Cady v Perpetual Trustee Company Limited [2010] FMCA 319 (22 April 2010)

Last Updated: 3 May 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CADY v PERPETUAL TRUSTEE COMPANY LIMITED

[2010] FMCA 319

BANKRUPTCY – Application to set aside a bankruptcy notice – counterclaim, setoff or cross demand does not exceed the amount of the sum of the bankruptcy notice – application for indemnity costs dismissed.

Bankruptcy Act 1966 (Cth)

Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 Glenn v Harrowell (2003) FCA 373

Applicant:

KAY VIVIEN CADY

Respondent:

PERPETUAL TRUSTEE COMPANY LIMITED

File Number:

BRG 252 of 2010

Judgment of:

Burnett FM

Hearing date:

22 April 2010

Date of Last Submission:

22 April 2010

Delivered at:

Brisbane

Delivered on:

22 April 2010

REPRESENTATION

Counsel for the Applicant:

Mr M.J. Campbell

Solicitors for the Applicant:

Stephen Ippolito & Co Solicitors

Solicitors for the Respondent:

ABKJ Lawyers

ORDERS

(1) That the Application filed 24 March 2010 be dismissed.
(2) That the Applicant pay the Respondent’s costs of and incidental to the Application to be taxed on the standard basis.
(3) That in the event of Applicant’s Sequestration, the Respondent’s costs be given the same priority as costs in the Sequestration.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BRG 252 of 2010

