RED LEA CHICKENS PTY LTD v TANSEY SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KirBY ACJ, CLARKE and SHELLER JJA 17 July 1995, 17 July 1995 [1995] NSWCA 387 JUDGMENTS AND ORDERS — judgment debt payment by instalments — debt of $94,000 — interest accumulating at $829 a month — offer to pay instalments of $400 a month — challenge to order for such instalments — held: (by maj): Discretion miscarried- application rejected. WORDS AND PHRASES — "instalments" Cahill v Howe [1986] VR 630 not folld. JUDGMENTS AND ORDERS - judgment debt - payment by instalments - order in District Court pursuant to Pt31A R2 and R3 District Court Rules for payment of debt of $94,771.88 by instalments of $400 per month - interest accumulating on debt at $829.25 per month under District Court Act 1973, s85 - unless instalments material increase no effective reduction of debt or interest would be accrued - creditor meanwhile prohibited by Rules from taking other proceedings against debtor - on summons for leave to appeal to the Court of Appeal - held: (1) (by the Court): Semble - the payment ordered of $400 per month were "instalments" within the meaning of Pt31A R2 and R3 DCR. Cahill and Anor v Howe [1986] VR 630 not followed; (2) (Kirby ACJ and Sheller JA; Clarke JA dissenting): The instalment order indicated a miscarriage of the discretion of the Judge making it and it should be set aside; (3) (by majority): Upon the exercise by the Court of Appeal of the discretion reposed in the primary Judge, the application for leave to pay by instalments of $400 per month refused. PRACTICE AND PROCEDURE - District Court - judgment debt - payment by instalments - instalments cannot contribute effectively to reduction of debt and accumulating interest - held: (Kirby ACJ and Sheller JA, Clarke JA dissenting): Although semble the payments ordered were "instalments" within the meaning of Pt31A R2 and R3 DCR, the order indicated the application of an incorrect principle and should be set aside releasing both the creditor and the debtor to their rights and duties, including under the Bankruptcy Act. WORDS AND PHRASES - "instalment" District Court Act 1973, s85 District Court Rules Pt31A R2 and R3. ORDERS 1. Extend time which with the claimant may bring its summons for leave to appeal; 2. Grant leave to appeal; 3. Allow the appeal; 4. Set aside the orders of Taylor DCJ; 5. In lieu thereof, order that the application to the District Court for leave to pay the judgment in favour of the appellant by instalments of $400 a month be refused; 6. Order that the instalments that have been paid to date be credited by the appellant to the respondent's debt; and 7. No order as to costs in the District Court. The opponent/respondent to pay the claimant/appellant's costs in this Court but to have, in respect of such costs, a certificate under the Suitors' Fund Act 1951. 2 UNREPORTED JUDGMENTS Kirby ACJ Before the Court is a summons for leave to appeal. There is also a motion to extend time within which the claimant might seek the leave of the Court to appeal. The parties have agreed that, in the event that the Court is minded to grant leave to appeal, the Court should proceed immediately to deal with the substance of the matter. In my opinion that is both a convenient and a proper course. It is the course which I will take. By District Court proceedings No 176/94 in the Parramatta Registry of the District Court, Red Lea Chickens Pty Ltd (the claimant) sued Luconi Pty Ltd and Michael John Tansey (the opponent) for the cost of goods supplied by the claimant to the opponent, namely poultry. It was common ground that the claimant has not been paid either by Luconi Pty Ltd or by the opponent. The opponent was a director of Luconi Pty Ltd. He was sued by the claimant as guarantor of the debt. This was pursuant to a written contract of guarantee between the claimant and the opponent dated 29 March 1993 which has not been disputed. On 2 November 1994 in the District Court proceedings the claimant obtained default judgment both against Luconi Pty Ltd and against the opponent. Judgment was entered in a sum of $94,771.88, including costs of $906. The judgment is not in dispute. Upon the entry of judgment, interest began to accrue on the judgment debt pursuant to s85 of the District Court Act 1973. It continues to accrue at the rate of 10.5% per annum, ie $829.25 a month. On 6 March 1995 the opponent applied to the Registrar of the District Court at Parramatta for leave to pay by instalments the judgment debt entered against him. He proposed payments of $400 a month. He proposed such payments pursuant to Pt31A R2 of the District Court Rules. The application came for hearing before the Registrar of the District Court. However, pursuant to Pt31A R2(4) DCR the Registrar refused to agree to the proposal put to