the following reasons I am satisfied that the claim cannot be characterised as a claim to recover income and therefore the chose in action vests in the trustee in bankruptcy.
Firstly, the cause of action is brought under the provisions of s 76 of the Cheques Act, which provides:
"76 Measure of damages on dishonour
(1) Subject to subsection (2), where a cheque is dishonoured, the holder may recover as damages from any person liable on the cheque…
(a) if the cheque is dishonoured in Australia;
(i) the sum ordered to be paid by the cheque; and
(ii) the amount of any interest that, in accordance with the regulations, is payable in respect of that sum…
(2) Where an action or proceeding is brought in a court for the recovery of damages under subsection (1), the court may, if it is of the opinion that justice so requires, direct that interest payable under that subsection be withheld in whole or in part.
(3) Damages recoverable under subsection (1) shall be deemed to be liquidated damages."
The claim is a statutory cause of action. It gives the holder of the cheque a status of a creditor in the amount of the cheque against the drawer. While the cheque drawn may be in consideration of an antecedent liability, including a claim for payment of income, it is not a cause of action that seeks to enforce any legal obligation connected to the payment of income. Section 76 of the Cheques Act enforces the promise by the drawer in s 71. It is not a claim that can be characterised as a claim for payment of income. It is a claim for a liquidated debt and the distinction noted by the Court in Geia applies equally in the present case.
Secondly, even if the Court goes behind the statutory cause of action to consider the antecedent liability upon which the cheque was drawn, the Court is not satisfied that the cheque drawn represented payment of income within the meaning of s 139L of the Bankruptcy Act.
In Lockwood v Vince [2007] FCA 1946; 166 FCR 305, Finkelstein J reaffirmed that the meaning of income is to be accorded its ordinary meaning . Finkelstein J stated at [15]:
"A payment will be income if it is received as a reward for the provision of services or for some other revenue producing activity: Scott v Federal Commissioner of Taxation (1966) 117 CLR 514; Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47; Squatting Investment Co Ltd v Federal Commissioner of Taxation (1953) 86 CLR 570. That is, for a payment to be income the payment must be remuneration obtained from personal exertion (eg wages), from carrying on a business (eg profit) or from the use of capital (eg dividends, interest)."
Mr Goodridge states in submissions that "the cheque was payable in respect of my assessable income… The cheque was in the nature of demurrage. Such income is required to be reported as business income as it offsets a business expense."
In order to determine the question of whether a payment is income the Court must objectively consider the context of the payment.
In truth, the claim by Mr Goodridge is a claim for loss of use of a non-income producing chattel rather than demurrage. Mr Goodridge is a barrister and while the motor vehicle was an asset used in business it did not, of itself, generate an income. Loss of use of the motor vehicle is compensable under principles referred to in Anthanasopoulos v Moseley [2001] NSWCA 266; 52 NSWLR 262. The compensable loss is determined by reference to the market rate for the replacement of the motor vehicle rather than by reference to income lost. In this sense, the claim by Mr Goodridge against Zurich was a claim arising from tortious interference with non-income producing property rather than a claim relating to loss of income.
The payment made by Zurich is not related to Mr Goodridge suffering loss of earnings or income. It is not income within the meaning of the Bankruptcy Act.
As a consequence the chose in action in these proceedings vests in the trustee in bankruptcy. It does not revest in the plaintiff after discharge from bankruptcy (see Murdaca v Pizzinga [2013] NSWSC 396 at [56]). The plaintiff does not have standing to bring these proceedings and in those circumstances the default judgment cannot stand.
Ordinarily the Court might make orders staying proceedings to allow the opportunity for the trustee to make an election to either prosecute or discontinue the proceedings. However, given that Zurich has made payment direct to the trustee that course is unnecessary and these proceedings should be brought to a conclusion. The Court grants the applicant's notice of motion. The default judgment is set aside pursuant to r 36.16 of the Rules and the statement of claim is dismissed pursuant to r 14.28 as it has no prospect of success. The Court allows the scale costs in favour of the applicant on the motion of $348 to be paid within 28 days.
Assessor Olischlager
Local Court
10 December 2014
********
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: 18 February 2015