KAY VIVIEN CADY

Applicant

And

PERPETUAL TRUSTEE COMPANY LIMITED

Respondent

REASONS FOR JUDGMENT

1. This is an application brought by the applicant debtor to extend time for compliance with the requirements of bankruptcy notice number QN101 of 210, dated and issued on 27 January 2010, and for an order that the notice be set aside. The application first came before me on 1 April, at which time I issued directions with a view to having the matter proceed today for hearing in respect of these issues. At the outset, when the application came before me this morning, an application was made for an adjournment. That application was refused and earlier reasons in respect of the refusal of the application have been provided.
2. The matter was adjourned until 2 pm this afternoon and, on the return of the matter, I was presented with a letter, which I’ve marked exhibit 2. The applicant is not present in court, but her solicitor has returned to his office on the Gold Coast and indicates that the applicant wishes to waive any right of cross-examination of the respondent’s witnesses and waives any rights to make final submissions. It should be said that I apprehend that approach is premised upon the applicant having made full submissions this morning in respect of the adjournment application, and the applicant believes nothing further can be added to those submissions.
3. The application, being one to set aside the bankruptcy notice, is principally premised upon section 40(1)(g) of the Act. In particular, the applicant contends that this notice ought be set aside, as the claim which the applicant wishes to prosecute is a counterclaim, setoff, or cross demand equal to or exceeding the amount of the judgment debt, or sum payable under the final order, and being a counterclaim, setoff, or cross demand that he or she could not have set up in the action or proceeding.
4. The principles to be applied in the context of the application are not in dispute. They are, generally, that: first, the court must be satisfied the applicant has a prima facie case; secondly, that the applicant ought be fairly entitled to litigate the claim; and third, that the applicant is advancing a genuine or bona fide claim, see Glenn v Harrowell (2003) FCA 373.
5. At its least this application essentially revolves around a contention on the part of the applicant that the mortgagee, in exercising its powers of sale, breached its duties pursuant to section 85 of the Property Law Act, and sold the relevant property at an undervalue. The effect of the sale at the undervalue does, in the applicant’s contention, give rise to the counterclaim, setoff, or cross demand that would equal to or exceed the judgment debt or sum payable under the final order. I don’t think it is in contention by the respondent that this claim is one that could not have been set up in the action or proceeding in which the judgment or order was obtained.
6. The bankruptcy notice itself is one which was premised upon a judgment entered by default in the Supreme Court of Queensland in the sum of $609,889.32. That judgment sum pertained to default under a loan agreement between the applicant and the respondent, Perpetual Trustee Company Limited. That loan was secured by First Registered Mortgage over certain real estate located at 4/125 Santa Cruz Boulevard, Clear Island Waters, Queensland. The mortgagee, as it was entitled to do, subsequently purported to exercise its power of sale. That was not before the applicant itself had made efforts to sell the property and, indeed, seemed to have been successful in procuring a prospective purchaser. A contract to that end was entered into on 30 September 2009 between the applicant and a prospective purchaser for a sum of $578,000. Unfortunately, that contract did not proceed to settlement. Accordingly, the mortgagee, in exercise of its power of sale, prepared and presented the property for sale and the property was sold on 22 January 2010.
7. The settlement statement, exhibit 1 in the application, shows that, on the day of settlement, net of all expenses and after allowances for various utility charges, the contract balance due was $525,073.82. After disbursements, that is, with allowance for the deposit and the disbursements, which included payments to Gold Coast City Council, the body corporate, a Mr Scott Ashwood, for a sum of $55, which I apprehend to be for a small service of some form, the balance settlement moneys were paid to Red Zed Lending Solutions Pty Ltd, which had some association with the respondent, Perpetual Trustee Company, in discharge of the mortgage debt. That sum of $518,217.47 was, in turn, further disbursed to the creditor. There was an early termination fee incurred, a valuation fee, legal costs, real estate agents costs, some removalist costs and some conveyancing fees, such that, ultimately, a sum of $482,616.46 was disbursed for application toward the discharge of the respondent’s, Perpetual Trustee’s, final debt owing.
8. When the respondent issued its bankruptcy notice, it noted the judgment sum in the sum of $609,889.32 and, in turn, noted receipt of the sum of $482,616.46, leaving a debt owing of $127,272.86. Putting aside the strict legal methodology, whether that is to allow a counterclaim, setoff or cross demand in respect of the sum of $482,616.46 again the judgment sum, together with the value of the counterclaim in respect of the alleged section 85 conduct or whether it just be simply a case of measuring the value of the prospective quantum of the section 85 claim and comparing that to the total debt presently owing, is probably immaterial. The issue in this case is whether or not the applicant will succeed in establishing that the damages which could be achieved in an action under section 85 of the Property Law Act will equal to or exceed the sum of $127,272.86. Clearly, if it does then, arguably, there is a prima facie case and the applicant would be well-positioned to argue then having regard to the prospects of success, as to whether or not she ought be entitled to litigate that claim. I do not think that, in this case, at least from my reading of the material, there is any question of the applicant’s bona fides in relation to the prosecution of her claim.
9. The evidence relied upon by the applicant, and it’s taken at its very best, is contained in an affidavit of Simon Lou Cady, the applicant’s son. He’s a licensed real estate agent and property consultant, with much experience on the Gold Coast in relation to these matters. He stated, in his affidavit, based on a hearsay basis, that he had been informed by his father that neighbours in the vicinity had secured sale prices in the range of 620,000 to 640,000 for comparable properties. That seemed to be consistent with Mr Cady’s own experience and that would be consistent with the price range that he would be attaching to the property, if he were its marketing agent. That matter appears to have been supported by an appraisal which Mr Cady had.
10. He noted in paragraph 17 of his affidavit that, in about 2009, he was informed by his father that, through his efforts, his father and his mother, that is, the applicant, had signed a contract for the sale of the property to a Ms Urquhart. That appears to be the contract which was entered into in late 2009 for $578,000. He says that, while he didn’t recall the exact price on the face of the contract, he did recall being shown by his father a valuation prepared at that time for Ms Urquhart by the licensed land valuers, Megaw and Hogg, dated 20 July, which assessed the value of the property at $635,000, exclusive of GST. He says that he agrees with that assessment.
11. Two points ought be made first about that assessment. It is not in contention that GST does not apply in the conduct of this transaction, because it the sale of second-hand, residential property; and, secondly, of course, that the date is July 2000, when the relevant contract which was concluded between these two parties was in late September, but no evidence is adduced to suggest that those valuations ought not be regarded as indicative.
12. It follows then and, of course, the explanation for the applicant accepting a significantly lesser sum than the valuation sum of $635,000, was her desire to discharge her indebtedness to the respondent. I note, additionally, that the applicant’s son expresses a view that the property may have a value of up to $640,000. That view is really, in my view, quite tentative and not expressed in a formal way, but, in any event, I will adopt a sum of $640,000 as representing the absolute best case for the applicant.
13. If one adopts that sum of $640,000 and deducts the actual sale price achieved of $525,000, it would mean that, arguably, there has been a sale at an under value of approximately $115,000. That is a very simplistic approach, and one that ignores all the other permutations and combinations, which would serve only to reduce rather than enlarge the scope of the applicant’s claim. When that sum is measured against the sum outstanding of $127,000, it is plain, irrespective of whether the applicant does have a counterclaim, setoff, or cross demand, which could not have been set up in the action or proceeding, that counterclaim, set off, or cross demand is not one that can equal to, or exceed, the amount of the sum in the bankruptcy notice and it follows that, on that ground, the application fails. The application is dismissed.
14. In this action, the respondent seeks costs. There is no reason why the usual order for costs ought not apply, and that is that the costs follow the event, and I will so order. The respondent also seeks costs on an indemnity basis. The grounds for the award of indemnity costs are well understood and are expressed, commonly, in the Federal Court decision of Colgate-Palmolive Company v Cussons Pty Ltd[1]. In particular, Sheppard J notes that indemnity costs are only really ever awarded in circumstances where some special circumstance can be demonstrated to justify the award of costs. His Honour refers to many illustrations, such as prosecuting hopeless claims, ignoring reasonable offers and so forth. This case does not fall into that category.
15. This is a claim which as I have already indicated, I accept is maintained bona fide by the applicant. However, the evidence which was adduced and which she was given the opportunity to adduce, following the last adjournment, simply does not demonstrate that she can demonstrate sufficient quantum to justify an order for setting aside the bankruptcy notice. It was, as I noted in the course of some argument, close to a line ball case. Given the quantums involved and, in the circumstances, I do not think it appropriate to order indemnity costs. There is no opposition to an order, if the applicant subsequently be subject to a sequestration order, that these costs ought be paid in priority to other costs and be afforded the same priority as the costs of any sequestration application. I will make an order in those terms.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Burnett FM

Date: 20 September 2010

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[1] [1993] FCA 536; (1993) 46 FCR 225