him by the opponent. On 14 March 1995, pursuant to Pt31A R2(6) DCR the Registrar set down the opponent's further application for leave to pay the judgment debt by instalments, for hearing by the District Court on 7 April 1995. On that last mentioned date such second application came for hearing before Taylor DCJ. His Honour granted the opponent's application. He made the instalment order sought. He thereby permitted the opponent to pay the judgment debt at the rate of $400 a month. The first of such instalments was due to be paid on 1 May 1995. The opponent duly paid the first instalment. He has paid the second instalment since. Disappointed both by the non-payment of its debt and by the order of the Judge, the claimant waited for a time to see if the opponent would default in the payment of the instalments agreed to and ordered. However, as I have said the opponent duly paid on the day ordered both the first and second instalments. Faced with the prospect that the opponent would continue to pay the instalments pursuant to the order of the District Court, the claimant belatedly sought leave to appeal to this Court. It did so by a summons filed in the Court on 13 June 1995. The summons ought, under the Rules, to have been filed on or before 21 April 1995. Hence the time default which the claimant seeks to have excused. The Court took the usual course of hearing the argument on the merits before considering the curing of the time default. The opponent could not point to any prejudice by the time default. It has been sufficiently explained by the solicitor for the claimant. Having regard to the view which I take of the merits I would not URJ RED LEA CHICKENS PTY LTD v TANSEY (Kirby ACJ) 3 hesitate to cure the time default. Therefore, the claimant should have the extension of time it seeks within which to move the Court for leave to appeal against the order made by Taylor DCJ. In making his order, the learned Judge said: [1] "The applicant's assets and liabilities are set out in his application. It is clear that his liabilities exceed his assets. This has come about as a result of a business that he was operating being unsuccessful and he apparently used his home as security for the indebtedness to the bank, such indebtedness relating to the business that he conducted. He is having negotiations with the bank to try and encourage the bank to accept the whole of his home and other assets in discharge of his liabilities to the bank which would then leave the Red Lea Chickens indebtedness. The applicant is presently employed by a courier firm and earns $400 a week after taxation and he is offering $400 a month which represents approximately a quarter of his income. It seems to me, in all the circumstances, it is a proper amount for him to pay. The application to pay the judgment debt is approved, the first payment is to be made on | May." The claimant, in this Court, has submitted that, in so ordering, Taylor DCJ erred. The submissions put to the Court have been basically two. The first was that the payment ordered does not conform to the requirements of Pt31A of the District Court Rules. In particular, it is said that the payments are not "instalments" within the meaning of Pt31A R2(7) in that they are not in truth a reduction of the payment of the judgment debt. This is because, as I have said, interest on the judgment debt is accumulating at the rate of $829.25 a month, so that the payment of $400 per month, as ordered by his Honour, is less than half of the interest which is accruing. Even if the payments were continued faithfully by the opponent (as they have been to date) and even if they were debited exclusively to the principal, they would have to continue until the year 2015 simply to reduce the Judgment debt, excluding the accrual of interest in the meantime. If the interest continues to accrue at the present rate it is unlikely, unless there be a variation of the amount of the payments by reason of changes in the asset and income position of the opponent, that the debt will ever be reduced in the lifetime of the opponent. The claimant argued that such payments were therefore not "instalments" of the kind for which the Rule provided. No authority binding on this Court has been placed before us to assist in the resolution of this point. However, the Court has been referred to a decision which was not drawn to the notice of Taylor DCJ. I refer to the decision of Young CJ in Cahill and Anor v Howe [1986] VR 630 (SC), 634. In that case a position arose which was, in some ways, similar to the present. The learned Chief Justice concluded that an order for payment of a judgment debt by instalments should not be made in that case because the proposed instalments would not result in the payment of the amount owing under the judgment together with interest accruing from time to time, but would result in the judgment debtor's incurring an ever-increasing debt. Accordingly, he held that it would not be proper, under rules relevantly similar to the Rule now under this Court's consideration, for the Court to make an order requiring a judgment debtor to pay a very large proportion of his weekly income for the purpose of incurring an ever-increasing debt. The decision of Young CJ is helpful to the Court. However, I would not, myself, rest my decision in this case upon that authority. I say this for two reasons. First, the word "instalments" connotes, to my mind, a regular payment of a portion of the judgment debt with interest. The dictionaries indicate that the 4 UNREPORTED JUDGMENTS word implies an arrangement for the payment of a sum of money by fixed portions at fixed times or different sums at agreed times. Nothing is said about the ratio of the payments or their utility in reduction of the debt. Periodicity is the essence of it The amounts which are being paid under the order of Taylor DCJ are, therefore, in my view, "instalments". Whilst it is true that they do not, on their face, amount to instalments which have the effect of reducing the judgment debt, if they were apportioned in part to the judgment debt and in part to the interest, they would do so. I would, therefore, be disinclined to hold that such payments are not, within the Rule, "instalments". I would not base my decision upon that view of the Rule. Secondly, it was put that the exercise of discretion by the learned Judge miscarried in that the order made was not, in the premises, one such as ought to have been made. In other words, it was argued that it betrayed, on its face, the application of a wrong principle which caused Taylor DCJ's discretion to miscarry. This argument was advanced upon the basis that the instalments will never, at the ordered rate, catch up to the debt. They simply postpone the entitlement of the claimant to take other action such as it may be advised. For example, whilst the instalments continue, the claimant cannot take proceedings against the opponent in bankruptcy. Whilst the claimant is bound to the order of the Judge, it must continue to service the repayment that is made by the opponent. This has its own cost. Such cost is, at least arguably, so inconvenient to the claimant that it should not be bound to incur it. There could be commercial or other reasons why the claimant would wish to write off the debt following steps taken in the Federal Court to bring the opponent under the Bankruptcy Act. The opponent resisted these arguments. He was not represented before this Court. However, he came to Court today and made submissions from the Bar table. I should say that the opponent impressed me as an honourable and decent citizen who wishes to pay the debt to the very highest of his ability to do so. He does not contest his obligation to do so. Indeed, he has said that, even if he be "forced into" bankruptcy, he would continue to pay the debt. That, in his stated opinion, is his moral as well as legal duty. The opponent also submitted that, if he were made bankrupt, that would have serious ramifications for him. These would include consequences for any future business operations in which he might wish to become involved. He, therefore, supported the order made by Taylor DCJ. He said that if, in the future, his financial position were to improve he would increase his payments. However, the payments ordered were instalments to the full extent of his current ability to pay. Whilst accepting the strong expression of the wishes of the opponent and with every respect to Taylor DCJ, I have reached the view that his Honour's discretion did miscarry. Upon the present orders, the claimant and the opponent are locked together in an order of the District Court which will bind the claimant to the opponent indefinitely and prevent any other action which may otherwise be available to the claimant. It will also prevent relief in bankruptcy being available to the opponent himself. Unless circumstances materially change (of which there was no evidence before the Court) the order will require the opponent, in effect, to pay the interest for the rest of his life, without any or any significant reduction of the capital debt. I see no consideration of these matters in the reasons of Taylor DCJ. I am, therefore, of the view that the order made is one in which his Honour's discretion miscarried. It should be set aside. Exercising the discretion afresh for itself, this court should order that the application be refused. This will release the claimant URJ RED LEA CHICKENS PTY LTD v TANSEY (Clarke JA) 5 to reconsider its position and the steps that it should take in furtherance of its interests. It will also ensure that the opponent faces the possibility, including from his own point of view, of drawing a line upon his current financial predicament and facing up to proceedings in Bankruptcy. Under the Bankruptcy Act various solutions are available to meet the predicament of the opponent. It may be that upon those options he needs to give serious consideration in his own interest. The orders which I favour are: 2] 1. Extend time which with the claimant may bring its summons for leave to appeal; 3] 2. Grant leave to appeal; 4] 3. Allow the appeal; 5] 4. Set aside the orders of Taylor DCJ; 6] 5. In lieu thereof, order that the application to the District Court for leave to pay the judgment in favour of the appellant by instalments of $400 a month be refused; 7] 6. Order that the instalments that have been paid to date be credited by the appellant to the respondent's debt; and 8] 7. No order as to costs in the District Court. The opponent/respondent to pay the claimant/appellant's costs in this Court but to have, in respect of such costs, a certificate under the Suitors' Fund Act 1951. Clarke JA The District Court Judge, Judge Taylor DCJ, had a difficult problem. On one hand the instalments offered by the judgment debtor, $400 a month, were insufficient to meet the interest accruing on the judgment debt. On the other hand, the judgment debtor's liabilities exceeded his assets and at the time of the application he was employed by Pope Couriers earning $400 net per week. In the circumstances, his offer of $400 per month represented what appears to me to have been the most generous offer he could reasonably have been expected to make. Unless the fact that the instalments would not cover more than the interest necessitated a refusal of his application, it was necessary for Taylor DCJ to weigh up the competing considerations and in the exercise of his discretion decide whether to allow the application. There were other considerations. As Kirby ACJ has said, the judgment debtor is a patently honest man who has made it plain that he regards it as his moral duty to repay the debt he incurred as a guarantor, who also made it plain that if his condition improves, as he hopes, he will increase his repayments to the judgment creditor. Counsel for the judgment creditor was unable to suggest that the judgment debtor would not meet his promise, nor did it appear to the Court that he was of the ilk that would not honour what he said. If his conditions improve then he will be able to pay greater instalments or, if he fails to do so, it will be open to the judgment creditor to bring an application under Pt31A R3 of the District Court Rules. As I have said, the trial judge was either bound to accept that the offer was so low that the application should be refused, or was entitled, as the Act suggests, to exercise his discretion. He decided to exercise his discretion and to allow the application. I know of no authority which will persuade me that a judge, in the circumstances such as the present, is bound to exercise his discretion only one way. In my opinion the decision falls fairly and squarely within that discretion which will stand unless good reason is shown for setting it aside. As I have indicated, the only reason shown is that the instalments are inadequate to meet 6 UNREPORTED JUDGMENTS more than the interest. In my opinion that factor is a relevant consideration but it was not wholly determinative and there does not appear to me to be any reason to be found in the judgment under appeal to indicate that in any sense the trial judge miscarried in his exercise of discretion. In my opinion he carried out his function in accordance with the statute and not in a way that can be said to be wrong as a matter of discretion. I would be disposed to refuse leave to appeal. Sheller JA I agree that the orders made by Taylor DCJ should be set aside for the reasons given by the Acting Chief Justice. Kirby ACJ: The orders of the Court, by majority, are those which I have provided. 1. Extend time which with the claimant may bring its summons for leave to appeal; Grant leave to appeal; Allow the appeal; Set aside the orders of Taylor DCJ; In lieu thereof, order that the application to the District Court for leave to pay the judgment in favour of the appellant by instalments of $400 a month be refused; 6. Order that the instalments that have been paid to date be credited by the appellant to the respondent's debt; and 7. No order as to costs in the District Court. The opponent/respondent to pay the claimant/appellant's costs in this Court but to have, in respect of such costs, a certificate under the Suitors' Fund Act 1951. wRWN Counsel for the Claimant/Appellant: GJ Nell (Red Lea Chickens) Solicitors for the Claimant/Appellant: MJ Murray and Associates The Opponent/Respondent MJ Tansey appeared in Person.